2022-Florida’s Failing Insurers – Who’s Next?

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Florida’s owners insurance coverage market is in a deadly, precarious place. Florida has not been struck by a hurricane since 2018, but there have been seven Florida insurer insolvencies within the current hurricane-free years, together with three to this point this 12 months. Hurricane Andrew, which induced $31 billion (inflation-adjusted) in insured losses in 1992, additionally induced seven Florida insurers to topple three a long time in the past. If seven Florida insurers have failed within the present interval bereft of hurricanes, what number of extra Florida insurers will fall when hurricanes make their inevitable return to the peninsula and the panhandle?

1992-1993 Failures from Hurricane Andrew Variety of Fla. House owner Insurance coverage Insurance policies 2017-2022 (by means of April 28) Failures Variety of Fla. House owner Insurance coverage Insurance policies
Regency Insurance coverage 10,902 Federated Nationwide Insurance coverage (scores downgrade) 152,000
MCA Insurance coverage 12,000 St. Johns Insurance coverage Firm 140,000
Great Republic Insurance coverage Firm 5,395 Avatar Property & Casualty Insurance coverage Firm 42,000
Ocean Casualty Insurance coverage Firm 21,000 Gulfstream Property & Casualty Insurance coverage Firm 33,000
Florida Hearth & Casualty Insurance coverage Firm 11,000 American Capital Assurance Company 2,300
Nova Southern Insurance coverage Firm 9,300 Florida Specialty Insurance coverage Firm 90,000
Guardian Property & Casualty Insurance coverage Firm 9,355 Sawgrass Mutual Insurance coverage Firm 17,778

In trying on the post-Andrew insurer failures in comparison with at present’s points, there are some troubling considerations. The seven Florida insurers that fell in 1992-1993 have been small gamers, lightweights and flyweights, with roughly 80,000 insurance policies mixed. The current failures included bigger insurers, cumulatively overlaying 461,000 policyholders, shut to five p.c of the Sunshine State’s housing stock. What’s extra, Hurricane Andrew catalyzed the event and use of data-driven disaster fashions that allow insurers to grasp and handle their publicity to pure catastrophe occasions. Publish-Andrew, insurers had a a lot better sense of their danger accumulations, and have become extra subtle of their purchases of reinsurance to guard towards publicity concentrations that would result in outsized losses. But with all of at present’s danger administration instruments, insurers are collapsing extra typically than within the days earlier than modeling.

Failures of property and casualty (P&C) insurance coverage firms are uncommon occasions. Insurers sometimes have fortress steadiness sheets, with property a number of occasions their annual revenues to generate funding revenue, offsetting underwriting losses. In all the P&C trade, with roughly 2,900 U.S.-domiciled insurers, the variety of annual impairments is often within the low-medium single digits, or 0.2 p.c of the entire inhabitants. There have been solely 5 impairments of U.S. P&C insurers in 2019, 4 in 2018 and 7 in 2017. The truth that there at the moment are a number of Florida insurers failing annually at a time when the state has been spared from landfalling hurricanes must be a trigger for alarm.

When Middleweights Fall

One other regarding characteristic of the present string of Florida insurer failures is that one of many fallen is the publicly traded Federated Nationwide (FedNat) Insurance coverage, a middleweight provider with $584 million in 2021 internet written premium. In its 2021 10-Ok kind, launched on April 25, 2022, FedNat reported “The Firm has lately concluded that there’s substantial doubt concerning its capability to proceed as a going concern beneath Usually Accepted Accounting Rules.”

Most of FedNat’s enterprise is in Florida, but it surely had the misfortune of writing owners insurance coverage in Texas and Louisiana as nicely—states that have been battered by storms in 2021 (winter storm Uri and hurricane Ida). The FedNat Group holding firm contains three insurers: FedNat Insurance coverage, Monarch Nationwide Insurance coverage Firm and Maison Insurance coverage Firm. Florida accounted for 71.1 p.c of FedNat’s premium, adopted by Texas with 13.0 p.c, Louisiana at 7.2 p.c, South Carolina at 6.5 p.c and Alabama at 1.6 p.c.

FedNat’s fall will not be attributed solely to Uri and Ida. The corporate had poor underwriting efficiency in years prior to 2021. The mixed ratio, a measure of underwriting profitability or lack thereof was elevated, with massive underwriting losses in 4 of the previous 5 years. A mixed ratio over one hundred pc signifies an underwriting loss, with losses and bills outstripping premium.

Yr Mixed Ratio (%)
2017 110.0
2018 98.4
2019 110.0
2020 145.1
2021 185.1

(Supply: S&P Global)

No Easy Resolution

We’ve got analyzed the foundation reason for the Florida insurance coverage disaster, and have put forth really helpful responses in a current article and blog post. Our evaluation concludes that the reason for the Florida insurance coverage disaster will not be the climate. It’s a man-made disaster, not a pure disaster disaster. It’s an explosion in litigation enabled by a authorized and legislative local weather that has stoked loss frequency and severity to the breaking level.

Previously decade, Florida’s insurance coverage market has limped from one disaster to a different, pushed by litigation surrounding sinkholes, mould, building defect, water harm, one-way lawyer charges, task of advantages and unscrupulous roof contractors. Like a severely ailing affected person with many co-morbidities, there isn’t any easy treatment that may remedy the Florida insurance coverage mess. The Florida Legislature plans to have a particular session through the week of Could 23 to handle and deal with these points. The issue is probably going too advanced to anticipate significant options to emerge this month, however we will hope for constructive dialogue and fact-based evaluation. However within the meantime, the query is: who would be the subsequent to fall?

Prime 25 Florida Insurers 2021 Direct Written Premium (in $ hundreds of thousands)
Common Property & Casualty Insurance coverage 1,300
Residents Property Insurance coverage Company 1,260
State Farm Insurance coverage 827
Tower Hill Insurance coverage Group, LLC 642
Progressive Insurance coverage 541
USAA 509
First Protecting Insurance coverage Firm 482
HCI Group, Inc. 482
Florida Peninsula Insurance coverage Firm 466
Heritage Insurance coverage 405
UPC Insurance coverage 401
FedNat Insurance coverage Firm 362
American Integrity Insurance coverage 345
Chubb 338
Allstate Insurance coverage Firm 322
Safety First Insurance coverage Firm 306
AIG 263
Tokio Marine HCC 218
Olympus Insurance coverage Firm 204
Folks’s Belief Insurance coverage 194
Farmers Insurance coverage 184
Auto Membership Insurance coverage Firm of Florida 145
Southern Farm Bureau 142
Florida Household Insurance coverage Firm 139
Southern Oak Insurance coverage Firm 132

(Supply: S&P Global)

Subjects
Carriers
Florida

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