Florida at inflection point, but long way to regain semblance of normalcy: ALIRT

The Florida property insurance marketplace is still a long way off becoming a stable environment for carriers to operate in, but there are signals that an inflection point has now been reached, which suggests insurance in Florida is on a path towards greater normalcy, according to ALIRT Insurance Research.

The latest analysis report from ALIRT Insurance Research’s Principal David Paul covers the residual insurance market trends being seen across higher catastrophe risk states, which naturally includes Florida.

In general, the states of Florida, California, Texas and Louisiana are seen as some of the least functional, but also those most exposed to catastrophe risks and ultimately climate change as well, driving the need for state-backed solutions, hence the residual market’s existence in each.

Of course, there are issues far beyond catastrophe and climate risk that also affect each of these, such as Florida’s crisis of litigated claims, and California’s rules that have prevented insurers from pricing risk as adequately as they believe is necessary.

Which have added to the flow of insurance policies to the residual markets, which in Florida has driven the significant growth of Citizens Property Insurance Corporation in recent years.

But ALIRT Insurance Research’s David Paul seems to be getting more positive on the outlook for Florida, while highlighting there is still a long way to go.

Once again, the reinsurance market’s ability to respond to Florida’s needs is one of the key drivers of the improving outlook, Paul believes.

ALIRT has previously driven home the important role of catastrophe reinsurance for the Florida focused property insurers, having said that 2022’s hurricane Ian could have sounded a death knell for many of them, were it not for the support they’ve received from their catastrophe reinsurance arrangements.

Now, after the mid-year renewals of 2023, ALIRT is again citing the response of the reinsurance market to Florida’s plight as key in its recovery.

While citing the “retrenchment of global reinsurance markets” as their operating returns have failed to meet hurdles in recent years, ALIRT’s Paul seems pleased with how the market approached the June renewals for Florida.

“They say the night is darkest just before dawn and there have been glimmers of hope lately for Florida Citizens and the state’s property insurance market at large,” Paul explains.

Going on to write that, “Fears that reinsurance capacity would further evaporate at the critical 6/30 renewal period proved unfounded as much higher rates (together with more restrictive terms and conditions and higher attachment points) attracted new reinsurance capital to the market.”

That’s the first reason for an improving outlook for Florida’s property insurance market, in Paul’s and ALIRT’s view.

The second is the fact “a number of new insurers have announced their intention to enter the market.”

Here, ALIRT cites Tower Hill Reciprocal Insurance Exchange, Vyrd Insurance Company, Slide Insurance Company, and Loggerhead Reciprocal Insurance Exchange, founded in 2021-2022, while HCI Group is also launching Tailrow Insurance Company.

In addition, ALIRT highlights one of the rumoured start-ups, Village Protection Insurance, which has been said to be out seeking capital for a 2024 launch into the Florida property insurance marketplace.

Driving this renewed interest is the improved legislative environment, of course, as constituents hope that the enacted legislation of the last year or so begins to prove itself out, in a reduction of some of the issues Florida’s property insurers have been facing.

That has been sufficient to attract some new capital on the reinsurance and insurance-linked securities (ILS) side, while also attracting equity capital to come into new Florida focused insurer start-ups as well.

We’ve heard additional rumours about a large sovereign wealth backer for a new Florida carrier, but have yet to get any firm details on this.

But there are clear signs that the appetite is returning, even though on the reinsurance and ILS fronts it is only returning at much higher attachment points and with much more stringent terms and conditions of coverage.

ALIRT also mentions State Farm’s statement that it intends to maintain a “substantial presence” in Florida homeowners business, given the market reforms which it deems encouraging.

Finally, ALIRT also cites the rising appetite for the Florida Citizens depopulation process, which as we reported recently is starting to pick up pace.

The “no-win situation” that had been predicted did manifest at the June reinsurance renewals for Floridian players, but it seems most were prepared for this and accepted the costs and terms of their reinsurance cover, recognising the need to work with reinsurers and ILS funds to get an outcome that allows trading forwards, while waiting for the effects of the legislative reforms to become more evident.

Leading Paul from ALIRT Insurance Research to sum up that, “While the Florida property insurance market still has a long way to go to regain some semblance of normalcy, the above actions prove that perhaps it is at an important inflection point.”

Read all of our news and analysis on the Florida insurance and reinsurance market.