With Florida’s property insurance market seemingly entering a new crisis with the news that Demotech could bring down many carriers, news that caused the authorities to step back, it’s hard not to think about what the reinsurance market will do, how it can move forward. pressure on carriers and the challenges this all creates for reinsurance brokers.
With Florida’s reinsurance reform just completed, after taking longer and more difficult than expected, insurance companies, including insurance-linked mutual funds (ILS), are writing their books and making sure they receive some of the money that’s coming. year from Florida writers.
Then comes the bombshell of 17 property insurance companies in Florida facing Demotech’s downgrade, which could put their businesses on hold, while another 27 are under special scrutiny by regulators in the meantime.
Raising the prospect of Florida carriers heading south in the coming weeks or months, perhaps, has implications for reinsurance that has already been restructured and is in place, as well as providers and negotiators.
What is important here is the movement of the premium, either at the time of insurance, or sometimes and often in advance.
Deposits are paid in advance of the return of excess insurance, while according to the contract, regardless of its length, there is also a minimum amount that must be paid, which according to what will happen if the insurance contract comes into existence. it ended quickly.
With just a few weeks to go before the new renewal year, in the words of Florida property reinsurers, any failure could increase the prospect of the affected carrier finding that they owe less money.
For any low-cost carrier that has just been downgraded and unable to write business, including possibly losing the regulations it now has to give up, this financial burden can be a nail in the coffin, so to speak.
Minimum premiums can vary for many reasons, including how well the carrier is established, and how tight, or soft, the insurance market is.
Given the state of the Florida property insurance market and the rigidity of insurance rates, it appears that the minimum will be at a higher level, compared to history, where it may be more pressured in a distressed market than in a stable one.
Whether the minimum amount is paid, if the insurance fails, is difficult to say.
It depends on the structure of the insurance to some extent, as the most important thing is that the borrower has to pay back these minimum payments in the event of bankruptcy.
There may be situations where the minimum wage can be empty, during failure and this is already visible.
However, based on how the Florida restructuring went, it seems unlikely that any insurance company or ILS fund would have accepted what appeared to be soft market terms, such as anything that would allow the carrier to get off the hook easily in the event of distress or failure.
Now, in the recent reforms there have been many periods of prepaid, guaranteed market periods that have appeared.
But, we have been told that it is probably the strongest papers in Florida that could have paid all their reinsurance premiums up front, so this could be an additional period, for certain groups and certain parties, especially those found in the most painful parts of the market where the carriers really (really) need a contract of reinsurance instead.
So the insurers are facing another risk now, with 17 or so insurers that may be at risk of being downgraded, as their reinsurance payments that they were scheduled to receive for the rest of the year, may not show up, if they come to a minimum. , or even worse refunds where they will not receive even a small amount.
But, what about brokers.
In the meantime, based on Demotech’s warning for the state of Florida where insurers are located, it is certain that insurance brokers have been trying to negotiate to reduce any costs, on behalf of customers.
In fact, we are told that reinsurance brokers, as representatives of their clients, can seek to reduce the minimum with reinsurers and ILS funds where possible, so that there is no concern for the carriers themselves.
While insurance companies would have thought that their work on the restructuring in Florida was good if it was over this year, this and the threat of the number of carriers falling into trouble will ensure that they are busier than they thought, or wanted to be, in the coming weeks.
Therefore, we should not forget that carrier failures (or financial problems) can have consequences for reinsurers, ILS funds and brokers as well.
It’s not just accounting firms and insurance companies that are in the firing line, as the recent drama in Florida is playing out.
Also read: Demotech warns 17 Florida carriers about downloads, state administration responds.
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