Florida’s insurance market made a significant change during the 2023 mid-year renewal, providing a much-needed boost to the state’s insurers, according to Aon’s Reinsurance Market Dynamics report. .
Despite post-Hurricane Ian concerns about a possible lack of capacity for Florida-based insurers, catastrophe reinsurance capacity will be accessible during the mid-year renewal period, although there cost.
Compared to 2022, Florida entered the transition in a stronger position, due to many positive factors that contributed to the stabilization of the market and attracted new capacity. One of the most influential factors is the implementation of state tort reform, which aims to address abuses within the legal system.
As tort reform begins to take effect and lower overall loss costs, it is expected to attract insurance and reinsurance capital back into the market.
In addition, the improved terms and conditions resulting from the reform are likely to attract more state reinsurance capacity in the future.
Although it is early days, there are encouraging signs of future growth opportunities for insurers and reinsurers in Florida. The continued growth of Florida’s windstorm insurer of last resort, Citizens Property Insurance Corporation, creates opportunities for profitable downsizing, which will further stimulate the market.
Capacity for Florida-domiciled insurers played as expected, with general availability, especially in the upper layers where some programs are overlined. Improved certainty and rising rates have prompted reinsurance capital to flow back to Florida, with several emerging markets to provide more significant support.
The mid-year change also benefits from the certainty of the state’s reinsurance support programs. The completed Florida Optional Reinsurance Assistance Program (FORA) legislation and the Reinsurance to Assist Policyholders (RAP) program, signed into law in May 2022, provide valuable support.
Insurers who deferred to RAP last year benefited from increased capacity in the lower-middle tiers of the program, where capacity is most constrained. Although only a small number of insurers have access to FORA’s capacity, the program serves as a useful backstop to the traditional reinsurance market, allowing insurers to plan around it.
However, challenges remain, especially regarding last year’s accident results. To implement the commutation, companies must file their final proof of loss for Hurricane Irma with the Florida Hurricane Catastrophe Fund before June 1, 2023.
Unfavorable developments following the final FHCF settlement could result in unexpected net retention for insurers, considering that most of them inure their FHCF coverage in their open market coverage towers to a deemed limit of basis.
Captive reinsurers continue to play a meaningful role in mid-year renewals, easing pressure on the lowest tiers of insurer programs. With the relatively low frequency of catastrophic losses in Florida, the revenues obtained from the lower-layer captive deals in 2022 are rolled over to 2023, providing valuable capacity for insurers.
