Florida legislative changes could lower insurer loss rates 25%: Peed, UIHC

Legislative changes undertaken to reform the Florida property insurance space have “mitigated some of the investor and reinsurer negative sentiment” surrounding exposure in the state, according to United Insurance Holdings Corporation CEO Dan Peed.

At the same time, Peed said that industry estimates seem to suggest that the legislative changes could reduce loss rates by approximately 25%.

Adding that his firm does believe the legislative effort will prove effective at mitigating some of the excessive litigation issues seen in Florida over the last few years.

Saying during yesterday’s earnings call for UIHC, “It will take some time for these changes to work their way through the system, but they do appear to have mitigated some of the investor and reinsurer negative sentiment surrounding the future Florida exposure.”

However, the effects are not yet being felt and while Peed believes that investors and reinsurance providers might be feeling more positive about the state now, this isn’t yet helping significantly on the reinsurance renewal front.

“The Florida residential cat market remains extremely hard. It will take some time for the reinsurers and investors to get comfortable with the exposures and challenges that Florida offers,” Peed explained during the earnings call.

Continuing, “While this creates challenges in our reinsurance placement, it also creates an excellent opportunity for both our reinsurers and American Coastal with the number one market share for admitted commercial residential exposure in Florida.

“I expect the market to remain hard for both the near and the intermediate terms.”

It’s important to contrast what are probably modelled projections of a 25% reduction in loss rates with the double-digit inflation experienced and the general perception that reinsurance for the Florida market has been underpriced purely on a severe weather and catastrophe occurrence basis.

Some of our sources suggest that while they do expect the reforms to have a positive effect, in reducing insurer loss experience, prices for reinsurance need to remain much higher than they were even two or three years ago.

So no significant relief expected on the reinsurance pricing front for a while, it seems, but that hasn’t stopped UIHC placing the majority of its reinsurance renewal for June.

“Turning to our June 1 core cat reinsurance program. The market has been supportive with capacity, although risk-adjusted rate increases are up as expected. For American Coastal, we are effectively done with over 100% of the limit authorised and the structure outlined,” Peed said.

As a result, American Coastal, the UIHC commercial property specialist arm, this equates to hurricane protection that exceeds a 160-year return period on a first event basis, with the reinsurance tower running up to an almost $1.1 billion exhaustion point, while having “significantly reduced frequency exposure” given the reduction in UIHC exposure to just Florida under the American Coastal brand, the CEO further explained.

With two “cornerstone quota share partners” within its reinsurance tower, Peed said that the FHCF and FORA limit secured sits higher than in the typical Florida homeowners reinsurance tower, covering over 60% of American Coastal’s limit needs.

This “dilutes the impact of private market rate increases”, Peed said.

Currently, the American Coastal retention is around the $10 million mark, but Peed also noted that this may be reduced through the use of the firm’s captive reinsurance vehicle, UPC Re.

In addition, the American Coastal reinsurance renewal will see reinstatement protection to provide second-event coverage to a 1-in-50 year event, UIHC CFO Brad Martz added.

The other remaining going concern at UIHC is Interboro Insurance Company, which is expected to maintain a $3 million retention and have reinsurance coverage to an $85 million first event level, around a 139 year return period based on AIR.

CFO Martz said that UIHC has “secured all the needed capacity from the private market on fair and reasonable terms.”

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