Hurricane Michael is a new test of Florida’s odd property insurance market

Small and mid-size insurance companies and their reinsurers will pay for much of the storm's damage in the state's Panhandle region

Miami /
Oct.October 13, 2018 10:10 AM

Hurricane Michael damage at Mexico Beach, where the storm made landfall (Credit: Business Insider)

Hurricane Michael’s damage to property in the Florida’s Panhandle region on Wednesday will provide a fresh test of the state’s unusual property insurance market.

Florida is odd because such industry leaders as Allstate and State Farm play a much smaller role in protecting home owners than they do in other states. Small Florida property insurers with backing from larger reinsurance companies around the world will pay for the bulk of Michael’s damage.

Early estimates of insured losses from Hurricane Michael are $2 billion to more than $10 billion, potentially larger than estimated losses of $2 billion to $5 billion from Hurricane Florence, which made landfall last month in the Carolinas.

Much of the property insurance in Florida is provided by approximately 50 small and mid-size companies, which are required to buy substantial reinsurance because they have less capital – and thus less margin for underwriting error – than national insurance companies.

State officials and industry analysts say Florida’s unusual property insurance market performed well after Hurricane Irma hit the Florida Keys last year as a Category 4 storm.

Elyse Greenspan, an insurance stock analyst with Wells Fargo Securities, told the Wall Street Journal that reinsurers based in Europe, Bermuda and other offshore locations are paying claims from Irma.

State Farm, Allstate and other national insurance companies have cut their exposure to Florida losses significantly since Hurricane Andrew in 1992.

According to Standard & Poor’s Global Ratings, national property insurers now account for a fifth of the coverage in Florida, down from more than half in 1992.

Regulators ordered the liquidation of 13 insurers after Andrew, a Category 5 hurricane that caused about $25 billion of damage in today’s dollars.

After Andrew, Florida property owners initially were forced to rely heavily on state-run Citizens Property Insurance Corp., the “insurer of last resort,” for coverage.

But state regulators have worked with other insurers to take policyholders from Citizens and reduce exposure to losses at the state-run insurer, which now has about 441,000 policyholders, down from a peak of 1.5 million.

Most of the property insurance in Florida is now provided by such lesser-known companies as HCI Group Inc., Heritage Insurance Holdings Inc. and Universal Insurance Holdings Inc.

Though Hurricane Michael hit Florida’s Panhandle region as a Category 4 storm with winds over 150 miles an hour, many Wall Street analysts say the relatively low population density of the Panhandle would limit losses to a manageable amount for property insurers  and their reinsurance companies.

Florida’s government provides much of the state’s reinsurance through the state-run Florida Hurricane Catastrophe Fund.

Fitch Ratings reports that major underwriters of reinsurance in Florida also include Munich Re, Germany-based Allianz SE, Tokio Marine Holdings Inc. in Japan and Lloyd’s of London. [Wall Street Journal]Mike Seemuth


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