Aon has outlined the three characteristics that enable specialist insurers to “thrive, sometimes profitably, in one of the toughest property insurance markets” in Florida in the US, in a report out today (Thursday 14 February).
The broker’s Florida Homeowners’ ROE Outlook report examines insurers that rose to prominence through significant premium volumes after national insurers withdrew from the market following the 2004-2005 hurricanes.
By aggregating the financial statements and rate filings of 40 legal entities, representing $6.4bn of homeowners’ premiums, the report found domestic Florida specialists were capitalising on three things.
They make use of high levels of reinsurance with catastrophe protection designed to engage as frequently as every three years. They are Demotech-rated carriers with a focus on capital adequacy based on the NAIC’s risk-based capital formula. And these specialist insurers are willing to write business in high risk areas such as Miami-Dade, where Florida Citizens once had more than half of the market.
However, the study highlights two major risks to this group. The possibility of legal and claims-related issues associated with assignment of benefits, which causes loss inflation and increasing pressure on claims adjustment expense ratios. And if hurricane(s) exceed their reinsurance coverage, many insurers might survive a $100bn industry event but are less likely to stay in business for losses above that level.
The study shows that the largest 34 Florida insurers have 90 percent of the market share, with specialists operating at close to 2:1 premium to required surplus ratio.
Paul Eaton, actuarial managing director within Aon’s Reinsurance Solutions, said: “Even with landfalling Florida hurricanes, these insurers can have positive single-digit ROEs of 1 or 2 percent because of the combined protection of the Florida Hurricane Catastrophe Fund and private market reinsurance.”
The report launch coincides with Aon’s annual Florida Insurance Market Summit, hosted with Colodny Fass.
Aon, Specialty, Report, Paul Eaton, North America