CHICAGO, February 14, 2019 – Aon’s Reinsurance Solutions business today launches its February 2019 Homeowners’ ROE Outlook report, which examines the prevailing dynamics in the Florida homeowners insurance sector.
The new study, which coincides with Aon’s annual Florida Insurance Market Summit, hosted with Colodny Fass, looks at the differing considerations for insurers that only focus on Florida homeowners market compared to national insurers managing A.M. Best A-rated capital requirements.
The report, which aggregates the financial statements and rate filings of approximately 40 legal entities representing $6.4bn of homeowners premium at prospective rate levels, reveals three key characteristics:
- High levels of reinsurance utilization with catastrophe protection designed to engage as often as every three years.
- Demotech-rated carriers with a focus on capital adequacy based on the NAIC’s risk-based capital (RBC) formula.
- A willingness to write business in high risk countries such as Miami-Dade, where Florida Citizens once had more than half of the market.
The study reveals that the largest 34 Florida insurers have 90 percent of the market share, with specialists operating at near a 2:1 premium to required surplus ratio.
Insurers’ reinsurance buying stance, which tends towards low-attaching occurrence treaties, keeps net loss levels in catastrophe years within a safe margin of available capital and thereby facilitates higher levels of leverage while still meeting their Demotech rating requirements.
Florida specialists captured two-thirds of the largest personal property market in the U.S., generating more than $6bn in premium volume and an average 17 percent return on equity when hurricanes do not make landfall.
Paul Eaton, Actuarial Managing Director within Aon’s Reinsurance Solutions business, said: “Even with landfalling Florida hurricanes, these insurers can have positive single-digit ROEs of one or two percent because of the combined protection of the Florida Hurricane Catastrophe Fund and private market reinsurance.”
The Homeowners’ study highlights two major risks to this group of carriers beyond the general challenges of the Florida marketplace: the first is the possibility of legal and claims-related issues associated with assignment of benefits, which causes loss inflation and increasing pressure on claims adjustment expense ratios.
The second is if hurricane(s) exceed their reinsurance coverage, many insurers might survive a $100bn industry event but survivability drops precipitously for some on losses above that level.
To view the February 2019 Homeowners’ ROE Outlook report, please click on the following link: http://bit.ly/2019-fl-homeowners-roe-outlook
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