Catastrophelosses created challenges for Florida-focused property insurers during thefirst quarter, and the 2016 North Atlantic hurricane season is still more thanthree weeks away.
Therecent earnings reports of the publicly traded carriers that specialize inFlorida property business showed varying degrees of impact from severe weatherevents that at least two companies described as unusual in their frequency. Thefoul weather served to compound pressures associated with a storm of the legalvariety that has been brewing in the state.
TheNational Weather Service's Storm Prediction Center reported that it hadreceived 30 tornado reports and 30 reports of hail greater than one inch indiameter year-to-date through May 5. This data is preliminary and subject tochange.
TheFlorida Division of Emergency Management said many of the state's tornadoesoccur during the spring and summer seasons, the first of which runs fromFebruary through May and the latter of which runs from June through September.The spring tornadoes tend to be spawned from severe supercells along a squallline ahead of a cold front; the summer tornadoes often result from strong seabreeze boundary collisions and tropical cyclones, the division said.
Clearwater,Fla.-based Heritage InsuranceHoldings Inc. reported that it suffered from the worst tornado lossesin its history during the first quarter. It blamed severe weather activity forcontributing 6.7 points to a first-quarter gross loss and loss adjustmentexpense ratio of 44.1%, up from a ratio of 25.8% in the year-earlier period.Loss ratios for Florida homeowners business had been across the industryin full year 2015.
FortLauderdale, Fla.-based UniversalInsurance Holdings Inc. also said it experienced the most active first quarter forsevere weather in its history. The company described weather-related claims asthe key driver of its 7.8-percentage-point increase in its first-quarter netloss and loss adjustment expense ratio to 43.4%. said itsfirst-quarter results included $4.9 million of gross pretax catastrophe lossesrelated to severe weather. St. Petersburg, Fla.-based said 10 distinctweather-related events, including four Florida tornadoes, resulted in $15million of catastrophe losses during the first quarter.
Tampa,Fla.-based HCI GroupInc. reported a net loss and loss adjustment expense ratio of46.3% in the first quarter, nearly double the ratio of 23.3% it posted in the year-earlierperiod. Unusual weather was one of the factors that contributed to the sharpincrease, the company said.
Chairmanand CEO Paresh Patel said during a May 3 conference call, according to atranscript of hisremarks, that he was pleased with HCI's first-quarter results, given the extentof the weather-related losses, which contributed approximately $5 million to anincrease in losses and loss adjustment expense of just more than $8 million.
"Clearly,it was a difficult quarter, but adverse weather will not happen everyquarter," he said.
Moreof a pressing concern for Florida-focused property insurers is a structuralissue that may not go away in the near term, one that also contributed torising first-quarter loss ratios. Changes in loss trends, due in part to whatthe industry believes to be third parties' abuse of assignment-of-benefits clauses in residentialproperty insurance policies, led to first-quarter reserve strengthening at bothHeritage and HCI.
HeritageChairman and CEO Bruce Lucas reported during a May 5 call that plaintiffs'attorneys are "getting extremely aggressive" in the south Floridacounties of Palm Beach, Broward and Miami-Dade, and they are no longer aswilling to settle at "reasonable numbers" as they had been in thepast.
"Justby putting an attorney on the [claim] file drives up the cost," Lucassaid. He explained that Heritage had opted to take a reserve charge now toavoid having "a bigger problem down the road."
Executivesof RenaissanceRe HoldingsLtd., which maintains a minority ownership stake in theFlorida-focused group of insurers that includes Gainesville, Fla.-basedTower Hill Select InsuranceCo., Tower Hill PrimeInsurance Co. and TowerHill Signature Insurance Co., disclosed during an April 27 callthat those companies' profitability had been impacted by theassignment-of-benefits issue, but they expressed optimism that the carrierswere becoming increasingly sophisticated in how they address the related claims.
FederatedNational said it plans to implement a rate increase driven by the impact of theassignment-of-benefits issue on its attritional loss ratio.
"Theassignment of benefits is not something that's going away," President andCEO Michael Braun said, according to a transcript of his remarks during a May 4 call."It's making claims more expensive, and ultimately, that does get passedon to the policyholder."
Heritage'sLucas suggested several potential paths for addressing the issue: additionalrate increases, a legislative solution or action by Florida InsuranceCommissioner David Altmaier. Regarding the latter option, he urged Altmaier totake "firm and aggressive steps to allow companies to change policyforms" to address assignment-of-benefits abuses.
TheFlorida Office of Insurance Regulation in March approved policy languagechanges requested byCitizens Property InsuranceCorp. that require policyholders to take reasonable emergencymeasures to protect property from further water-related losses but only up tothe greater of $3,000 or 1% of their Coverage A limit in the absence of thecompany's approval. The changes also seek to prevent contractors from makingpermanent repairs prior to the company's inspection of the damage, amongcertain other revisions that seek to address what Citizens has identified asone of the root causes of escalating alleged assignment-of-benefits litigation.
Inthe absence of legislative or regulatory action, Lucas said: "The innocent homeowners arethe ones who are getting penalized. Their rates are going up."