Higher premium rates are expected to entice new entrants into the Florida homeowners insurance market, Standard & Poor's said yesterday in a new report.
However, the report warned, the availability and pricing of hurricane coverage for Florida homeowners will be problematic over the long term because of forecasts that hurricane activity in the state could grow over the next 20 years.
But, the S&P analysts said in the report that the market is changing gradually to deal with the threat.
Regulators, according to S&P, are allowing higher premiums but are conscious they are dealing with a population that has large numbers living on a fixed income. They are under pressure to keep premiums low enough to be affordable by elderly homeowners while at the same time reassuring insurers, who fear being wiped out by a huge hurricane or a group of catastrophic events.
The report is titled Credit FAQ: Changes to Florida Homeowners Insurance Evolutionary, Not Revolutionary.
"Due to the severity of hurricane seasons over the past decade, the earnings volatility of large homeowners insurance carriers in Florida, especially publicly traded stock companies, have prompted insurers to trim their property risk exposure in the state," said S&P credit analyst Polina Chernyak.
"Nonetheless, higher premium rates are expected to entice new entrants into the homeowners' insurance market," Ms. Chernyak said.
For the near term, reinsurers appear committed to providing capacity at reasonable prices, Ms. Chernyak noted.
Although Florida homeowners will likely get at least the minimal property-casualty coverage they need this year at a higher price tag than last year, state insurance regulators have recently limited the rise in the cost of homeowners' premiums, she said.
Ms. Chernyak explained that regulators force insurers seeking large rate increases to go through many hoops–specifically, a public hearing for those seeking rate increases greater than 15 percent.
She said that, in her view, large insurers remain committed to the state but are trying to limit liability by reducing their insureds to a level that won't result in catastrophic losses from one large event, or a group of smaller ones.
Regarding the state Catastrophic Fund, which was created in order to spread the impact of catastrophe losses, Ms. Chernyak said she hesitates to imagine the consequences to the fund's solvency if a Category 5 hurricane, which carries winds in excess of 155 mph, strikes a major metropolitan area in the state.
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