Reinsurer appetite and Citizens depop highlight FL sentiment shift

Halfway through the hurricane season it would be foolhardy to forecast consecutive years of stable reinsurance buying conditions in Florida, but renewed reinsurer appetite at 1 June and a strong Citizens depopulation pipeline are indicative of a healthier outlook for the state’s homeowners market.

Despite a late tightening of capacity more generally for US wind renewals at mid-year fuelled by elevated hurricane forecasts, the Florida renewal was largely calm compared to the turmoil seen in a number of recent years.

The reason, as has been widely documented, appears to be a growing level of confidence among risk capital providers that the sweeping reforms aimed at curbing legal system abuse are having demonstrably positive impacts on the underwriting environment.

That is reflected not only in renewed appetite from reinsurers to support Florida homeowners insurers, but also in the flurry of start-ups entering the market and the significant volume of policies that are being taken out of state-backed residual insurer Citizens by the private market.

Although projections that Citizens’ policy count could drop below one million by year-end may yet prove to be optimistic, the Florida Office of Regulation has just approved another 220,000 policies for November take-outs on top of a significant number of approved take-outs for October.

Seven companies have been approved for the November take-outs, including start-up reciprocal exchanges Manatee and Trident, with 13 companies approved for the October take-out date.

Historically, the actual take-out rate has sometimes come in meaningfully below the approved policy count, but it appears that momentum is continuing to build.

Take-out companies – which also include established players such as Homeowners Choice and its sister company TypTap, Florida Peninsula, American Integrity and Bruce Lucas-led Slide – are heavily reliant on reinsurance.

And easing buying conditions for cat excess of loss at 1 June are a key facilitator of business plans to expand into the state’s homeowners market in the latter part of 2024 and into 2025.

After several years of double-digit rate increases – including 25-35 percent last year on loss-affected accounts – the mood going into this year’s Florida renewal was one of relative optimism from buyers.

Growing appetite for Florida risk after the game-changing reforms and several years of hardening rates and tightening conditions combined with an easing of broader reinsurance market conditions following the generational hardening in cat seen in 2023.

Although the full impact of the reforms is still expected to take time to earn through, last year the Florida homeowners market was profitable overall on an underwriting basis for the first time in years.

According to data put together by Gallagher Re, the segment’s collective combined ratio improved by 37.2 points to 96.7 percent, albeit only around half of the companies actually generated an underwriting profit.

Overall, rates were flat to down 10 percent on a risk-adjusted basis across the Florida homeowners market at 1 June this year.

At the time, Gallagher Re EVPs Adam Schwebach and Bryan Friendshuh suggested 2023 was always likely to represent “Peak Florida” for reinsurers.

“Despite the modest softening, reinsurers are likely to view this year’s result positively as there was noticeable market softening earlier in the renewal process, which levelled off as capacity became less abundant in the run-up to June 1,” the Florida-focused duo said.

Unlike other areas of US cat, the Florida outcome was not significantly influenced by the record level of cat bond issuance this year – including late in the mid-year renewal – as much of the new issues targeted ex-Florida hurricane risks.

A number of Florida carriers publicly highlighted oversubscription on their placements, as some upsized their limit to create more headroom for exposure growth. This was in contrast to Citizens, which bought around $2bn less reinsurance than it had targeted for 2024.