Florida Homeowners Insurance Market

Transcription

1 Florida Homeowners Insurance Market Observations and Perspective Presented to 2010 Summer Insurance Symposium June 8, 2010 Clearwater, Florida

2 Introduction John Forney, CFA Managing Director, Public Finance Raymond James & Associates, Inc. Clients include: -- Florida Hurricane Catastrophe Fund -- Citizens Property Insurance Corporation (FL) -- Florida Insurance Guaranty Association -- California Earthquake Authority -- Louisiana Citizens Property Insurance Corporation -- Texas Windstorm Insurance Association

3 Presentation Outline Section I Homeowner s Insurance The Big Picture Section II Homeowner s Insurance The Florida Picture Section III The FHCF is Back Section IV Citizens/FHCF Storm Scenarios Section V Where Do We Go From Here? 2

4 Section I Homeowner s Insurance The Big Picture 3

5 Homeowner s Insurance Environment The Big Four have combined to put pressure on insurers nationwide 1. The Recession 2. Policyholder Aggression 3. Low investment returns 4. Reinsurance Costs

6 Homeowner s Insurance Environment 1. The Recession Yes it s over, but..top line is still down First ever three-year decline in net premiums

7 Homeowner s Insurance Environment 2. Policyholder aggression Example: Hurricane Wilma (Florida landfall 10/24/05) FHCF Loss Reports (as of 2/28/10) New Claim Reports since July 2008 = $505 million New Claims Reports by Quarter Q3/08 = $ 61 million Q4/08 = $158 million Q1/09 = $ 49 million Q2/09 = $ 74 million Q3/09 = $ 56 million Q4/09 = $ 83 million Q1/10 = $ 42 million New Claims in 2009 = $262 million New Claims in last 12 months = $281 million New Claim Reports in 2010 = $42 million

8 Homeowner s Insurance Environment 3. Low Investment t Returns Anything but.01%!!! 5.00% 4.50% 4.00% 3.50% FOMC Decisions Meeting Date Fed Funds Target 8/5/ % 9/16/ % 10/8/ % 10/29/ % 12/16/08 to Present 0.25% 3.00% 2.50% 2.00% 1.50% The continued steepening of the yield curve around the 1 year T bill implies that investors expect interest rates to rise in the latter half of Today 4/30/ Month Ago 3/31/ Year Ago 4/30/ % 0.50% 0.00% 4 Week 3 Month 6 Month 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 30 Year

9 Homeowner s Insurance Environment 4. Reinsurance Costs Costs are no longer increasing, but

10 Section II Homeowner s Insurance: The Florida Picture 9

11 Florida Residential Property Insurance Market = Quasi governmental entity with assessment capability Private Reinsurers Bermuda 70% Lloyd s 14% Europe 10% U.S. 6% FHCF ($25 B in potential coverage; approx. 50% mkt share of FL reinsurance ) FIGA (Florida Insurance Guaranty Assoc.) Private Insurers (5 mm policies; 182 insurers Pups 20% FL Stand alone 40% Other 10% Citizens (1.1 million policies; 30% market share) Residential Policyholders (6.3 million risks, average residential premium $1,600) $9.5 billion residential premium (estimated), representing $2.2 trillion of insured property value 10

12 Florida-Based Companies Fast Facts Surplus: 7 had 2009 year-end end surplus over $50 million 25 had 2009 year-end surplus over $20 million 40 had 2009 year-end surplus over $10 million DWP and Net income 16 had 2009 DWP over $100 million 22 had 2009 DWP under $50 million 18 reported a profit in 2009

13 Section III The FHCF is Back 12

14 The FHCF could be liable for over 45% of Florida s PML Florida Year PML: $56.51 Billion* Remaining Florida liability for all other insurers and reinsurers $31.05 Billion Total Potential FHCF Liability $25.46 Billion (Not to scale) *Source: FHCF 2010 Ratemaking Formula Report 13

