Wednesday marks the first day of hurricane season in Florida, and if the stress tests are to be believed, the state’s insurers are more than ready to face any possible severe weather events in the days to come.
Mypalmbeachpost.com reported that newly appointed state insurance commissioner David Altmaier described the region’s insurance market as “more stable and competitive” than it has been in over a decade—this, despite state officials acknowledging that while progress has been made, there remains more work to be done to further improve Florida’s insurance market.
“One thing we have to acknowledge at the outset is we’re not perfect,” commented state chief financial officer Jeff Atwater. “We lost companies after 1992’s Andrew. We lost companies after 2004-2005. If an event occurs, there is a likelihood that notwithstanding our best efforts, some may not succeed in staying viable.”
Atwater confirmed that a state fund with the power to assess policyholders would cover the claims of companies that become insolvent. He, however, emphasized that the ultimate goal is to mitigate future disruption through measures such as financial stress tests.
“We want consumers to be confident but no one should ever believe we are complacent or believe we have it completely figured out,” Atwater remarked.
Atwater and Altmaier gave their statements Wednesday at Florida International University’s “Wall of Wind” hurricane research facility.
In October, 67 property insurers passed a stress test that simulated three hurricane scenarios. Only one unidentified company initially did not have enough reinsurance to pay claims.
Tests for 2016 are underway.
With a dearth of hurricane activity in almost 11 years, there have been expectations of an active hurricane season this year, giving insurance ratings firms mixed feelings.
“Never in the history of the state of Florida has the domestic market had more or better reinsurance protection,” said Demotech Inc. president Joseph L. Petrelli. Petrelli added that the state’s insurers are “ready to respond.”
Fitch Ratings, however, cautioned that the overreliance on third-party reinsurance could be a liability.
The firm also issued a statement, saying that many of the state’s insurers “are unlikely to achieve ‘A’ category” in Fitch Insurer Financial Strength ratings, citing issues such as “relatively small size and scale, concentrated product and geographic profiles, heavy reliance on third-party reinsurance and concerns regarding capital adequacy given catastrophe exposure.”
“The transfer of underwriting risk from Citizens to Florida specialists adds to the market’s dependence on smaller underwriters with more limited capital levels and access to new capital than Citizens,” the ratings firm’s statement concluded.
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