Reinsurers may get boost from Citizens downsizing
Hearings continue this week within the Florida state legislature to discuss the potential downsizing of the Citizens Property Insurance Corporation — a move that would greatly benefit Bermuda’s reinsurance market.
Citizens, in theory was created to act as an insurer of last resort, insuring properties that the private market deems too risky. However, it has ballooned into a mammoth organisation, writing 8,000 policies each month and a total of 1.3 million policies. It is currently has the largest market share of homeowners insurance in Florida with its low pricing effectively undercutting private insurers.
According to BestWire, ratings firm AM Best’s news service, in an effort to depopulate Citizens, 300,000 policies were shed by the end of 2012.
But Citizens president Barry Gilway said that the private market could absorb another 640,000 policies leaving Citizens with just coastal properties, older homes that are not insurable, older mobile homes and homes that are located in sinkhole areas.
International reinsurers currently provide 91 percent of reinsurance coverage for private companies, according to the Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 insurance groups which have principal underwriting operations here. Bermuda has the lion’s share of that coverage, at 62 percent, providing approximately $1.6 billion in capacity.
While the market has yet to be tested, said Brad Kading, president of ABIR, the Bermuda reinsurance capacity could potential double.
“There has always been an appetite and there’s more now,” he said. “Bermuda’s reinsurers are very interested in taking on personal US catastrophe risk and additional risk around the world. They view Florida as an attractive market, there is ample capacity and this is good time to be absorbing risk. ABIR is working with Florida policymakers on legislative reforms that would allow more risk to be taken up by the private market.”
International reinsurers also provide 92 percent of purchased reinsurance coverage for Citizens, with Bermuda claiming a market share of 61 percent and providing $470 million in capacity.
Another $750 million in protection was purchased from investors via a Bermuda-based catastrophe bond issued by Everglades Re.
While there is a recognition by those within the insurance industry, including Citizens that the organisation is too large, getting the state legislature to reform Citizens, which would effectively raise the rates on policies, forcing people to shop around within the private market.
It might be a tough sell to politicians but if any year reform could happen, said Mr Kading, it could be 2013 — a non-election year. Most of the state elections, including the Florida governor, occur in 2014.