Despite no hurricanes making landfall in 2019 to 2020, Florida property insurance writers still posted a combined ratio of 131.5 in 2020, a 18.2 percentage-point deterioration from 2019.
According to the rating agency, both years reported greater volatility compared to 2017 to 2018 due to social inflation pressures, resulting in an increase of the severity of claims and litigation costs, as well as more-frequent severe convective storms and an increase in roof replacements.
Insurers have requested material rate increases to offset elevated pressure on profitability, and have revised their risk appetite for select pockets of Florida business.
The report notes that the rate increases have not kept pace, leading to declines in underwriting profitability. In the last five years the mounting pressures have led to a 9.7% decline in surplus, with aggregate losses reported each year.
These actions have led to an increase of in-force policies at Florida’s residual insurer, Citizens Property Insurance Corporation.
Beginning in 2019 through the first quarter of 2021, Citizen’s personal residential policies in force increased by 29.3%.
In addition, the reinsurance market has hardened, resulting in higher costs for reinsurance protection. Expectations for a more-active storm season also may influence reinsurance purchase decisions.
AM Best believes that hurricanes over the last five years have largely been considered earnings events, given that reinsurance programs acted as intended, limiting the impact to the balance sheet.
However, given the added challenges, pressure has started reaching past operating performance and eroding balance sheet strength. Primary insurers are nearing the close of the midyear reinsurance renewal season, which will provide insights to specific shifts in price and its impact.