Florida's homeowners insurance market may be in peril and is not likely to stabilize soon, despite state lawmakers' efforts, analysts at Fitch Ratings said today.

In a report titled "Fitch Comments on Florida Homeowners Insurance Market," the agency said that from a ratings perspective the market for homeowners coverage in Florida could effectively "collapse" if a major storm were to hit the state this year, and that the effect on the markets could be magnified by the withdrawal of private capital.

Fitch said it views the Florida homeowners market as a negative for insurer credit ratings, and a major storm hitting the state would have a severe impact on company ratings.

While the agency noted that lawmakers have enacted significant reforms, with more being debated in the state legislature, Fitch said it does not believe an "easy solution" exists for the problem, and it "does not expect the issues to be resolved in the near term."

At the same time, Fitch said that should a major storm strike and capital exit the market, the pressures on that market "will continue to create uncertainties for insurance companies with material presence in the Florida homeowners market, and in some cases, could become a more significant negative ratings consideration if stability does not return to the market relatively soon."

Florida lawmakers have struggled to find an answer to the state's homeowners insurance problem, including allowing the state-run insurer of last resort, Citizen's Property Insurance Corp., to compete on the private market.

However, lawmakers have lately become alarmed that a major hurricane could result in taxpayers being forced to cover billions in Citizens' exposure through a series of post-event assessments. According to a presentation given to lawmakers, a once-in-a-hundred-years event would involve a liability of roughly $24 billion, far exceeding its current ability to pay.

After exhausting its surplus of just over $4 billion and reimbursements from the state Hurricane Catastrophe Fund of nearly $12 billion, Citizens would make up the difference through a system of assessments levied on its policyholders and other insurers.

Finally, if more is needed to pay the cost, the state would have to impose an "emergency assessment" that would be levied on every property and casualty policy in the state except for medical malpractice and workers' compensation coverage.

Some positive signs have been seen in the market, however. Scott Johnson, executive vice president of the Florida Association of Insurance Agents, said he has seen the market "really opening up," as newer companies have moved into the state.

Citizens' policy count, he noted, has fallen from 1.4 million to roughly 1.25 million. In addition, State Insurance Commissioner Kevin McCarty recently issued an order changing the process for private companies seeking to "take out" a policy from Citizens, allowing the companies seeking the business to notify consumers directly if their agents do not wish to make the change.

Mr. McCarty's Office of Insurance Regulation, in a presentation to the legislature today, said since January 2006, OIR has licensed 30 new commercial and residential property insurers, representing over $3.4 billion in new capital.

Additionally, OIR said Citizens represents slightly over 40 percent of the catastrophe fund, leaving almost 60 percent of the wind risk for residential property in the private market today.

Special Reports /

Fitch Says Fla. Home Insurer Market Could Implode

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