Will Charley Crush Some Insurers?

Will Charley Crush Some Insurers?

NU Online News Service, Aug. 17, 4:20 p.m. EDT?Hurricane Charley could possibly be financially deadly to several Florida property-casualty insurers with the bulk of their policyholder population in the state, according to a rating firm.[@@]

Standard & Poor's in New York identified ten companies for which Florida business represents at least 80 percent of all premiums written, with seven of those companies writing more than 90 percent of their business in the state.

S&P analyst Steve Dryer noted that following Hurricane Andrew in 1992, which caused $19 billion in insured losses, 11 insurers with similar concentrations went under.

But that may not be the case this time around, as many with large Florida concentrations seem to be weathering this storm just fine.

A.M. Best issued a statement on Tuesday stating "virtually all companies will be able to meet their requirements, despite the projected magnitude of the potential losses."

In addition, Dreyer noted, for the ten most concentrated insurers now operating, the average ratio of premiums to surplus, an important guide to an insurer's stability, is at the dangerously high level of four times. Three carriers exceed six times.

"The vast majority of insurers in the Florida homeowners market are subsidiaries of large national insurers, raising the question of whether the parents would support their stricken charges or leave them orphaned to the ravages of nature," Mr. Dreyer said.

Don Cronin, chief executive officer of the number two company on the S&P list, United Property and Casualty, would definitely reject the term "stricken charge" to describe his St. Petersburg-based company.

"I'm not at a point that I could even project an average as far as damage, but we had a relatively small number of risks in the path," Mr. Cronin said. "We were fortunate. We had less than 5,000 risks."

The company did not write mobile home policies, which suffered a great deal of damage in this event.

As for reinsurance, United's retention is $5 million, with another $292 million in addition to that.

"The company's reinsurance program is comprised only of A.M. Best "A"-rated or better Lloyd's and Bermuda companies," Mr. Cronin said.

According to S&P, the company's premium to surplus ratio is 2.7, well below the "dangerously" high level of 4.

"We understand we are in a hurricane-prone state and run hurricane models on a minimum of a quarterly basis, and often on a monthly basis to manage our exposure down to the street level to avoid heavy concentrations in a very specific area," Mr. Cronin said.

Patrick Gallagher, chief executive officer of Plantation-based American Superior Insurance Company, said that despite the company's estimated $12 million of losses from Charley, reinsurance will cover all but about $1.5 million. And with a surplus of $6.4 million, the company is well within its financial comfort zone.

Mr. Gallagher also took issue with the S&P figure of 6.5 as its premium to surplus ratio.

"We are sitting on a net written premium to surplus of about two times. The industry is considered to be shooting for under three," Mr. Gallagher said.

Mr. Dreyer said that while reinsurance will mitigate some loss, he expressed concern that some of it may come from Bermuda-based startups facing their first major test since their formation in the aftermath of 9/11.

In addition to American Superior and United, the following Florida-based companies are on the S&P list: Omega Insurance Co.; Qualsure Insurance Corp.; Cypress Property & Casualty Insurance Co.; Universal Property & Casualty Insurance Co.; Sunshine State Insurance Co.; New America Insurance Co., Inc.; Vanguard Fire & Casualty Co.; and First Protective Insurance Co.