January 23, 2014 / 2:25 PM / 4 years ago

RPT-Fitch: Florida Clearinghouse to Increase Reinsurance Demand

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Jan 23 (Reuters) - (The following statement was released by the rating agency)

The imminent launch of a property insurance clearinghouse in Florida that will push more business to private insurers will also moderately increase demand for private market and capital market reinsurance, Fitch Ratings says. However, the continually increasing capacity from both traditional and non-traditional reinsurance providers means the ultimate impact on reinsurance pricing is likely to be muted.

From 27 January applicants for cover from state-sponsored Citizens Property Insurance will first go through a clearinghouse that allows private insurers to offer them coverage. The clearinghouse was created by the 2013 Florida legislature to reduce the statea€™s exposure to insurance risk and means Citizens can only provide coverage if a private market offer is not available or if the rate is more than 15% higher than Citizensa€™ premium rate.

This mechanism should modestly help reduce Citizensa€™ size and could shift more business to Florida-only specialist insurers. These insurers use more private market reinsurance than either Citizens or more diversified insurers in Florida, potentially increasing reinsurance demand. Specialist insurers have also been participating in recent depopulation efforts by Citizens as part of the state-sponsored insurera€™s efforts to reduce its size. This has reduced the number of Citizens policies to around 1 million from 1.5 million in October 2012.

The movement of business out of Citizens could accelerate the trend of Florida premiums increasingly being ceded to third-party reinsurers. In addition, the Florida Hurricane Catastrophe Fund (FHCF), the state-sponsored property reinsurer, stated this month that it is considering buying up to USD1.5bn of retrocessional protection in 2014 through either traditional reinsurers or alternative capital markets. The FHCF has also been gradually reducing the optional reinsurance coverage it provides after legislation enacted in 2009, decreasing the risk the entity poses for the state.

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