Hurricane Ian, which hit Florida in recent days, is unlikely to affect credit for rated P&C reinsurers because of ample capital levels and the ability to increase premium rates, said Fitch Ratings.
The company said that Florida insurance specialists that are unrated by Fitch have suffered financial losses and diminished capital in recent years remain vulnerable to large catastrophic events that generate losses more than reinsurance limits.
Florida is expected to have substantial economic and insured losses from hurricane Ian from heavy rainfall, storm surge and flooding.
Based on Fitch’s initial analysis, insured losses could range from $25bn-$40bn for Florida, which could increase depending on the effect of the storm in the Carolinas. This compares to Hurricane Katrina’s $65bn in 2005, winter storm Uri – $15bn in 2021, and Hurricane Ida – $36bn in 2021.
Most large national underwriters do not have substantial market share in Florida and have cut policies in force via non-renewals to manage balance sheet exposure and cost of their reinsurance programs.
Citizens Property Insurance Corporation, which has leading market share in both personal and commercial lines, continues to increase exposure from expansion of policies in force and by assuming business from other Florida specialists.
Despite having the capacity to absorb losses from this event, strain on Citizens and its continued growth adds to the vulnerability of the insurance market to the next catastrophic event. Citizens has stated that Ian will be a reinsurance loss event to the Florida Hurricane Catastrophe Fund, but not a significant event for its private market reinsurers.
Many insurers providing property coverage in the state experienced severe downturns in underwriting performance and capitalization levels in recent years despite no hurricane hitting the state since 2018.
This trend has forced several smaller insurers into liquidation, exacerbating the challenges for policyholders of finding private market homeowners insurance coverage. The hurricane is expected to worsen the reinsurance capacity crisis for insurers, potentially causing the exit of more Florida specialist companies.
Standard homeowners’ insurance does not typically cover flood damage. Private market flood business in the U.S. has grown in recent years but remains less than 1% of industry direct premiums written, with the relatively small exposure limiting the industrywide potential for loss.
Fewer than 10% of homeowners buying insurance purchase primary flood insurance, with even lower take up rates away from the coasts in areas with a more limited historical flood activity.
However, mortgage lenders require flood insurance if a homeowner has a federally backed mortgage and lives in a FEMA high-risk flood zone or if the homeowner has received prior FEMA compensation for flood damage.
Homeowners who purchase flood insurance most commonly do so through the National Flood Insurance Program (NFIP), a government-supported flood insurer run by the Federal Emergency Management Association (FEMA). The expected levels of flooding and storm surges associated with Ian may trigger private market reinsurance coverage of the NFIP.
35% of the NFIP’s policies are underwritten in Florida, by far the highest percentage of any state at just over 1.6m policies.
Private reinsurers, which will likely continue to pull back from the market, would be most exposed to a loss from the NFIP’s catastrophe reinsurance in the case of a major hurricane that led to significant precipitation and storm surge.
If the size of the flood loss approaches Hurricane Harvey’s flood loss in Texas, private market reinsurers could be liable for up to $1.1bn, at which time the NPF paid policyholders over $9bn in claims.