15 The FHCF s Potential Obligations for 2010 Florida Hurricane Catastrophe Fund $34.0 B, 1:45 Years (2.2%) $.889 B Ind ustry Coayments Pa $8 B - Optional Coverage (All from bonding) TICL layer - $8 B maximum for 2010 $25.2 B, 1:32 Years (3.1%) $1.89 B In ndustry Co o- Pay ments $17 B Mandatory Coverage ($7.94B from bonding) (Loss Adjustment Expense is included in the capacity for all coverages) Bonding Triggered $17.2 B, 1:21 Years (4.8%) $3.50 B Series 2007A Pre-Event Mandatory Coverage Note Proceeds $7.142 B, 1:9 Years, 11.1% Not drawn to scale. $6.02 B Projected 2010 Year-End Fund Balance $7.142 B Industry Retention $461MM Optional Coverage* * Optional coverage for certain statutorily designated companies expected to be selected, the total t maximum coverage is $1.1 billion 14 Total Potential FHCF 2010 Obligations = $17 B (mandatory layer) + $8 B (TICL) + $461 M (optional coverage for certain companies) = $ B

16 Florida Hurricane Catastrophe Fund Overview of Claims Paying Funding Sources, Assuming Projected TICL Take-up $ B 2010 THEORETICAL CLAIMS PAYING SOURCES 1:45 yrs $ B 2010 PROJECTED CLAIMS PAYING SOURCES 1:45 yrs $9.520 B THEORETICAL PROJECTED POST-EVENT POST-EVENT BORROWING NEEDED BORROWING NEEDED $ B PROJECTED $ B POST-EVENT BORROWING CAPACITY* $ B 1:21yrs $9.520 B 1:21 yrs PRE-EVENT RESOURCES $3.500 B (Series 2007A Notes) PRE-EVENT RESOURCES $3.500 B (Series 2007A Notes) $6.020 B 1:16 yrs $6.020 B 1:16 yrs PROJECTED FUND BALANCE $6.020 B PROJECTED FUND BALANCE $6.020 B 15

17 FHCF Estimated Bonding Capacity Florida Hurricane Catastrophe Fund ($ Billions) $18 $16 $14 $12 $10 $8 $6 $8 PROJECTED POST-EVENT BORROWING CAPACITY* PROJECTED $ B POST-EVENT BORROWING CAPACITY* $ B $11 $16 $4 $2 $0 $3 PROJECTED FUND BALANCE $6.020 B Oct May-09 Oct May-10 16

18 FHCF The Bottom Line The FHCF has substantial liquid resources of approximately $9.5 billion available to it for the 2010 storm season These resources would enable the FHCF to avoid bonding after most events, and would provide a time cushion before bonding was required after a large event. If bonding is required, the FHCF would not need to access the markets all at once in order to meet its reimbursement obligations. The probability of storm losses exceeding these liquid resources is approximately 4.7% for The FHCF is a highly rated and proven issuer with long-term debt ratings of Aa3/AA-/AA -- and improved market conditions have further strengthened its bonding capability

19 Section IV Citizens/FHCF Storm Scenarios 18

20 Citizens and FHCF 100 Year PML Event Where Would the $ Come From? TOTAL Non Overlapping Liability: $34.76 billion Bond Based Assessments $ % Cash $ % Total Bonding $5.640 B Non Bond Based Assessments $ % CITIZENS 100 Year PML $ Billion (As of 12/31/09) Assessment on all Policyholders $5.640 Billion (28%) Assessment on Insurers $3.496 Billion (17%) Assessments on Citizens Policyholders $1.035 Billion (5%) FHCF Recovery $5.610 Billion (28%) Surplus $4.405 Billion (22%) FHCF Potential Maximum Obligation $20.2 Billion Assessments for FHCF TICL Layer $3.181 Billion (16%) (Annual Assessment 0.7% for 30 years) Assessments for FHCF TICL Layer $ Billion (42.1%) Assessments for Original FHCF Layer $ Billion (54%) Assessments 2.3% for for 30 Original years) Layer $12.9 Billion (Annual Assessment 2.3% for 30 years) (46.1%) Operating Cash $6.020 Billion (30%) Total Bonding $ B Citizens resources not shown in order of use after a storm Assumes total FHCF Mandatory Coverage of $17 Billion, Premium of $1.390 Billion, and Projected 2010 Year End Fund balance of $6.020 Billion, Optional LAC Coverage of $461 Million, total TICL Coverage of $2.72 Billion calculated as approximately 34% of the total $8 billion maximum TICL coverage available in 2010 or approximately 50% of the Non Citizens TICL coverage TICL coverage is estimated based on the Non Citizens percentage purchased in 2009 with projected increase and Citizens Board of Governors election to not purchase TICL coverage in 2010 at their March 18 th meeting. 19

