TALLAHASSEE, Florida. As Florida lawmakers try to stabilize the troubled property insurance system next month, they may face worsening problems with reinsurance, a critical part of the system.
On Wednesday, Fitch Ratings released an analysis that said overall reinsurance prices are expected to rise by more than 10 percent in 2023, pointing to losses from disasters such as Hurricane Yang and “an increase in the frequency and severity of claims for natural disasters.”
“Rise in prices will be most noticeable in the regions most affected by natural disasters in 2022, including Australia, Florida and France,” the rating agency notes. “Hurricane Yan likely generated $35 billion to $55 billion in insurance claims, making it one of the costliest natural disasters ever.”
In an analysis published online, Fitch also said it expects tighter restrictions when reinsurance policies are renewed in 2023, with the likelihood that Florida property insurers will not be able to buy all the reinsurance they need increases.
“However, we believe demand for property catastrophe reinsurance during the 2023 renewal season will be broadly met, with the exception of Florida,” the analysis said.
Reinsurance, which is sold on the world market, is essentially a reserve cover for insurers. It plays a critical role in Florida, as evidenced by the estimated tens of billions of dollars in damage from Category 4 Hurricane Ian, which made landfall on September 28 in southwest Florida before crossing the state.
When property insurers’ losses reach certain thresholds, reinsurance coverage is triggered to help pay claims. Reinsurance costs are included in the rates of policyholders.
Florida property insurers rely on a combination of reinsurance purchased from the private market and from the state Florida Hurricane Catastrophe Fund. As an example of the importance of reinsurance, the Florida Hurricane Disaster Fund calculated that it suffered a $10 billion loss from Yang last month.
Reinsurance costs and affordability were a problem in the Florida market before Yang. During a special legislative session in May, lawmakers agreed to spend $2 billion in taxes to temporarily provide additional reinsurance coverage to insurers.
Gov. Ron DeSantis called the May special session amid widespread problems in the insurance industry, including homeowners losing policies and seeing rates skyrocket. Meanwhile, some property insurers became insolvent, and policies leaked to the state-backed Citizens’ Property Insurance Corporation, which was set up as the insurer of last resort.
Problems persist, however, and lawmakers will hold another special session in the week of Dec. 12, where further changes are expected to try to support insurers.
House Speaker Paul Renner, R-Palm Coast, said Tuesday that during a special session, lawmakers will consider “kitchen options” to try to stabilize the market and expand private coverage. He indicated that these options may include additional reinsurance costs.
“It will be temporary and it should depend on major reforms being made for us to really fix the situation,” Renner told reporters. “I don’t want to be in a situation where we take on any new long-term obligations to taxpayers for insurance. This is not the goal. The goal is to have a healthy private market and then start depopulating (removing politics) of citizens so that we get back to where we were not so many years ago, which is a healthy, dynamic market where people can’t have cardiac arrest. when they receive their renewal bills.”