Florida: An industry in collapse as roller-coaster ride continues for Citizens

The roller-coaster ride for Florida’s Citizens Property Insurance Corporation continues, with the insurer of last resort’s policy count continuing to rise, as a Senator in the state noted that Florida’s property insurance industry is in “collapse”.

Florida Citizens held its latest Governing Board meeting yesterday, revealing ongoing growth in terms of policy count and exposure and drawing strong words from President Barry Gilway, as well as legislators from the state.

Discussing the continued growth of Florida Citizens, Gilway explained, “This clearly shows that Citizens has been a roller-coaster ride since its formation in 2002. Customer count increases or decreases depending on the profitability of the private market.

“In fact, more specifically, the roller- coaster ride has been a direct result of the insolvencies over time due to industry unprofitability. Companies become insolvent and the business moves into Citizens to stabilize the market.”

He gave some stark figures on just how unsuccessful the majority of Florida property insurance carriers have been over the years.

Between 1984 and 2021 some 370 different companies have written homeowners business in Florida, but on average, in any given year, only 103 companies compete for that business in the state.

Shockingly though, only 8 of those companies were still underwriting homeowners property insurance business in Florida as of 2021, showing that a significant majority of companies have failed over the years and continuity in the market has been extremely limited for policyholders.

“This really speaks to market instability, not just today but over time,” Gilway said.

Adding that, “We are now a market dominated by Domestic Insurers that tend to be smaller companies more reliant on reinsurance and the capital markets.”

Those companies tend to be far less stable, Gilway continued to explain.

In addition, “The lack of stability and reliance on reinsurance clearly is also having a significant impact on Citizens numbers driving the customer counts upward once again,” he said.

He said that pricing is being driven to a large degree by reinsurance costs, making up 40% to 50% of each premium dollar. But he added that “reinsurance capacity is not only driven by storm activity but by litigation and the loss development trends resulting from the increased litigation.”

Florida Citizens has eclipsed 1 million of policies and its exposure had reached $360 billion.

Gilway pointed out that, “While the growth rate is increasing, the impact of recent insolvencies clearly had an impact of the level of growth, however you cannot ignore the fact that the new business per month has been averaging over 60,000 for the past few months.”

Florida Citizens market share is 13% across Florida and expected to hit 15% by the end of the year, but in counties like Miami Dade it is far higher at 39% and in Monroe a huge 71%.

Citizens peak, back in 2011, saw the insurer of last resort become the insurer of 23% of the states relevant policies, so it is still some way off becoming so key to Florida’s property insurance market, but with the current trajectory and no sign of any changes that stabilise the market, it has to be seen as possible (absent significant reforms).

Gilway does believe the recent special session property insurance reforms will have some positive effect, but how much is hard to judge.

“I do believe that SB76 and Special Session Legislation, particularly the AOB changes, will have an impact over time. But as you can see in the next exhibit the combined litigation numbers for the industry and for Citizens has not yet experienced the benefit of the legislation that has been passed, in fact the driver for the increase continues to be AOB,” he told the Board.

He also noted that Florida’s property insurers are heading for another negative year, “projected to again exceed a $1 billion loss by year end when timing of reinsurance payments is considered.”

“If these numbers remain in the Red, then Investors and Reinsurers are going to remain wary of jumping into the market again to provide capacity,” Gilway cautioned.

Gilway went on to highlight the potential opportunity for investors, which is perhaps referring to a coming depopulation wave we can expect to see, as well as for Citizens own use of reinsurance capital from multiple sources.

Gilway said that “As Citizens grows the overall quality of the book is improving. We have been adding more preferred policies, that are clearly not residual policies, an example would be 4% of our policies are homes less than 10 years old.

“This provides significant opportunities to attract investors and convince financially stable companies to write more business.

“To attract investors, Citizens rates must not be more competitive than private market rates and the Legislature must address the continuing litigation crisis.”

The improving quality of the Florida Citizens portfolio of property risks could also be a factor that can assist it in securing larger amounts of reinsurance capital, including through catastrophe bonds.

It should be an attractive feature of the book, that the risk is becoming more balanced as more higher-quality property stock is insured, as other carriers failed.

If Citizens can attract capital on both the outwards reinsurance side, as well as through depopulation, we could see another shrinking of Florida Citizens in future.