Domestic Insurers Winning Florida Homeowners Market

Since 2006, About 25 New Home-Based Insurers Have Been Launched as Part of the Domestc Market Resurgence

While large national insurers are downsizing in Florida, more home-based insurers are bulking up on the state’s residential homeowners business.

The jump in domestic market share is partly attributed to the increase in the number of new, home-grown companies started in Florida in the past several years.

In 2007, domestic private insurers wrote 39 percent of the multi-peril homeowners market— more than out-of-state carriers (24 percent), State Farm Florida (19 percent) or Citizens (18 percent), according to the Office of Insurance regulation (OIR).

In 1992, domestics wrote only six percent.

Since 2006, about 25 new companies have raised hundreds of millions of dollars of capital and been approved by the state’s Office of Insurance Regulation.

In 2006, 10 new domestic property insurers with a total capitalization of $218 million were licensed in by Florida. In 2007, another nine were capitalized for about the same amount. The last, year six carriers raised $110 million in start-up capital.

Since 2006, these carriers have introduced about $546 million in new surplus into the property insurance market.

Some – 13 in number— have benefited from $248 million in state funds made available for capitalization starting in 2006.

Meanwhile, private insurers have been taking business from state-backed Citizens. Its policy count dropped from 1.3 million in November 2007 to 1 million a year later.

Florida Insurance Council President Guy Marvin says Florida’s domestic companies are “critically important to bringing long-term stability to a market that has been riddled with instability due to our ever increasing threat from hurricanes.”

The rise of smaller companies has drawn the attention of state officials and Gov. Charlie Crist. Chief Financial Officer Alex Sink, asked Insurance Commissioner Kevin McCarty for reassurance that the state is closely monitoring the financial condition of new carriers in light of the state’s hurricane risk and current economic conditions.

On Jan. 13, McCarty gave the state Cabinet a report on the financial analysis that OIR conducts to make sure new carriers can cover the risks they write. He told state officials that thus far, no domestic insurers are in financial trouble. A new carrier is examined in each of its first three years. Also, every domestic carrier is examined at least once every five years.

OIR uses what it calls a “risk-focused” examination to identify the areas for a company that have the greatest potential of risk. It includes interviews with top management, onsite examination of all systems and a review of reserves.

Reinsurance reporting requirements that are unique to Florida also help officials monitor carriers, according to McCarty. Officials also monitor the investments of carriers and identify their exposure to risks, including subprime mortgages, collateralized debt obligations, Freddie Mac, Bear Sterns and Lehman Brothers.

“To date, Florida domiciled companies have not had significant holdings in any of these specific assets groups,” pointed out McCarty, even while acknowledging that overall market declines are likely to have some impact on financial statements.

If OIR has concerns about a company, it holds regular meetings to plan action. Thus far, McCarty says this hasn’t been necessary. “Our proactive monitoring also included stress testing of Florida insurer equity portfolios and no significant solvency concerns have been detected,” McCarty reported.

CFO Sink said that she was more confident after hearing McCarty’s presentation.

The insurance industry said it welcomed the scrutiny of the licensing process. “The end results of these rigorous examinations should help reassure our customers that the insurance commissioner will not allow a company to operate in Florida until its meets his office’s tough standards for financial soundness,” said Florida Insurance Council’s Marvin.

Topics Florida Carriers Homeowners