Hurricane Michael to Test Florida’s Unique Insurance Market

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Much of the damage to homes from Hurricane Michael will be paid by an array of small, little-known insurers, backed up by larger reinsurance companies around the globe.

Florida is an oddball insurance market for homeowners, where household-name companies like State Farm and Allstate Corp. don’t have the outsize roles they do in other states. Officials had to develop a new strategy after these brand-name insurers shrank their presence in the wake of Andrew, Katrina and other hurricanes from 1992 through 2005.

Today, Florida is heavily reliant on a group of about 50 small-to-midsize insurance carriers to protect homeowners. These carriers are required to buy ample amounts of reinsurance because they don’t have plump capital cushions like those of bigger insurers. Reinsurers are specialists in sharing the risk of policies sold by primary insurers, funding claims once they reach designated levels.

In sizing up damage from Michael, homeowners can take some comfort that Florida’s system was tested last year, when Irma slammed into the Florida Keys as a Category 4 storm. While consumer advocates say many individual claims from Irma remain in dispute, Florida’s arrangement proved financially sound overall, according to state officials and industry analysts.

“Reinsurers all over the world are paying those claims,” said Elyse Greenspan, an insurance stock analyst at Wells Fargo Securities, “including players in Bermuda, European reinsurers as well.”

Residents along the coast of the Florida Panhandle describe the devastation caused by Hurricane Michael, the most powerful storm to hit the area in more than 160 years. Photo: Dan Anderson/EPA

Early estimates of Michael’s insured losses range from $2 billion to more than $10 billion. In contrast, estimates for Hurricane Florence, which hit the Carolinas last month, range from about $2 billion to $5 billion.

The national carriers now account for only about one-fifth of Florida’s market, far less than the more than half they commanded in 1992, according to Standard & Poor’s Global Ratings. The replacements include such companies asUniversal Insurance Holdings Inc., Heritage Insurance Holdings Inc. and HCI Group Inc.

Joseph Petrelli, president of Demotech Inc., an insurance-ratings firm with a specialty in Florida’s homeowners market, said that the small-to-midsize companies rated by his firm have greater surplus—an insurance-industry equivalent of net worth, or assets minus liabilities—than before Irma. Irma-related losses, net of reinsurance, currently total more than $360 million at these insurers, he said.

The results “should assuage concerns related to wind damage from Michael,” he said.

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