The group of largely Demotech-rated carriers that dominate Florida’s homeowners insurance market typically outperform the subsidiary operations of national insurers operating in the state in years hit by hurricanes, according to a report by Aon.


The report from the broker’s Reinsurance Solutions (ARS) business found that in years when hurricanes don’t make landfall Florida specialists generate an average 17 percent return on equity (ROE).

But even in years hit by landfalling Florida hurricanes, these specialist carriers can have positive single-digit ROEs of one or two percent because of the protection they buy from the Florida Hurricane Catastrophe Fund and private market reinsurance, said ARS actuarial managing director Paul Eaton.

The book of Florida homeowners written by the specialist carriers models to a combined ratio of 100, with 13 of the state’s 67 counties showing combined ratios above 100 percent.

In contrast, the book written by Florida subsidiaries of national carriers such as Allstate, Nationwide, Travelers and State Farm models at a lower combined ratio of 85 percent, with sub-100 ratios in all 67 counties.

But while they achieve positive ROEs on average, the group models to a negative 23 percent ROE in years when hurricanes hit, reflecting the higher net catastrophe retentions the companies hold.

The report found that the Florida specialists have a two-thirds market share of the largest personal property market in the US, generating more than $6bn in premium volume.

Florida specialists build market share

It revealed that the largest 34 Florida insurers have 90 percent of the market share, with specialist carriers operating at close to a 2:1 premium to required surplus ratio.

“Insurers’ reinsurance buying stance, which tends towards low-attaching occurrence treaties, keeps net loss levels in catastrophe years within a safe margin of available capital and thereby facilitates higher levels of leverage while still meeting their Demotech rating requirements,” it continued.

Florida specialists have grown strongly over the last eight years, taking a dominant position in the marketplace.

They have also demonstrated a willingness to write business in high risk countries such as Miami-Dade – in part through their strategy of depopulating state-backed Florida Citizens, which once had more than half of the market.

And ARS cautioned against tailwinds that could negatively impact the group of Florida specialists.

The first is the much-discussed assignment of benefits issue, which continues to dog carriers with loss inflation and upwards pressure on claims adjustment expense ratios.

But Florida specialists also face the risk of a hurricane or series of hurricanes of sufficient magnitude to bow through their reinsurance covers.

“Many insurers might survive a $100bn industry event but survivability drops precipitously for some on losses above that level,” said the report.