Already this year, three Florida insurers have been declared insolvent due to their failure to obtain full reinsurance as the 2022 hurricane season bears down.
“We have the potential of a massive failure of Florida insurers, probably the worst on record,” says Triple-I communications director Mark Friedlander. According to Friedlander, the $2 billion reinsurance fund created in legislation Gov. Ron DeSantis signed into law at the end of May isn’t nearly enough, and private reinsurers are pulling back from the market because of its high level of property claims and litigation.
“It needed to be at least double the amount of the funds that were allocated for reinsurance coverage for hurricane season and open to other perils as well,” Friedlander said.
Most recently, insurance rating agency Demotech announced that it had withdrawn its financial stability rating for Southern Fidelity Insurance Company after the insurer placed a moratorium on writing new business and processing renewals in Florida until it secured enough reinsurance for hurricane season. When the Tallahassee, Fla.-based insurer failed to do so by the June 1 start of the season, the OIR ordered it to “wind down operations,” indicating the company could become the fourth Florida residential insurer to fail this year, following the liquidations of St. Johns, Avatar, and Lighthouse.
By Loretta Worters, Vice President, Media Relations, Triple-I
Maritime Day is a time-honored tradition that recognizes one of the United States’ most important industries. It is observed on May 22, the date in 1819 that the American steamship Savannah set sail from Savannah, Ga., on the first ever transoceanic voyage under steam power.
“National Maritime Day was created by an Act of Congress in 1933 to celebrate our nation’s mariners – the Merchant Marine,” John A. Miklus, president of the American Institute of Marine Underwriters (AIMU), the trade association representing the U.S. ocean marine insurance industry. “Today, it has expanded to include the entire maritime industry and domestic water-borne commerce, of which marine insurance is a very important part.”
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the destination. Cargo insurance is the sub-branch of marine insurance, though marine insurance also includes onshore and offshore exposed property, (container terminals, ports, oil platforms, pipelines), hull, marine casualty, and marine liability.
“The U.S. ocean marine insurance industry covers every imaginable kind of vessel and cargo, whether it’s a small pleasure craft or yacht, on up to the largest cruise ship or container ship calling on a major port here in the United States,” said Miklus, a former marine insurance underwriter with extensive marine insurance and reinsurance experience.
“Marine insurance and marine commerce are often thought of as an invisible industry,” he said. “People see an Amazon truck arrive but have no idea how that package found its way to their front doorstep.”
Insurance is designed to manage risks in the event of unfortunate incidents like cargo losses, damage to expensive ships, environmental disasters due to oil pollution, piracy and recently supply chain issues.
Miklus is passionate about the marine insurance business and is proud of the work of AIMU and the industry it serves.
“Today, in modern commerce, 90 percent of the goods found in our homes probably arrived on a container ship,” Miklus said. “As vital parts of commerce, these goods all need to be insured, and our member companies of AIMU insure those goods.”
Insurers, regulators, and members of Congress have expressed concern about proposed changes in how Standard & Poor’s Global Ratings defines “available capital” in its rating criteria. Specifically, S&P would no longer consider certain debt to be counted as available for purposes of rating insurers’ financial strength and ability to pay claims.
“Disruptive” and an “overuse of market power” is how the Association of Bermuda Insurers and Reinsurers (ABIR) described the measure in an 18-page letter to S&P, which has requested comments by April 29 on its proposed methodology and assumptions for analyzing the risk-based capital adequacy of insurers and reinsurers.
S&P’s proposed changes, in ABIR’s view, would lead to the sudden removal of billions of dollars overnight that otherwise would be available to underwrite catastrophe risk – a sector in which average insured losses have risen nearly 700 percent since the 1980s.
“This debt is viewed as capital by the regulators,” ABIR CEO John Huff says in a news release. “If carriers are forced to restructure debt, they’ll get less favorable terms today. Any replacement debt will increase financial leverage, which is counter to the stability people seek from a rating agency.”
ABIR points out ambiguity in the timing of the rollout of the planned changes, saying, “Insurers and reinsurers will have no time to respond to the new debt treatment before S&P has indicated the changes will go into effect.”
