The chief executive of Brown & Brown said some portions of the Florida property insurance market are beginning to show signs of substantial rate hikes and that there could be a capacity crunch on some commercial coverage.
J. Hyatt Brown, chairman and chief executive officer of the Dayton Beach, Fla.-based insurance broker, said commercial property insurance in the tri-county section of Florida (which covers the counties of Broward, Dade, and Palm Beach Counties) is seeing dramatic increases.
The non-admitted insurers market, he said, has “gone bananas” with increases between 50- to 80-percent, while the admitted market is a little better with flat to 25 percent increases.
Deductibles have increased while insurers are taking less layers, increasing the cost of business because brokers need to find more carriers to provide coverage for accounts, he noted.
Coastal coverage, which Mr. Brown defined as anything outside of the three counties and within 25 miles of the coast, is beginning to have problems. Here, too, the admitted markets are coming in with increases of 25 percent, and the excess and surplus lines market is not available.
“There are E&S (excess and surplus) brokers who, and this is the first time we have seen this, where they have thrown up their hands and said, “We don’t have a market. We can’t place it,” he said. “And there have been some companies that have said no more property, not just in Florida, but in the Southeast.”
“We think there is going to be a crisis in capacity come November or December, meaning there will be no commercial [property] market,” he added concerning the coastal risks outside of the tri-county, noting that these accounts would have to go into the state’s residual market, Citizens Property Insurance Corporation.
Mr. Brown’s remarks came during the company’s third quarter financial report, which showed a 16 percent increase in net profit for the broker in both the third quarter and 9 months of this year compared to last.
The firm reported third quarter income increased $4.7 million, or 7 cents a share, going from $30.1 million, or 43 cents a share, to $34.8 million, or 50 cents a share. Revenues increased 19 percent, or $30.3 million, during the quarter, from $160.4 million to $190.7 million.
For the nine month period, net income rose $16.2 million, or 23 cents a share, from $98.6 million, or $1.42 a share in 2004, to $114.8 million, or $1.65 a share. Revenues increased 22 percent, or $105.1 million, from $483.9 million to $589 million.
The firm saw commissions and fees increase 19 percent in the quarter, or $29.6 million, despite the challenges of a soft price market, and investment surged 205 percent, or $1.2 million, going from $586,000 to less than $1.8 million.
Organic growth grew 1.3 percent, or more than $26.5 million. The company also saw a lift in its profit based contingent commissions, which rose in the quarter from $986,000 to $2.6 million.
Total commissions and fees in the quarter stood at more than $188 million, compared to less than $159 million in 2004.
Generally, much of the rest of the country was not seeing increases such as Florida is beginning to experience, Mr. Brown indicated, reviewing pricing in different regions of the country. He noted that property accounts east of Houston, were experiencing increases in the area 30- to 50-percent, and underwriters are talking about additional rate changes with the Jan. 1 renewals.
Insurers also appear to be rethinking their risk portfolios in the Northeast, he noted, and may begin to reassess their appetites along the coast.