St. John's Insurance is the most recent failure, with the Florida Department of Financial Services appointing a receiver and liquidating the company's assets.
Demotech had previously withdrawn St. Johns' financial stability rating, citing insufficient reserves.
Even in the absence of major hurricanes, Florida's homeowners carriers continue to face loss creep and rising loss adjustment expenses, while recent accident year performance has also been challenged.
The push for higher rates continues, and now reinsurance rates are expected to rise further at the mid-year 2022 renewals, with some citing opportunities and others looking to exit an insurance market that many regard as dysfunctional.
With assignment of benefit (AOB) claims continuing to rise in Florida and the pace of claims litigation deemed concerning, there is currently no indication of any significant market improvement emerging, while carriers continue to push for significant rate increases to cover their expenses and loss costs.
The Department of Financial Services stated that "the Department has entered into an agreement with Slide Insurance Company ("Slide"), which will transition policies to Slide and provide policyholders with continued insurance coverage beginning on March 1, 2022."
Bruce Lucas, the former CEO of Heritage, founded Slide, an insurtech property insurer.
"I have done a lot of very successful deals in my career, but I have never been able to process millions of data points at this speed," Lucas said of a deal in which his startup assumes a $400 million premium just months into its existence. In 48 hours, we processed $73.7 billion in annual TIV, claims data from multiple years, projected reinsurance costs, and forward-modeled loss ratios. I don't believe another insurtech could have analyzed and closed this complex transaction at this speed."
A number of other Florida carriers are currently considered to be at risk of failure, with some ceasing to write new homeowner business and others attempting to recapitalize in order to survive the pressures they face.
With approximately 160,000 policyholders, Florida's St. John's Insurance was the eighth largest in the state.
Analysts at ALIRT Research commented on the latest Florida P&C insurance failure, saying, "News today of yet another Florida domestic insurer insolvency (St. Johns Insurance Company, Inc.) further supports the argument that an artificially-priced insurance market eventually comes apart."
"The challenge of maintaining "affordable" homeowners rates in a state with not only a higher annual risk of significant windstorm losses but also an active trial bar does not bode well for the region's remaining domestic insurers."
According to ALIRT, the insurance market in Florida has experienced significant value destruction, with many companies failing to establish a sustainable business there.
"To give an idea of the value destruction in Florida's homeowners market, ALIRT has tracked 69 smaller Florida-dedicated homeowners insurers over the past 20 years (excluding subsidiaries of national insurance groups), 13 have merged with others of their peers, 6 are currently in run-off, and 15 have become insolvent." According to the analysts, "doing the math, this implies that nearly half have not been able to make a go of it."
It's a dismal track record for the Florida insurance market, and it appears that it's only going to get worse before it gets better.
Demotech is said to be considering additional rating moves, while the more undercapitalized Florida property insurers may face a tumultuous reinsurance renewal, with higher rates and much more onerous terms.
In fact, some insurers may find it difficult to obtain reinsurance backing, as why would you throw good money after bad if you were a reinsurer or ILS fund that had been hit by years of losses and loss creep?
Add to this the expansion of Florida Citizens and its plans to downsize, and you have an interesting situation that appears to be solved only by continued price increases or more efficient business models and capital.
Unless carriers are allowed to charge much higher rates to the policyholders they pick up, it appears unlikely that carriers will queue up for depopulation from Citizens.
At the same time, reinsurance capital will be in high demand on June 1st.
Previously, we would have suggested that alternative capital-backed efforts, such as those undertaken by Nephila Capital, had the best chance of depopulation.
But, for the time being, even that is unlikely to happen without significant rate increases to make it more appealing to assume more Florida property risks.
Even the most efficient capital, value chains, and business models have a limited appetite in certain areas of the Florida homeowners market right now, which is why Citizens and others may become even more reliant on reinsurance and capital markets, as they will require capital that can absorb volatility to help them get through this difficult period.
But, of course, reinsurance capital comes at a cost, and that cost has been rising this year.