“There is no glide path or grandfathering,” Huff says. “It’s just a cliff. “
Bermuda’s insurers urge the rating agency to provide a transition period for any such changes, as well as grandfathering debt that already is in place.
“If there’s a transition plan, we can work within that,” Huff says. “But having this so abrupt is quite disruptive. Standard & Poor’s should be adding stability, not causing disruption.”
Bermuda is more than pink beaches and golden sunsets – it’s a major force in the re/insurance industry. The Association of Bermuda Insurers & Reinsurers (ABIR) works to raise the profile of Bermuda’s reinsurers and insurers and represents their public policy interests around the world.
ABIR CEO John Huff recently sat down with Triple-I CEO Sean Kevelighan to discuss the contribution of Bermuda companies to global resiliency. Some of those contributions include:
Bermuda insurers and reinsurers paid $2.7 billion in claims from last winter’s storms in Texas.
Some Bermuda companies are preparing to step up and help fund new U.S. infrastructure projects through their investment portfolios.
According to the Bermuda Monetary Authority, the island nation is home to 1,200 (re)insurers holding more than $980 billion total assets and writing gross premium of approximately $240 billion.
Huff is excited about the role the re/insurance industry is playing in securing a more resilient future for society.
“If you talk to your kids, this may be the first time our work is resonating with the next generation,” he says. “I do think it’s our opportunity to lead in the area of climate, resilience and adaptation.”
In discussing the Bermuda value proposition, Huff noted the concentration of exceptional talent within a square mile of Hamilton’s business district, which has captured the attention of investors who have plowed capital into the jurisdiction to form startup companies. Huff also said many established companies in Bermuda are scaling up by expanding their capabilities to take on more risk through analytics, underwriting and capital allocation.
Indeed, Bermuda is full of surprises. Huff said the general public doen’t realize that Bermuda companies underwrite half of the mortgage insurance sold in the US, creating opportunities for more young families to purchase their first home.
Wildfire is a critical risk facing California, but at least one insurance industry leader argues that the state government isn’t taking it seriously enough.
“Yes, the governor has committed some $2 billion dollars to wildfire budget items,” writes John Norwood of Norwood Associates LLC in an Insurance JournalOp-Ed piece. “These include $404.8 million to hire staff and purchase firefighting equipment; $1.128 billion for forest management, such as thinning and prescribed burns; and $616 million to community investments.”
“However,” the Op-Ed continues, “if you compare that commitment of dollars to the list of other budget allocations the governor has just signed, it appears the administration and the Legislature determined the wildfire problem was only as worthy as some of the lower-priority budget allocations, like cleaning up trash ($1.5 billion) and paying-off delinquent water and electrical bills ($2 billion).”
Norwood is one of California’s top legislative advocates and managing partner of Norwood Associates. He is considered the leader in the state’s insurance, financial services, and small business sector.
Rising insurance costs
Wildfires over the past five years have burned millions of acres in California, destroyed entire towns, wiped out well over 10,000 homes, killed scores of residents, and blanketed the state with unhealthy air.
“California homeowners and businesses are paying five- and six-figure premiums for property insurance, and that is only when they can find insurance at any price,” Norwood writes. “California’s largest industries – agriculture and wine production – are being devastated by the lack of available insurance.”
And yet, he continues, “the $2 billion dollars committed to wildfire risks doesn’t even make it into the top five issues in the state based on the budget allocation committed to the fight.”
Role of reinsurance
Reinsurers — which insure insurers — are crucial to how the world handles natural disasters. As the frequency and severity of small-scale disasters increase, they’re having to pay more attention. S&P Global observes that “around one-half of the reinsurers we rate reduced their exposure in absolute terms, with very few players taking on additional catastrophe risk.”
It adds that this “de-risking trend” among reinsurers has been particularly visible in North America in recent years.
Without reinsurance, primary insurance rates must rise as properties in some areas become uninsurable.
Norwood argues that availability and affordability of property insurance are unlikely to change until the global reinsurance market believes California is serious about addressing its wildfire risks and there are demonstrable results in reducing the number and severity of wildfires in the state.
