AM Best: Idalia an earnings event for industry with “minimal” impact on reinsurers

Hurricane Idalia will further US insurers’ underwriting results but have minimal impact on reinsurers, which have re-evaluated exposures in Florida in recent years as well as pushing through increased retentions.

In a commentary released on Friday, AM Best said the significant property damage from Idalia “will result in sizeable losses for the insurance industry”.

“On top of above average cat losses in the first half of the year (because of severe convective storms and secondary perils), underwriting results for 2023 will be under pressure,” the commentary said. “Given hardening reinsurance market conditions and increased retentions in the recent past, the impact on reinsurers is expected to be minimal.”

The ratings agency noted that Florida’s property market has become more concentrated in the past two years, with only 15 companies accounting for more than 60 percent of property direct premiums written, compared with 58 percent in 2020.

State-run insurer Citizens Property Insurance Corp’s premiums have nearly quadrupled over the past two years, to $3.2bn in 2022 from $774mn in 2020. This has caused its market share to double to 9.8 percent.

“A few market players, such as Farmers Insurance Group, have publicly announced that they would no longer renew policies in Florida; others, such as State Farm, are maintaining their current presence, leading to ongoing market share movement,” the commentary said.

It added: “As a result of risk reduction efforts from some companies, Florida personal property specialist companies, which account for nearly 37 percent of Florida property DPW, may capture more market share.”

Jason Hopper, associate director, AM Best, said that some reinsurers have been re-evaluating their aggregate exposures and capital allocation targets in Florida because of the significant losses in recent years.

“The losses paid by US reinsurers as a share of premiums assumed from Florida personal property specialists continued to rise in 2022,” Hopper said.

AM Best also highlighted that the premium ceded to non-US captive reinsurers by Floria personal property specialist insurers decreased in 2022, largely due to one company – Tower Hill, whose percentage ceded was steady at 20.1 percent in 2022, compared with 20.4 percent in the previous year, but whose premium ceded dropped to $56.0mn from $106.53mn.

The overall percentage ceded to captives by this group dropped to 3.5 percent in 2022, from 3.9 percent in 2021.

Only two personal property specialist companies cede more than one-fifth of their total ceded premiums to non-US captives – Heritage Property & Casualty (25.5 percent in 2022) and Tower Hill Prime (20.1 percent).

Florida private flood policies growing

AM Best also noted that the number of private flood insurance policies in Florida was up 30 percent in 2022 compared with 2021.

Five companies account for 95 percent of this annual growth, with the largest dollar amount coming from Kin Interinsurance Network, which is the sixth largest insurer by private flood policies in force in the state.

Standalone first-dollar residential policies grew 65 percent in 2022, which drove private flood insurance growth in the state.

Standlone first-dollar residential accounts for 43 percent of Florida private flood in-force premium, while first-dollar residential endorsements account for 35 percent and commercial 16 percent.

The feedback from AM Best follows the early commentary on Idalia suggesting insured losses will be comfortably below $10bn.

BMS has suggested insured losses will be $3bn to $5bn while Gallagher Re estimates a low to mid-single-digit billion dollar loss including payouts from the National Flood Insurance Program.

A preliminary estimate from Karen Clark & Company released on Friday said privately insured losses from Hurricane Idalia are likely to total around $2.2bn.