July 17th, 2017

Excess Capacity in This Year’s Florida Market: Part III; Florida’s Citizens: Lara Mowery

Posted at 1:00 AM ET

mowery_lara_bio3In an interview Guy Carpenter’s Lara Mowery, Managing Director, discussed the drivers of the continuing rate reductions in Florida and what it means for the rest of the market. Here she discussed the role of Florida’s Citizens, the state’s insurer of last resort, in this year’s June 1 renewals.

How about Citizens, the state-owned insurer of last resort? Has Citizens’ efforts to reduce its exposure had an impact?

The transition of policies out of Citizens and into the private market has clearly had an impact on the companies who have taken on a lot of that risk. One outcome is that they have had to buy more reinsurance to protect themselves. Citizens’ approach is to use both traditional reinsurance and insurance-linked securities (ILS) to transfer risk. Each year, the company reviews market conditions in both markets relative to their needs before formalizing a risk transfer strategy. Last year, Citizens utilized more ILS capacity as a result of previous multi-year catastrophe bond issuances and a subsequent reduced traditional reinsurance demand. This year that strategy reversed as previous catastrophe bonds matured and limit was replaced with traditional reinsurance.

However, in terms of the impact on the wider market, the overall reinsurance demand has increased significantly as a result of policies being depopulated from Citizens. On one hand, Citizens needs less risk transfer as they get smaller. The private market, on the other hand, has to adjust their risk management strategy which typically results in purchasing additional reinsurance as they depopulate policies from Citizens. Further impacting the increase in reinsurance demand is the fact that the majority of policies that were depopulated from Citizens were from the Personal Lines Account, where Citizens has not historically purchased reinsurance.

This piece first appeared on InsuranceLinked>>

Link to Part I>>

Link to Part II>>

Link to Part IV>>

Link to Part V>>

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