Fitch Sees Troubled Florida Market

Fitch Ratings believes that Hurricane Wilma is a further blow to an already weakened Florida insurance market, which it says has not realized an adequate return on capital since Hurricane Andrew in 1992.

Wilma, Fitch said, could prove to be the third-largest U.S. insured hurricane loss behind Katrina and Andrew if it comes in on the high end of estimates, and the fifth-largest U.S. catastrophe loss ever.

There is little incentive for a well-capitalized insurer to remain in the Florida market, Fitch said, or a start-up to capitalize well, leaving thinly capitalized insurers in the market. While they will report greater profits, these companies will be less able to survive extreme events.

Because of this, Fitch said, the risk of insolvency among the small, Florida-only carriers providing property coverage is high.

According to Florida authorities, six new companies entered the Florida property-casualty market this year, most assuming business from the Citizens Insurance program, the state's insurer of last resort.

The current market, Fitch said, also serves as a disincentive for smaller companies to grow.

Wilma is not expected to be a rating event for companies the service covers, it said.

Fitch also announced that it downgraded XL Capital Ltd.'s financial strength rating from "double-A" to "double-A-minus."

The change was attributed to catastrophe losses and adverse loss reserve over the past several years.