Florida’s home insurance market: domiciled insurers persist

At the outset of 2006, the 21 Florida-domiciled insurers rated A or better by Demotech Inc., had an 18 percent share of the voluntary market. Their total 2005 writings were $977 million. Over a dozen have begun writing within the past two years. Approximately 20 other Florida domiciled P&C insurance companies have been reviewed and not assigned a Financial Stability Rating at the A level.

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The financial stability of many of Florida’s domiciled homeowners insurance market is a surprising aspect of the state’s very troubled homeowner insurance market and its insurers.

Catastrophe modeling, reinsurance, and conservative
management practices have kept this class of insurers very much alive.

In 2005, these unheralded insurers wrote their highest share of the voluntary market within the past 10 years. And it is likely their market share will increase in the next few years.

The number of homeowners’ insurance carriers domiciled or dedicated to Florida has increased. Only one Florida domiciled insurer has failed in the past few years directly due directly to the onslaught of several events.

As an insurer rating service, Demotech covers the regional home insurer market in Florida.

Florida carriers

At the outset of 2006, the 21 Florida-domiciled insurers rated A or better by Demotech Inc., had an 18 percent share of the voluntary market.

Their total 2005 writings were $977 million. Over a dozen have begun writing within the past two years. Approximately 20 other Florida domiciled P&C insurance companies have been reviewed and not assigned a Financial Stability Rating at the A level.

Five non-domiciled carriers dedicated to Florida had a 2005 market share of 14 percent. They include two Allstate, one Nationwide, and two Encompass entities. Demotech expects this share to stabilize in 2006. These five carriers have earned FSRs at the A level and above.

Only one domiciled insurer, American Superior Insurance, has failed. Within a two-week period in 2004, four hurricanes and a tropical storm struck the Panhandle, where American Superior’s business was concentrated. Rated A by Demotech from 1997 through mid-2004, it was placed under state supervision Sept. 29, 2004.

Despite American Superior’s excellent liquidity, the Florida Insurance Guaranty Association was contacted, as rehabilitation was not an option.

Three other Florida domiciled insurers controlled by the Poe Financial Group are now largely in the hands of state officials. Demotech ceased following and rating these three carriers in 2004 or early 2005.

Several factors are behind the growing numbers of Florida-domiciled homeowner insurers and their financial stability:

• In-state in-vestors usually capitalize them, and seasoned insurance professionals run them efficiently. • Their CEOs tend to have extensive knowledge of their geographic markets and are experienced in procuring catastrophe reinsurance.

• These domiciled insurers engage at least two of the three nationally recognized catastrophe-modeling firms. As required by state regulators, they use the more pessimistic forecasts to craft their marketing and reinsurance plans. This lends a very high degree of transparency to their management decisions.

• They typically cede over half of their exposure to reinsurers.

Demotech evaluates the financial stability of a primary carrier’s reinsurer as part of its rating audit. The net effect of such a large ceding strategy is that cost of reinsurance is high, but loss ratios tend to be low.

The domiciled insurers reviewed by Demotech have not had a problem obtaining reinsurance from a stable reinsurer.

The Florida homeowners’ insurance market will continue to show growth and financial stability over the next few years. Rate levels must continue to be adequate, catastrophe models must continue to be updated and revised and reinsurance must remain attainable. Availability is the central issue; affordability is a relative term.

Joseph L. Petrelli, Sr, is president and founder, Demotech, Inc., 2941 Donnylane Blvd., Columbus, Ohio 43235. Email: jpetrelli@demotech.com Website: www.demotech.com

Topics Florida Trends Carriers Reinsurance Homeowners Market