Florida Regulators ‘Encouraged’ by Insurers’ Stress Test Results

By | October 29, 2015

Florida property insurers are well-capitalized and able to handle a 1-in-100 year storm event if and when it occurs in the state, according to the Florida Office of Insurance’s 2015 Data Call and subsequent stress test report.

The annual Reinsurance Data Call conducted by OIR is part of its efforts to routinely monitor the financial strength of Florida property insurance companies. In an effort to “bolster consumer confidence levels,” Florida Chief Financial Officer Jeff Atwater asked Florida Insurance Commissioner Kevin McCarty to strengthen the financial stress tests insurers in the state are put through and to share the results with Florida’s policyholders, a statement from Atwater’s office said.

OIR released its findings this month in its “2015 Report of the Catastrophe Stress Test.”

“Florida has the unique characteristic of having the largest exposure to catastrophic hurricane risk of any state in the U.S. This characteristic puts Florida’s property insurance companies at a heightened level of risk and requires that Florida insurance regulators take a more in-depth look at the financial condition of insurance companies in this context,” the report said.

Data Call

OIR’s criteria for which property insurance companies participate in the Data Call is based on the Annual Financial Statement and Quarterly Supplement Reporting System – Next Generation (QUASRng) and includes:

  • Any property insurance company, excluding Citizens Property Insurance Corp., that ranks in the top 50 in terms of policies in force.
  • Any Florida-based property insurance company that ranks in the top 100 in terms of policies in force.
  • Any company whose Florida written premium in the property lines of business exceeds 25 percent of the company’s surplus (property lines of business means Fire, Allied Lines, Homeowners Multiple Peril, Inland Marine, and Commercial Multiple Peril for the purpose of the report).
  • Any property insurance company whose Florida total insured value as filed in QUASRng exceeds 300 percent of the company’s surplus.
  • Any newly licensed Florida-based property insurance company.
  • Any property insurance company with significant Florida exposure or operations that justifies inclusion in the Data Call.

Parts 1, 2 and 3 of the Data Call are conducted between April and August and starts with the estimate of what insurance companies plan to purchase for reinsurance (Part 1). Companies then must submit the actual amount of reinsurance purchased (Part 2) by July 15. The final call, also due by July 15 (or August 15 for July 1 renewal) includes information about the reinsurance companies that were used on the insurance company’s program.

OIR reported that 112 companies were directed to participate in the 2015 Data Call but the Office ultimately reviewed 90 programs because of companies’ participation in consolidated programs.

According to OIR’s report, of the 112 insurance companies that participated in the Data Call, all demonstrated the purchase of reinsurance to a 1-in-100 year level or higher, which indicates they are adequately reinsured for a 1-in-100 year catastrophe event.

Stress Test

In an effort to provide additional information about Florida insurance companies’ abilities to withstand catastrophic storm losses, OIR developed the Catastrophe Stress Test in consultation with insurance companies, reinsurance brokers and economists. It was designed to be submitted by the selected insurance company at the same time as Part 2 of the Data Call.

The stress test examined each of the participating property insurance company’s ability to respond to the impact of historical storm scenarios. In order to pass the test, companies must a carry post-event surplus greater than a minimum set in Florida law. Arriving at the required post-event surplus is a combination of an insurance company’s existing surplus, as well as the reinsurance program the company has in place to protect that surplus amount.

This year, three historical storm scenarios were used: the 1947 Fort Lauderdale hurricane; the 1921 Tampa Bay hurricane; and the four hurricanes of 2004, Hurricanes Charley, Frances, Ivan and Jeanne.

Insurance companies were required to model expected losses from each of the three storm scenarios using the hurricane model employed in its most recent rate filing. After determining the modeled loss, insurance companies were required to apply the reinsurance program purchased for the 2015 hurricane season to calculate the net loss associated with each storm scenario.

During the 2015 season, each of the 67 participating companies ultimately passed the test (only domestic insurers, Citizens and four other non-Florida domestic companies with significant market share were directed to participate).

“Successful completion of the Catastrophe Stress Test does not guarantee the performance of any insurance company,” the report states. “But it is a reasonable indicator of its ability to withstand catastrophic losses.”

OIR states that although the hurricane loss projections in the report are only estimates, the results of the Catastrophe Stress Test “are nonetheless encouraging.”

“Based on the information provided by insurance companies and the review and analysis conducted by the Office, each insurance company in the Catastrophe Stress Test demonstrated an ability to pay for losses associated with a 1-in-100 year event as well as the capacity to successfully withstand three specific storm scenarios,” the report states.

CFO Atwater said policyholders in the state should be reassured by the results and plans to work with McCarty in developing “an even better test next year.”

“Companies large and small go through annual financial tests to make sure they are well-managed and able to deliver and remain viable when the next hurricane hits Florida’s shores, but the results have not been made public in a way that’s meaningful to the consumer,” Atwater said. “Consumers deserve to have confidence in their carrier, and we’ll continue to share information that shows the processes that are undertaken to test their financial strength.”

The entire report can be viewed below.

About Amy O'Connor

O'Connor is the Southeast editor for Insurance Journal and associate editor of MyNewMarkets.com. More from Amy O'Connor

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