Fitch Ratings said today that, in spite of reform efforts enacted by the
state of Florida in 2007 to improve the availability and affordability
of homeowners insurance in the state, the Florida homeowners market
continues to be unstable. Fitch added that additional reforms are being
considered in the current state legislative session, the agency believes
there is not an easy solution to solve this problem, and it does not
expect the issues to be resolved in the near term.
In a special report released today, 'Fitch Comments on Florida
Homeowners Insurance Market,' Fitch said that its main concern from a
ratings perspective is that if a major storm(s) were to hit Florida this
year, the fragile market could effectively 'collapse', especially if
such an event intensifies the withdrawal of private capacity.
Accordingly, Fitch believes these pressures will continue to create
uncertainties for insurance companies with material presence in the
Florida homeowners market, and in some cases, could become a more
significant negative ratings consideration if stability does not return
to the market relatively soon.
Fitch's special report is now available on www.fitchratings.com
under the following headers: Financial Institutions >
Insurance > Special Reports
Background:
Florida is at greater risk for hurricane catastrophe losses than other
areas of the country in that 25% of the coastal property exposed to
hurricanes in the U.S. is located in Florida. Furthermore, given the
density and expected continued growth of the population, particularly
along the desirable coastal areas that are at a much greater risk of
loss, the risk exposure is only expected to grow. The Florida Office of
Insurance Regulation (FL OIR) earlier this year estimated that a 1 in
100 year hurricane event in Florida would result in $50 billion of
insurance industry losses. In addition, some experts predict that
hurricane activity could be above average in the near term, as we are
currently in the high frequency part of the hurricane cycle, despite the
limited storm losses in 2006 and 2007.
While the sizable hurricane losses in 2004 and 2005 caused many insurers
to reduce their exposure in Florida or exit the market altogether, what
a number of insurers view as a difficult regulatory environment has also
prevented many companies from returning to the market. These insurers
claim that recent legislation and state actions have worked against the
insurance industry by 1) making it more difficult for multi-line
insurance companies to write Florida automobile insurance business
without also writing Florida homeowners risk, 2) prohibiting any new
Florida-only subsidiary 'pup' companies of larger insurance
organizations, and 3) requiring state insurance regulators to factor in
a company's national profits when approving rates in Florida, which
leads to further rate suppression.
Overall, Fitch views the nature of the Florida homeowners market as a
negative for insurer credit ratings. The core challenges are rooted in
the state's significant exposures to hurricane risk. For private
insurers at least, these risks are exacerbated by the expanded role of
state sponsored entities, against whom private insurers find it
difficult to compete, as well as significant differences of opinion with
regulators as to the level at which rates should be set. Fitch believes
these challenges and tensions will not be alleviated any time soon,
which means ratings pressures will also remain in place for the
foreseeable future.
Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality, conflicts
of interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section of
this site.
|