Demotech calls for Florida market reform with rating downgrades likely

With the focus in Florida’s property insurance market shifting towards an impending reinsurance renewal that is anticipated to be particularly challenging, rating agency Demotech has called for urgent legislative reforms and warned that a number of carriers are facing downgrades in the coming weeks.

Writing to the Governor of Florida, Ron DeSantis, Demotech President Joseph L. Petrelli explained that without reform, Florida’s property insurance market problems are only going to worsen.

Attempts have of course been made to enact legislative reforms, but the 2022 Florida Legislative session ended without any passage of property insurance reform bills.

Demotech’s Petrelli has joined the calls for an urgent special session to be held, in advance of the reinsurance renewals, which he explained could, with the right measures taken, ward off rating actions for some of the companies seen as most likely to be affected.

Explaining the importance of renewed legislative efforts, Petrelli wrote, “The conditions of the property insurance marketplace in Florida are unsustainable and, without the necessary corrective action, many Florida insurers will struggle to maintain adequate surplus, efficient capital sources will avoid the market, private reinsurance costs will become prohibitively expensive, and consumers will ultimately bear the cost.”

Some of these are already well underway and accelerating in Florida, making a response to them all the more urgent.

He went on to explain that some carriers are particularly at-risk, “Based upon the most recently reported operating results, as well as historical operating results of the insurers we review and rate, and if current market conditions remain in place, we anticipate that we will downgrade the Financial Stability Ratings assigned to a number of companies in the coming weeks.”

However, legislative reform, if targeted and meaningful, could save some carriers in Florida from rating actions, Petrelli believes.

“We believe that certain meaningful and significant legislative reform, if enacted during a special session prior to the most common renewal date for reinsurance treaties, June 1, may create circumstances permitting us to maintain ratings for some of those insurers currently expected to be downgraded,” he explained.

Three key areas should be focused on, if a special legislative session was called, including: reform intended to minimise litigation; The Florida Hurricane Catastrophe Fund’s suspension of the rapid cash build-up; and The Florida Hurricane Catastrophe Fund’s capability to provide the lower level attachment points required to maintain the net catastrophe retentions of carriers at a reasonable level, Petrelli’s letter explains.

“We believe the sustainability of the Florida property insurance marketplace and the financial stability of the insurers operating in Florida depend upon immediate, meaningful legislative action. Further, the timing of any legislative action is of utmost importance as reinsurance negotiations are ongoing in advance of June 1, 2022, reinsurance renewal dates,” Petrelli urged.

These seem to be the minimum level of reform required to enable some carriers to sustain their ratings at an adequate level, but perhaps not for all at-risk carriers.

But more reform is needed longer-term and the chances of anything getting enacted before the renewal season this year are slimmer by the day.

Also read:

Florida Citizens targets “the best deal we can get” on risk transfer: Montero.

No quick fix as Florida property insurance reforms fail to pass.