Are Florida insurers ready for the next major weather catastrophe?

Now that the 2016 hurricane season has begun, Floridians will want to start paying just a bit more attention to the nightly weather forecast until we’re officially in the clear six months from now. Indeed, while we’re all keeping our fingers crossed for yet another year without any major weather events, the reality is that our luck will run out at some point.

The good news is that our recent run of trouble-free hurricane seasons has seemingly enabled not just the state government, but also the insurance industry to make preparations and replenish capital in advance of the next catastrophe.

As reassuring as all this may seem, a recent report from Fitch Ratings, one of the three largest credit rating agencies in the U.S., has called these efforts by the insurance industry into question.

Specifically, after examining 32 insurance companies, all of which derive the majority of their profits via the homeowners’ insurance market, Fitch researchers determined that their respective abilities to respond to a catastrophic hurricane were “uncertain” at best and that none would likely earn the company’s coveted “A” ratings.

While the findings were all hypothetical given that Fitch does not actually provide ratings for the Florida homeowners’ insurance market, it has nevertheless served to create something of a stir in many industry circles.

The question naturally arises then as to how Fitch arrived at these conclusions concerning the state’s relatively new homeowners’ insurance companies, which collectively hold upwards of 60 percent of the market for hurricane coverage, and are actually rather well-funded given the recent dearth of weather events and influx of Citizens Property Insurance customers.

Some of the factors cited by the Fitch report for awarding the state’s fledgling homeowners’ insurance companies such low marks, include:

  • Their small size and scale
  • Their narrow product line
  • Their limited geographic profile
  • Their low surplus levels
  • Their reliance on reinsurance (i.e., insurance purchased by insurers)   

It’s worth noting that a simulated stress test of three major catastrophic storms run by the state Office of Insurance Regulation last October determined that 67 participating insurers had more than sufficient levels of capital and surplus.

Here’s hoping we see another tranquil hurricane season.

Please consider speaking with a skilled legal professional if you have questions or concerns regarding any insurance law matter.