Florida faces more problems with reinsurance

TALLAHASSEE, FL – As Florida lawmakers try to stabilize the troubled property insurance system next month, they could face worsening problems with reinsurance, a critical part of the system.

Fitch Ratings released an analysis Wednesday saying overall reinsurance prices are expected to rise more than 10 percent in 2023, citing losses from disasters like Hurricane Ian and “the increasing frequency and severity of natural catastrophe claims “.

“Price increases will be most pronounced in the regions most affected by natural disasters in 2022, including Australia, Florida and France,” the rating agency said. “Hurricane Ian likely caused between ($35 billion and $55 billion) in insurance claims, making it one of the costliest natural disasters on record.”

In the analysis published online, Fitch also said it expects tighter limits when reinsurance policies come up for renewal in 2023, while raising the possibility that property insurers in Florida may not be able to buy all the reinsurance they need.

“However, we believe demand for property casualty reinsurance in the 2023 renewal season will be broadly met, with the exception of Florida,” the analysis said.

Reinsurance, which is sold on a global market, is essentially back-up cover for insurers. It plays a crucial role in Florida, as evidenced by the estimated tens of billions of dollars in damage from Category 4 Hurricane Ian, which made landfall on Sept. 28 in Southwest Florida before crossing the state.

When property insurers’ losses reach certain thresholds, reinsurance coverage kicks in to help pay claims. Reinsurance costs are included in policyholder rates.

Florida property insurers rely on a combination of reinsurance purchased in the private market and from Florida’s state hurricane catastrophe fund. As an example of the importance of reinsurance, the Florida Hurricane Catastrophe Fund estimated last month that there would be $10 billion in losses from Ian.

Reinsurance costs and availability were an issue in the Florida market before Ian. During a special legislative session in May, lawmakers agreed to spend $2 billion in taxes to provide temporary supplemental reinsurance coverage to insurers.

Gov. Ron DeSantis called the special session in May amid widespread problems in the insurance industry that include homeowners losing policies and seeing massive rate hikes. Meanwhile, some property insurers defaulted and policies poured into the state-backed Citizens Property Insurance Corp., which was set up as an insurer of last resort.

The problems persist, however, and lawmakers will hold another special session the week of Dec. 12, which is expected to include additional changes to try to shore up insurers.

House Speaker Paul Renner, R-Palm Coast, said Tuesday that lawmakers will look at a “kitchen sink of options” during the special session to try to stabilize the market and expand private coverage. He indicated that those options could include spending additional money to support reinsurance.

“It’s going to be temporary and it has to depend on major reforms being made so that we actually correct the situation,” Renner told reporters. “I don’t want to be in a situation where we’re making a new long-term commitment on the part of the taxpayer to take out insurance.” That’s not the goal. The goal is to have a healthy private market, then start to depopulate (remove policies from) Citizens so that we’re back to where we weren’t all those years ago, which is a healthy, vibrant market where people can’t get heart arrest when they get their renewal bills.’

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