Florida CFO Jeff Atwater wants to know why a decrease in reinsurance costs to insurers isn't resulting in reduced rates for the Sunshine State's homeowners.
In a letter to state Insurance Commissioner Kevin McCarty, Atwater assumes, "If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives their costs up, they can certainly lower the costs for Florida families when reinsurance prices fall."
Atwater sites a report from one industry trade publication based on a poll indicating reinsurance rates are down 15-20 percent.
In a recent market report Willis Re says reinsurers are offering price reductions in nearly all global territories, including a 25 percent drop in hurricane-prone Florida.
A drop in reinsurance rates doesn't exactly mean rate reductions for Florida's homeowners are on the way, explains McCarty in a response to the CFO. A decreases in an insurer's reinsurance costs "does not translate into a one-to-one reduction in premium." Reinsurance costs only account for a part of a homeowners' insurance bill.
Reinsurance is tool for insurance companies to ensure they can pay claims in the event of a catastrophe, and, says McCarty, "In a time when reinsurance rates are dropping, an insurance company may choose to purchase more reinsurance."
Rating agencies have required several Florida insurers to buy more, he says, adding, "This is likely to keep rate up and move additional premium and exposure to reinsurers. "
Additionally, average rates from the Florida Hurricane Catastrophe Fund—from which each insurer is required by law to purchase reinsurance—have gone up.
McCarty says insurers may be in the process of spreading large rate increases over a period of years. Rates were artificially suppressed by law for several years following the busy 2004-2005 hurricane seasons.
Finally, reinsurance cost reductions may not yet be reflected in an insurer's premiums based on the timing of its rate filing with the OIR, adds McCarty.
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