21 Total Potential Assessments 1 in 100 Year Event 1 Potential Assessments 1 / 100 Year Event One year Annual Total Citizens Policyholders Surcharge (CPS) Regular Emergency Regular Emergency Year 1 Annual Citizens Citizens Policyholders 45.00% 000% 0.00% 000% 0.00% 000% 0.00% 130% 1.30% 45.00% 130% 1.30% Non Citizens Policyholders 0.00% 10.72% 0.00% 0.00% 1.30% 10.72% 1.30% FHCF 0.00% 0.00% 0.00% 0.00% 3.00% 0.00% 3.00% FIGA 0.00% 2.00% 2.00% 2.00% 2.00% 4.00% 4.00% Potential Maximum for Citizens Policyholders 45.00% 12.72% 2.00% 2.00% 6.30% 49.00% 8.30% Potential Maximum for Non Citizens Policyholders 0.00% 12.72% 2.00% 2.00% 6.30% 14.72% 8.30% New Premium after 1 / 100 Event Current Year 1 Annual Average Citizens Homeowner Policy premium $ 2,108 $ 3,141 $ 2,283 Average Non Citizens Homeowner Policy premium 1,534 1,760 1,661 Average Auto Policy Premium 1,123 1,288 1,216 Total Citizens Policyholder Average Premium 3,231 4,429 3,499 Total Non Citizens Policyholder Average Premium 2,657 3,048 2,878 Average Household Income= $46,206 % of Average Household for Citizens Policyholder 6.99% 9.59% 7.57% % of Average Household for Non Citizens 5.75% 6.60% 6.23% Notes: Citizens Policyholders Surcharge and Assessments are based on deficit in all three accounts FHCF Assessment is levied after year 1 as the interest expenses are capitalized for year 1 FIGA Assessments are projected to be potentially maximum assessments Assumes total FHCF Mandatory Coverage of $17 Billion, Premium of $1.390 Billion, and Projected 2010 Year End Fund balance of $6.020 Billion, Optional LAC Coverage of $461 Million, total TICL Coverage of $2.72 Billion calculated as approximately 34% of the total $8 billion maximum TICL coverage available in 2010 or approximately 50% of the Non Citizens TICL coverage TICL coverage is estimated based on the Non Citizens percentage purchased in 2009 with projected increase and Citizens Board of Governors election to not purchase TICL coverage in 2010 at their March 18 th meeting See Notes page for important assumptions and sources

22 Florida Premiums Before and After a Year Event 1 State Insurance Premiums Rate Comparison Analysis for 10 States with Highest Combined Premiums as a % of Household Income New Average Current New Average New Adjusted Post Year 1 New Adjusted Average Premium as % Year 1 Premium Premium as % Annual Premium as % Current Average Annual Policyholder Premiums Household Income of Household Income for yr event of Household Income Premium for yr event of Household Income State Residential Auto Total Louisiana $1,400 $1,262 $2,662 $41, % N/A 6.46% N/A 6.46% Florida $1,534 $1,123 $2,657 $46, % $3, % $2, % Texas $1,448 $956 $2,404 $47, % N/A 5.10% N/A 5.10% District of Columbia $1,089 $1,289 $2,378 $54, % N/A 4.39% N/A 4.39% Rhode Island $950 $1,174 $2,124 $54, % N/A 3.88% N/A 3.88% New York $936 $1,179 $2,115 $50, % N/A 4.18% N/A 4.18% Massachusetts $1,023 $1,057 $2,080 $60, % N/A 3.44% N/A 3.44% New Jersey $776 $1,228 $2,004 $64, % N/A 3.13% N/A 3.13% Connecticut $929 $1,060 $1,989 $65, % N/A 3.03% N/A 3.03% Alaska $861 $1,106 $1,967 $64, % N/A 3.04% N/A 3.04% United States $822 $912 $1,734 $51, % N/A 3.38% N/A 3.38% Source: Most recently reported premium data from the National Association of Insurance Commissioners (NAIC) as of Florida premiums exclude Citizensʹ policyholders. Income data from U.S. Census Bureau, Current Population Survey, based on the 2 year median average from 2007 to See Notes page for important assumptions and sources