Without the reinsurance market backing California property/casualty insurance companies, there will continue to be an availability crisis in the state for property insurance and prices for such coverage will continue to increase substantially to the detriment of California’s homeowners and businesses.
As we celebrate Earth Day, it’s important to remember that every day is Earth Day in the re/insurance industry. Our industry plays a critical role in developing innovative adaptation solutions, in measuring and pricing climate risks to inform risk management, and in providing economic support to people and communities when disasters strike.
Climate risk is a priority for member companies of the Association of Bermuda Insurers & Reinsurers (ABIR). They bring their expertise, innovation, commitment and claims paying capacity to secure a more resilient world.
With partners from government, our internationally recognized consolidated regulator the Bermuda Monetary Authority (BMA), and the re/insurance industry with its historic legacy of leadership in responding to global natural catastrophes, Bermuda has the foundational elements to become a leader in climate risk finance.
The recently announced BMA climate sandbox will give Bermuda’s financial services ecosystem the requisite regulatory and supervisory guidance, support and parameters to pursue innovative solutions to climate change risk. When Bermuda innovation and entrepreneurship prevails, consumers around the world benefit.
Over the past 20 years. Bermuda’s re/insurers have paid more than quarter of a trillion dollars in claims from natural and man-made disasters in the United States and European Union alone. All told, Bermuda represents over one-third of the global property & casualty reinsurance market and has a history of taking risks in some of the world’s most disaster-prone regions. At the heart of this commitment is talent. The people who work for our ABIR member companies are second to none when it comes to modeling, analytics and underwriting risk.
Underpinning this risk assessment is scientific research. Because of its location, Bermuda is a ready-made climate lab, surrounded by an ocean that serves as a real-life classroom for studying the forces behind our changing climate. The Bermuda Institute of Ocean Sciences, or BIOS, observes and analyzes oceanographic and atmospheric conditions from a research vessel in the Sargasso Sea, which is one of the world’s most diverse open-ocean ecosystems.
The Bermuda market joins insurers and reinsurers across the world committed to activating the global sustainable agenda by fostering new mitigation technologies through their assumption of risk and by investing in sustainable assets.
Armed and informed with the latest research and data, Bermuda is working diligently to close the world’s protection gap of $113 billion in 2020 – the difference between natural catastrophe and man-made economic losses and insured losses.
Most of that gap exists in emerging economies, so ABIR member companies join with the Insurance Development Forum (IDF) in committing $5 billion of re/insurance capacity to developing nations by 2025. In addition, IDF and its affiliates are developing an accessible, open modeling platform – with Bermuda leadership – that will greatly improve predictive capabilities in some of the world’s most disaster-prone regions.
ABIR is proud to join its industry partners from around the world in these efforts. Championed by the Global Federation of Insurance Associations (GFIA), which represents nearly 90% of the global insurance market, we are contributing to the effort to build a sustainable planet. Leveraging their tools, talent and capital, all stakeholders will work together toward resilient and sustainable recovery. As an industry, we are strongly committed to this critical joint effort to #RestoreOurEarth.
On behalf of ABIR and its member companies, Happy Earth Day.
John M. Huff is President and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR) and a former president of the U.S. National Association of Insurance Commissioners (NAIC).
Sean Kevelighan, Triple-I CEO, will be a featured speaker at the Reinsurance Association of America’s 18th annual Cat Risk Management conference as part of a COVID-19 panel. The panel will discuss the economic impact of the pandemic on insurers, pandemic-related litigation, and reinsurance issues.
The online conference takes place March 22-24 and features a powerhouse roster of experts who will share their views on lessons learned from the tumultuous year just passed, explore risk-management issues, and offer insights on how decision makers can navigate 2021.
Conference registration includes three full days of information, plus an on-demand capability that lets attendees preview sessions before the scheduled presentations and review sessions they might have missed or wish to view again.
The conference targets financial-sector professionals–including insurers, reinsurers, and investment banks–responsible for catastrophe risk management; attorneys specializing in reinsurance; academics; federal/state government officials; and regulators. In addition to the exceptional technical program, it’s a great networking opportunity.