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Higher reinsurance costs may impact ratings for Fla. property insurers

The cost of doing business could rise for some Florida property insurers as one key rating agency recently increased its reinsurance requirements.

Demotech Inc., a financial stability rating and consulting firm that reviews and rates many Florida-focused insurers, recently notified Florida-focused property and casualty insurers that they would need to increase their first-event reinsurance requirements to a 1-in-130 year loss event from the previous 1-in-100 year event.

Paresh Patel, chairman and CEO of Tampa-based HCI Group Inc., during a fourth-quarter 2018 earnings conference call said the net impact of the change means that companies' reinsurance towers, if they were at the previous guidance, will have to rise 14%. The executive said HCI was already purchasing reinsurance coverage greater than 1-in-100 year events.

"So to us, the impact is not as great as to other folks, but it is material to most people, especially if you've been buying just to 1-in-100," he said, according to a transcript of his remarks.

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Demotech in February cautioned its coverage universe not to expect it to lessen its reinsurance requirements if costs were to "suddenly or markedly" rise. Insurers need to carry "meaningful levels of catastrophe reinsurance protection" regardless of cost, the rating agency said.

The Florida private property insurance market includes several smaller insurers that write the bulk of their direct premiums in lines of business susceptible to hurricane losses. Based on an S&P Global Market Intelligence analysis of regulatory filings, seven insurers Tower Hill Insurance Group LLC, First Protective Insurance Co., Security First Insurance Co., St. Johns Insurance Co. Inc., Olympus Insurance Co., Florida Specialty Insurance Co. and Weston Insurance Co. ceded more than 80% of their total direct premiums written in allied lines and homeowners lines of business to reinsurers in 2018.

The price of catastrophe reinsurance has remained soft in Florida, but with the state impacted by major hurricanes in back to back years, the cost of reinsurance may rise during renewals in June. If so, several insurers' business models stand to "collide with a financial reality that impinges on their ability to sustain" their current ratings, Demotech warned.

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Click here to view a template for reinsurance relationships.

The template provides summaries and relationship details of P&C, Life and Health Filers formatted to the order and categorizations as filed in statutory statements.