Hurricane Matthew will pressure the earnings of some insurance underwriters in Florida and other southeast states but is not expected to present a major capital challenge, Fitch Ratings says. Fitch estimates that if the storm results in insured losses in excess of $10 billion, a greater proportion of losses will be borne by reinsurers as opposed to primary companies.
Matthew has impacted several countries in the Caribbean causing significant damage and immeasurable loss of life. The storm has skirted the Florida coastline, generating high winds and storm surge. A continued northern path along the coast would lead to damage in Georgia and the Carolinas. Evaluations of damage related to Matthew will depend heavily on the storm’s ultimate path. Post-storm, it will take significant time to assess industrywide and company-specific insured losses.
Fitch assessed the risks related to the 2016 hurricane season and the Florida homeowner’s insurance market in the report “U.S. Hurricane Season 2016 (A Desk Reference for Insurance Investors)”.
The Florida market has evolved considerably in the last decade. Homeowner’s market share has shifted away from large national writers and state-sponsored Citizens Property Insurance Corp. to a number of smaller Florida homeowners specialists. A lack of storm activity over the last decade has substantially increased the claims paying resources to meet catastrophe losses, such as those arising from Matthew, of both Citizens and state-sponsored reinsurer, the Florida Hurricane Catastrophe Fund (FHCF).
Fitch said the smaller Florida specialist homeowners insurers now hold approximately 60 percent of Florida homeowners insurance market share. The primary insurers with the five largest homeowners exposure in Florida, as measured by statutory 2015 direct written premiums, include Universal Insurance Holding Group, Tower Hill Group, State Farm Mutual Group, Citizens Property Insurance Corporation and Federated National Insurance Company.
“The limited history for the newer specialty insurers means that the resiliency of their balance sheets and claims management functions are relatively untested by a large catastrophe event,” Fitch said. “Loss experience from Matthew will provide insight into the underwriting expertise of the Florida specialist companies and their ability to service a significant amount of claims.”
Property insurers’ writing business in Florida rely heavily on reinsurance protection and other methods to mitigate their risk of extreme loss. As a result, the FHCF, the traditional and collateralized reinsurance markets and the catastrophe bond market, could have meaningful exposure to losses from Matthew. Fitch estimates that FHCF has assumed the largest level of premiums by a wide margin. Among private entities, Lloyd’s of London appears to be the next largest reinsurer followed by Allianz SE; Tokio Marine Holdings, Inc.; Everest Re Group, Ltd.; and XL Group plc.
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