Reinsurers weary on Florida property risk: AM Best


Hurricane losses, assignment of benefits (AOB) issues and adverse loss reserve development may be dampening the appetite of reinsurers for exposure to the Florida property market, according to an AM Best special report.

Florida’s strained insurance environment has been stoked by the commonly misguided use of AOBs, said AM Best’s report, titled The Florida Market: Bracing for the Next Big Event. Contractors are soliciting the transfer of claims rights from insureds and subsequently inflating repair costs – primarily water-related – while using the legal system to their advantage, it said.

This is leading to significantly higher losses and loss adjustment expenses, depressed insurer operating performance and adverse loss reserve development patterns. In turn, insureds face considerable rate increases, the report said.

Florida's AOB reform law that took effect July 1 hopes to remedy some of the issues that have generated costly litigation between contractors and insurers, though it remains to be seen whether there will be loopholes in the law, AM Best said.

Even if it is effective in reversing some of these unfavourable trends, the reform may not have come in time to have a material impact on this year’s renewal period, the rating agency warned.  

Compounding the pressure from AOB-related claims, Florida property writers are suffering loss creep related to hurricanes Michael and, in particular, Irma, which has created unfavorable adverse reserve development.

AM Best said reinsurers are holding their ground with higher pricing for Florida, with an average increase in reinsurance costs reported to be between 15 and 20 percent – or even higher for the more loss-affected insurers. This represents a particular challenge for the more thinly capitalised Florida-specific companies in the market.

“The change in pricing is likely to be much more individualised than in years past, as reinsurers place greater emphasis on performance, loss development, program mix and quality of risks,” said AM Best.


AM Best, Florida, Hurricane, AOB Reform Law

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