23 Citizens and FHCF Hurricane Andrew Event Where Would the $ Come From? TOTAL Non Overlapping Liability: $ billion Bond Based Assessments $ % Cash $ % Non Bond Based Assessments $ % CITIZENS Hurricane Andrew PML $ Billion (As of 6/30/09) Assessment on Insurers $1.255 Billion (12%) Assessments on Citizens Policyholders $345 Million (3%) FHCF Recovery $4.24 Billion (41%) FHCF Potential Maximum Obligation $20.2 Billion Assessments for FHCF TICL Layer $3.181 Billion (16%) (Annual Assessment 0.7% for 30 years) Assessments for FHCF TICL Layer $ Billion (42.1%) Assessments for Original FHCF Layer $ Billion (54%) (Annual Assessment 2.3% for 30 years) Assessments for Original Layer $12.9 Billion (46.1%) Surplus $4.405 Billion (43%) Operating Cash $6.020 Billion (30%) Total Bonding $ B Citizens resources not shown in order of use after a storm Assumes total FHCF Mandatory Coverage of $17 Billion, Premium of $1.390 Billion, and Projected 2010 Year End Fund balance of $6.020 Billion, Optional LAC Coverage of $461 Million, total TICL Coverage of $2.72 Billion calculated as approximately 34% of the total $8 billion maximum TICL coverage available in 2010 or approximately 50% of the Non Citizens TICL coverage TICL coverage is estimated based on the Non Citizens percentage purchased in 2009 with projected increase and Citizens Board of Governors election to not purchase TICL coverage in 2010 at their March 18 th meeting. 22

24 Total Potential Assessments Hurricane Andrew 1 Potential Assessments for Andrew One year Annual Total Citizens Policyholders Surcharge (CPS) Regular Emergency Regular Emergency Year 1 Annual Citizens Citizens i Policyholders ld 15.00% 000% 0.00% 000% 0.00% 000% 0.00% 000% 0.00% 15.00% 000% 0.00% Non Citizens Policyholders 0.00% 3.85% 0.00% 0.00% 0.00% 3.85% 0.00% FHCF 0.00% 0.00% 0.00% 0.00% 3.00% 0.00% 3.00% FIGA 0.00% 2.00% 2.00% 2.00% 2.00% 4.00% 4.00% Potential Maximum for Citizens Policyholders 15.00% 5.85% 2.00% 2.00% 5.00% 19.00% 7.00% Potential Maximum for Non Citizens Policyholders 0.00% 5.85% 2.00% 2.00% 5.00% 7.85% 7.00% New Premium after Andrew Current Year 1 Annual Average Citizens Homeowner Policy premium $ 2,108 $ 2,509 $ 2,256 Average Non Citizens Homeowner Policy premium 1,534 1,654 1,641 Average Auto Policy Premium 1,123 1,211 1,202 Total Citizens Policyholder Average Premium 3,231 3,720 3,457 Total Non Citizens Policyholder Average Premium 2,657 2,866 2,843 Average Household Income= $46,206 % of Average Household for Citizens Policyholder 6.99% 8.05% 7.48% % of Average Household for Non Citizens 5.75% 6.20% 6.15% Notes: Citizens Policyholders Surcharge and Assessments are based on deficit in all three accounts FHCF Assessment is levied after year 1 as the interest expenses are capitalized for year 1 FIGA Assessments are projected to be potentially maximum assessments Assumes total FHCF Mandatory Coverage of $17 Billion, Premium of $1.390 Billion, and Projected 2010 Year End Fund balance of $6.020 Billion, Optional LAC Coverage of $461 Million, total TICL Coverage of $2.72 Billion calculated as approximately 34% of the total $8 billion maximum TICL coverage available in 2010 or approximately 50% of the Non Citizens TICL coverage TICL coverage is estimated based on the Non Citizens percentage purchased in 2009 with projected increase and Citizens Board of Governors election to not purchase TICL coverage in 2010 at their March 18 th meeting See Notes page for important assumptions and sources

