May 26, 2016 / 6:41 PM / a year ago

Fitch: Florida Specialist Insurers Largely Untested By Hurricanes

(The following statement was released by the rating agency) CHICAGO, May 26 (Fitch) The majority of Florida's homeowner specialist insurers have brief histories, and their ability to manage a large catastrophic hurricane is uncertain despite recent strong performance, according to a new report from Fitch Ratings. The last hurricane to make landfall in Florida was Hurricane Wilma 11 years ago in 2005. Since then the state's homeowner insurance market has shifted from large national insurers to newer, relatively small companies focused on Florida homeowner business. These companies now hold a 60% market share in the state. "It's not a question of if these Florida homeowner specialists will be tested by a hurricane but rather when the next catastrophe strikes will they be prepared to handle a significant increase in claims volume," said Christopher Grimes, Director, Fitch. Many of the Florida specialists reported favorable profitability and surplus growth in recent years due to the lack of catastrophe losses but are unlikely to achieve 'A' category Fitch Insurer Financial Strength (IFS) ratings. Limiting factors that influence ratings include relatively small size and scale, concentrated product and geographic profiles, heavy reliance on third-party reinsurance and concerns regarding capital adequacy given catastrophe exposure. As the Florida specialists have gained market share, Citizens Property Insurance Corporation, the state insurer of last resort, has scaled back from 20% market share in 2011 to 6% at year-end 2015. Improvements in Citizens' capital position and risk profile enhance the Florida homeowners market's overall resiliency in meeting obligations under future large loss events. However, 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. Additionally, reinsurers provide critical underwriting capacity in protecting Florida specialists from catastrophe losses. The state-sponsored Florida Hurricane Catastrophe Fund assumes the largest level of premium, followed by Lloyd's of London, Allianz SE; Tokio Marine Holdings, Inc.; Everest Re Group, Ltd.; and XL Group plc. Florida property risk is also passed to the alternative capital markets through a variety of sources such as catastrophe (cat) bonds, sidecars, industry loss warranties, hedge fund-supported reinsurers and asset managers investing in insurance-linked securities (ILS). "Over the last few years intense pricing competition and excess capital in the reinsurance market contributed to large rate reductions and more favorable terms and conditions, allowing Florida homeowners' insurers to keep and expand reinsurance programs," said James Auden, Managing Director, Fitch. See the full report 'Florida Homeowners Insurance Market Update' by clicking on the link or at Contact: Christopher A. Grimes, CFA Director +1-312-368-3263 Fitch Ratings, Inc. 70 W. Madison St. Chicago, IL 60602 James Auden, CFA Managing Director +1-312-368-3146 Jeremy R. Graczyk Associate Director +1-312-368-3208 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available at ''. Florida Homeowners Insurance Market Update (No Time for Complacency Following Hurricane-Free Decade) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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