S&P predicts Florida homeowners’ rates to rise 10%

As the day draws near for Florida’s insurers to request a rate increase following last year’s record hurricanes, Standard & Poor’s expects an average 10% increase may be in the offing.S&P’s Robert McNatt says insurers are in far better shape following this hurricane season which produced four major hurricanes and as much as US$27 billion in insured losses than following 1992’s Hurricane Andrew. This is because prior to Andrew, homeowners’ rates were under-priced, leading to almost a dozen insurer failures following the storm. Also, since Andrew, many insurers have set up Florida-only subsidiaries so that the risk is not borne by the parent company.But with the specter of Hurricanes Charley, Frances, Ivan and Jeanne each taking their toll on the state in the fall of 2004, insurers and their reinsurers are taking the issue of multiple events much more seriously. “Another bad run of storms in 2005 or even a single storm of Andrew’s magnitude – could make it tougher for insurers to meet their obligations to customers or bondholders if no relief is in place,” McNatt notes.Regulators are stuck between trying to keep rates stable for homeowners and trying to make sure insurers stay in the state, lest more people be forced into the state-run insurance pool. “Regulators can respond to popular sentiment, but that doesn’t necessarily help the insured,” says S&P managing director Thomas Upton.And rates will not be the only issue under discussion in 2005. While legislators want to do away with the concept of multiple deductibles in response to the four storms, insurers fear having just one deductible in place for potentially many storm events in one season. At issue, says McNatt, will be the fact that one deductible could force insurers to hit their reinsurance retention levels more quickly, a threat which should send reinsurance rates up and the outcome of this will no doubt be higher primary insurance rates. Thus, S&P predicts insurers will win this battle with regulators.