The increase in 2019 compares to a previous mandate that required Floridian insurers to have catastrophe reinsurance protection on a first event to a 1-in-100 year loss event.
Demotech states that prior to deciding to enhance its vertical cat reinsurance protection requirements, it reviewed the last several years of actual purchases made within its rated universe.
“It appears to us that only 16 insurers will be impacted by our enhanced requirement for vertical limit of first event. This relatively low number is a tribute to the breadth and strength of the catastrophe reinsurance programs that Demotech rated carriers have had in place for decades,” explains the firm.
As well as increasing its reinsurance requirements, Demotech is enabling greater flexibility in the way protection is structured higher up the reinsurance tower, for second and subsequent loss events.
Demotech, which reviews and rates more than fifty carriers that are actively focused on the state of Florida, notes that it internally discusses the situation in the state regularly. Adding that on occasion it might share its views surrounding reinsurance requirements with third-parties.
“As such, the enhancement to our first event vertical limit’s minimum being met or exceeded by approximately two-thirds of the insurers that we review and rate was not viewed as a marked change in protocol or practice,” explains the firm.
If carriers fail to meet the new limit requirements, Demotech warns that rating downgrades could occur.
Ultimately, the increase is only get to impact the companies that are more thinly capitalised in Florida, with the majority of carriers rated by Demotech already purchasing reinsurance protection above the higher requirement.
So, while it might lead to a slight increase in demand for protection, it’s unlikely to be as meaningful as it appears at first glance.
With the Florida renewals season fast-approaching, it will be interesting to see how the market develops in light of changing Florida Hurricane Catastrophe Fund (FHCF) commitments, the higher reinsurance requirement set by Demotech, as well as other challenges in the state surrounding fraud and assignments of benefits (AOB).