Report: ‘Long-term solutions’ needed for insurance

TALLAHASSEE — With Florida lawmakers poised to start a special legislative session, a financial-ratings agency issued a report Thursday that warned about the possibility of additional insolvencies of property insurers and said long-term changes are needed in the state's troubled insurance market.

The AM Best report pointed to issues such as the market's heavy reliance on Florida-based insurers, which it said have "weaker balance sheets than the larger national carriers and are overly dependent on reinsurance for balance sheet protection/short-term capital."

"Long-term solutions are the only way to attract large national players as well as new capital back to the market in earnest; however, carriers are unlikely to take such a step until necessary reforms have taken hold and once prevailing rates are sufficient to cover the risks they must bear," the report said. "If the overall risk profile of the state does not improve, Florida specialist carriers (Florida-based companies) may find it difficult to survive."

The report focused, in part, on reinsurance, which is backup coverage that insurers buy to help pay claims for such things as hurricanes. Florida-based carriers rely heavily on reinsurance, but prices have soared and coverage has become harder to find.

"Because of the material losses in Florida in recent years, some reinsurers have been re-evaluating their aggregate exposures and capital allocation targets and have pulled back from the Florida property market or raised prices significantly," the report said. "AM Best expects that reinsurers will continue to deploy their capital in areas with more promising profit potential."

The report highlights a complicated stew of issues that face lawmakers as they prepare to start the special legislative session Monday. As of Thursday morning, detailed bills had not been released, but leaders issued a session proclamation this week that outlined a series of major issues that could be addressed, such as curbing lawsuits and boosting the availability of reinsurance.

The market has nosedived over the past two years, with private insurers dropping hundreds of thousands of policies and seeking hefty rate hikes because of financial losses.

As an illustration of the problems, six insurers have been deemed insolvent this year and gone into receivership. As another illustration, the state-backed Citizens Property Insurance Corp., which was created as an insurer of last resort, has seen its policy count more than double during the past two years to 1.13 million.

Lawmakers held a special session in May and took steps such as providing $2 billion to help insurers with reinsurance coverage. But while describing the May steps as "slightly positive," the AM Best report said they "did not go far enough to address the crisis in the state's property insurance market."

"The combination of a catastrophe-exposed state with a highly litigious environment has resulted in a very high-cost homeowners insurance market in Florida," the report said. "This higher risk and higher cost environment needs to be considered to ensure there are dollars available to pay insurance claims. Without changes to reduce the costs in the system and better manage the impact of catastrophes, further insolvencies are likely."

During a meeting Wednesday, Citizens Property Insurance President and CEO Barry Gilway said the market was already in "bad shape" before the Category 4 Hurricane Ian slammed into Southwest Florida on Sept. 28 and caused damage across the state.

But Ian added to the problems, with Gilway saying insurers lost large amounts of "surplus" — essentially financial cushion — because of Ian claims.

Gilway said a key issue is whether private insurers can attract enough investment capital to remain in business and raised the possibility that short-term state support could be needed.

The AM Best report detailed how large national insurance companies have dramatically limited coverage they are willing to write in Florida. It said the top five writers of homeowners' insurance account for more than 50 percent of premiums written in other states and the District of Columbia. They write only 15 percent in the Florida market.

"Public policy initiatives need to consider how to make Florida attractive to national insurers and reinsurers, to incentivize them to expand their appetite for Florida risks," the report said. "Absent that, a lack of competition may continue to fuel affordability issues for primary insurers with respect to reinsurance and consumers in need of basic homeowners' coverage."