Fitch: Home Insurance Shaky

In a special report on Monday, Fitch Ratings said that in spite of reform efforts enacted by Florida in 2007 to improve the availability and affordability of homeowners insurance in the state, that market continues to be unstable.

Although additional reforms are being considered in the current legislative session, the agency believes there is no easy solution to solve the problem, according to a report by Fitch analyst Brian Schneider.

The main concern from a ratings perspective is that if a major storm or storms hit Florida this year, “the fragile market could effectively collapse, especially if such an event intensifies the withdrawal of private capacity,” Schneider said. “Fitch believes these pressures will continue to create uncertainties for insurance companies with a material presence in the Florida homeowners market, and in some cases could become a more significant negative ratings consideration if stability does not return to the market relatively soon.”

Fitch said state-sponsored insurers are key factors in Florida’s current insurance system. Due to declines in what the state considers affordable capacity from private insurers, there has been a trend over the past several years to shift more business to state-sponsored vehicles.

Florida runs Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund to improve the affordability of homeowners’ insurance rates in a market where prices continue to be viewed as inadequate by many private insurers, Schneider said. Citizens sells property insurance to homeowners who can’t get it from the private market, while the Cat Fund offers private insurers low-cost reinsurance.

“Overall, Fitch views the nature of the Florida homeowners market as a negative for insurer credit ratings,” Schneider said. “The core challenges are rooted in the state’s significant exposures to hurricane risk. For private insurers at least, these risks are exacerbated by the expanded role of state-sponsored entities, against whom private insurers find it difficult to compete, as well as significant differences of opinion with regulators as to the level at which rates should be set.”

Fitch said it believes ratings pressure on property insurers will remain in place for the foreseeable future.

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