A special session of the Florida legislature has led to insurance reforms that will bring relief to the state’s homeowners market, but capacity will likely remain limited with high reinsurance costs in the near future.

That’s the view of rating agency AM Best in its Best’s Commentary, Florida Insurance Reforms: Long-Term Relief on Horizon; Near-Term Headwinds Remain.

The agency is of the view that the insurance reforms passed in Florida’s most-recent special legislative session will take some time to affect any desired relief.

The new laws include the elimination of assignment of benefits and the one-way attorneys’ fees rule for property claims and reduces the amount of the time to 18 months in which a supplemental claim can be filed.

In the commentary, AM Best states that it considers these moves to be credit-positive for insurance companies operating in the state.

Should the measures eliminating assignment of benefits and one-way attorneys’ fees for property claims prove effective, they could materially lower insurers’ defence and cost containment expenses.

Additionally, the reduction in the amount of the time to file a supplemental claim could alleviate concerns in the insurance-linked securities market about capital becoming trapped for long periods.

At the same time, judicial challenges to the new laws can be expected, and until the courts rule, national writers likely will remain wary of the environment in Florida.

Best said: “Additionally, local insurers are still heavily dependent on reinsurance, and any losses that exceed reinsurance coverage could lead to more insolvencies. Also, any increases in reinsurance costs could lead to increases in the primary market premiums charged to policyholders.”

Chris Draghi, associate director, AM Best commented: “Legislators have taken aim at elements influencing rising reinsurance costs, but how material the potential savings for insurers will be under the new legislation will depend on whether the private reinsurance market interprets the most recent actions as viable mitigations since the risk of catastrophe losses remain.”

The inherent risk profile of Florida property will continue to impact pricing and the balance of policies issued by the private market and Citizens Property Insurance Corporation, according to the commentary, although new restrictions on insureds obtaining coverage from Citizens should help move the market towards actuarially sound pricing.

“The five largest national homeowners insurers account for over 50 per cent of the US market outside of Florida, but just 15 per cent of the market in Florida, demonstrating just how dire the situation is,” said Sridhar Manyem, senior director, industry research and analytics.

“The legal environment and reinsurance market are two significant issues addressed by the special session that may ultimately make the market more attractive, but the effectiveness of reform will require time.”