Not only is storm frequency increasing, creating a “new normal,” KBRA said in a report, but higher premiums have failed to keep pace with mounting losses, causing material earnings declines. Ongoing and elevated litigation, inflation, and other effects will continue to drive up claims costs, the report said. More frequent storms will further challenge the risk management and surplus positions of property insurers in Florida, KBRA said.
Underwriters, the report said, are now receiving closer scrutiny from regulators and what is being seen as sudden and unpredictable rating actions by one of the legacy rating agencies in the Florida market amid the current storm season.
Only 10% of landfall activity in Florida typically occurs by early August, the report said, pointing to an August 4 forecast from Colorado State University’s Tropical Meteorology Project. That prediction suggested there would be 18 named storms this year, down from its July prediction of 20. KBRA also cited the university’s prediction that 2022 will be the seventh consecutive year of “above-average” hurricane activity in the Atlantic region.
The main strategy of insurers has taken the form of rate increases and nonrenewals, KBRA commented. Some companies have sold off blocks of business through renewal rights transfers, and other insurers have been pulling back from writing new business, KBRA said, pointing to the significant growth in the Florida market of Citizens Property Insurance Corporation as an insurer of last resort.
The piece also cited a 2021 report from the National Oceanic and Atmospheric Administration that noted a long-term increase in hurricanes. According to the KBRA report, the Atlantic region was hit by a record-breaking 30 named storms in 2021. This total included 13 hurricanes and six major hurricanes.
Underwriters seeking reinsurance for Florida catastrophe risks will likely face reduced availability and higher prices, KBRA said. The personal lines property market has not been profitable for over five years, KBRA said, calling for legislative changes to combat both insurance fraud and an elevated litigious environment. The latest National Association of Insurance Commissioners Market Conduct Annual Statement indicates Florida represents 7% of the nationwide claims, but 76% of the nationwide suits.