25 Florida Premiums Before and After a Hurricane Andrew Event 1 State Insurance Premiums Rate Comparison Analysis for 10 States with Highest Combined Premiums as a % of Household Income New Average Current New Average New Adjusted Post Year 1 Annual New Adjusted Average Premium as % Year 1 Premium Premium as % Premium for Premium as % Current Average Annual Policyholder Premiums Household Income of Household Income for Hurricane Andrew event of Household Income Hurricane Andrew event of Household Income State Residential Auto Total Louisiana $1,400 $1,262 $2,662 $41, % N/A 6.46% N/A 6.46% Florida $1,534 $1,123 $2,657 $46, % $2, % $2, % Texas $1,448 $956 $2,404 $47, % N/A 5.10% N/A 5.10% District of Columbia $1,089 $1,289 $2,378 $54, % N/A 4.39% N/A 4.39% Rhode Island $950 $1,174 $2,124 $54, % N/A 3.88% N/A 3.88% New York $936 $1,179 $2,115 $50, % N/A 4.18% N/A 4.18% Massachusetts $1,023 $1,057 $2,080 $60, % N/A 3.44% N/A 3.44% NewJersey $776 $1,228 $2,004 $64, % N/A 3.13% N/A 3.13% Connecticut $929 $1,060 $1,989 $65, % N/A 3.03% N/A 3.03% Alaska $861 $1,106 $1,967 $64, % N/A 3.04% N/A 3.04% United States $822 $912 $1,734 $51, % N/A 3.38% N/A 3.38% Source: Most recently reported premium data from the National Association of Insurance Commissioners (NAIC) as of Florida premiums exclude Citizensʹ policyholders. Income data from U.S. Census Bureau, Current Population Survey, based on the 2 year median average from 2007 to See Notes page for important assumptions and sources

26 State Comparison Analysis Notes Homeowners Premiums Notes: Based on the HO 3 policy for owner occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named peril coverage on personal property, and is the most common policy written. Florida data exclude policies written by Citizens Property Insurance Corporation. Average premium=premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data. Auto Premium Notes: The state combined average premium per insured vehicle is calculated by summing the average premiums paid for liability, comprehensive and collision coverages. Aggregate written premiums and aggregate written exposures are used in calculations with no distinction as to policyholder classifications, vehicle characteristics or the selection of specific limits or deductibles. Nor do the results consider differences in state auto and tort laws, rate filing laws, traffic conditions or other demographics. CAUTION: Because of these differences, direct comparisons between state results would be misleading. Tax Notes: Information from the Tax Foundation based on calculations from data from the Bureau of Economic Analysis, the Census Bureau, the Council on State Taxation, the Travel Industry Association, Department of Energy, and others. Data Sources: Tax information for 2008 from the Tax Foundation org/taxdata/show/336 html Insurance premium data: Most recently reported premium data from the National Association of Insurance Commissioners (NAIC) as of Income data: U.S. Census Bureau, Current Population Survey, based on the 2 year median average from 2007 to

27 Section V Where Do We Go From Here? 26

28 The Future Higher rates??? Better building codes and enforcement Mitigation programs Formal Federal involvement An integrated public private partnership is the only way to tackle the problem of catastrophic risk in a proactive way Under consideration: SB 886 Sen. Nelson HR 2555 Rep. Klein

29 The Best Answer

30 Florida Homeowners Insurance Market Observations and Perspective Presented to 2010 Summer Insurance Symposium June 8, 2010 Clearwater, Florida