Florida Property Insurance Markets Economic and Financial Update
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Transcript of Florida Property Insurance Markets Economic and Financial Update
Florida Property Insurance Markets
Economic and Financial Update
Robert P. Hartwig, Ph.D., CPCU, PresidentInsurance Information Institute 110 William Street New York, NY 10038
Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org
Insurance Information InstituteMedia BriefingTallahassee, FL
January 22, 2008
Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005)
$3.5 $3.8 $4.8 $5.0$6.6 $7.4 $7.7
$10.3
$21.6
$41.1
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Georges(1998)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo(1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Andrew(1992)
Katrina(2005)
$ B
illi
ons
Sources: ISO/PCS; Insurance Information Institute.
Seven of the 10 most expensive hurricanes in US history impacted
Florida:
Andrew, Katrina, Wilma, Charley, Ivan, Frances & Jeanne
Landfalling Hurricanes: 1900-2007FL Landfalls are Common
184
70
26
0
50
100
150
200
All Landfalling: 1900-2007
FL Landfalling FL CAT 3+Landfalling
Source: HURDAT database; Insurance Information Institute.
A hurricane strikes FL every other year on average—CAT 3+ every 4 years
38% of all hurricane landfalls occur in FL
37% of all FL landfalls are
CAT 3+
1.7 hurricanes make landfall each year on average
Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss,
1987-2006¹
Fire, $6.6 , 2.2%
Tornadoes, $77.3 , 26.0%
All Tropical Cyclones, $137.7 ,
46.3%
Civil Disorders, $1.1 , 0.4%
Utility Disruption, $0.2 , 0.1%
Water Damage, $0.4 , 0.1%Wind/Hail/Flood,
$9.3 , 3.1%
Earthquakes, $19.1 , 6.4%
Winter Storms, $23.1 , 7.8%
Terrorism, $22.3 , 7.5%
Source: Insurance Services Office (ISO)..
1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires.
Insured disaster losses totaled $297.3 billion from
1987-2006 (in 2006 dollars). Hurricanes & tropical storms accounted for
$137.7 billion of these—near half of the total.
Distribution of US Insured CAT Losses: TX, FL vs US, 1980-2006*
Texas, $25.6 , 10%
Florida, $57 , 22%
Rest of US, $176 , 68%
Florida accounted for 22% of all US insured CAT losses from 1980-2006: $57B out of
$249.3B
*All figures (except 2006 loss) have been adjusted to 2005 dollars.Source: PCS division of ISO.
$ Billions of 2005 Dollars
Total Value of Insured Coastal Exposure (2004, $ Billions)
$1,901.6$740.0
$662.4$505.8
$404.9$209.3
$148.8$129.7$117.2$105.3
$75.9$73.0
$46.4$45.6$44.7$43.8
$12.1
$1,937.3
$0 $500 $1,000 $1,500 $2,000 $2,500
FloridaNew York
TexasMassachusetts
New JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
Source: AIR Worldwide
Florida leads the way for insured coastal
property at more than $1.9 trillion in 2004 and is expected to
double by 2014
Historical Hurricane Strikes in Miami-Dade, FL, 1900-2007
Source: NOAA Coastal Services Center, http://maps.csc.noaa.gov/hurricanes/pop.jsp?PopStormStates=FL&PopStormCounty=; Insurance Info. Institute, accessed 11/28/07.
Population of Miami-Dade County is 10
times what it was when the last period of
intense activity began in the 1930s, lasting 30
years
FLORIDA HURRICANES & INSURER
PROFITABILITY:
Selling Home Insurance in Florida is Challenging
($9.30)
($3.77)
$2.96 $3.40
($10)
($8)
($6)
($4)
($2)
$0
$2
$4
$6
2004 2005 2006 2007E
Underwriting Gain (Loss) in Florida Homeowners Insurance,
2004 - 2007E*
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.
$ B
illi
ons
Over the past four years, underwriting losses
exceeded premiums in Florida by an estimated
$6.7 billion
Private Insurers**
($10.60)
($0.21)
$0.69 $0.43$0.86 $1.08 $1.23 $1.28 $1.43 $1.15 $1.38 $1.76
($9.30)
($3.77)
$2.96 $3.40
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
$4
$6
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07E
Underwriting Gain (Loss) in Florida Homeowners Insurance,
1992-2007E*
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.
$ B
illi
ons
Florida’s homeowners insurance market produces small/modest
profits in most years and enormous losses in others
Private Insurers**
-$10.6-$10.8-$10.1-$9.7
-$8.8-$7.7
-$6.5
-$5.2
-$3.8-$2.7
-$1.3
$0.5
-$8.8
-$12.6
-$9.6
-$6.2
($14)
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07E
Cumulative Underwriting Gain (Loss) in Florida Homeowners
Insurance, 1992-2007E*
$ B
illi
ons
It took insurers 11 years (1993-2003) to erase the UW loss
associated with Andrew, but the 4 hurricanes of 2004 erased the prior 7 years of profits &
2005 deepened the hole.
Regulator under US law has duty to allow rates
that are “fair,” “not excessive” and “not
unduly discriminatory.”Reality is that regulators
in CAT-prone states suppress rates.
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.
Private Insurers**
Rates of Return on Net Worth for Homeowners Ins: US vs. Florida
Source: NAIC; 200/6 US and FL estimates from the Insurance Information Institute.
-54.3%
-2.8%
-183.3%
-714.9%
-53.4%
36.0%
-800%
-700%
-600%
-500%
-400%
-300%
-200%
-100%
0%
100%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06E
US Florida
Averages: 1990 to 2006E
US HO Insurance = -0.9%
FL HO Average = -36.5%
Andrew
4 Hurricanes
Wilma, Dennis, Katrina
1990 – 2006E
The Facts About Homeowner Insurer Profits and Losses in Florida
• During the period from 1992 through 2007, private home insurers in Florida paid an estimated $6.2 billion more in claims than they received in premiumsThis $6.2 billion underwriting loss remains even after including
$2.96 billion in profits in 2006 and $3.4 billion in 2007 (est.) It will take until 2009 for insurers just to get to the breakeven point
for the 15 year period 1992-2009 even if there no storm losses in 2008 and 2009
• Florida Has Been a Money-Losing Proposition for Most Home Insurers in Terms of ReturnThe average annual rate of return on FL homeowners insurance
was -36.5% from 1990-2006, despite a profitable 2006Even if insurers were to earn a 40% rate of return (implying no
storm activity) every year, the average return for insurers will not exceed 0% until 2022. To reach the current 5% risk-free return on 10-year Treasury bonds would take until 2026 and a 10% return is unachievable until 2033
Florida State-Run Insurer Residual Deficits 2004/2005 (Millions of Dollars)
Source: Insurance Information Institute research.
-$516
-$1,425
-$1,770-$2,000
-$1,800
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0Florida Hurricane Catastrophe Fund (FHCF) Florida Citizens
2004 2005
The hurricanes seasons of 2004/5 weakened the FL Hurricane CAT
Fund and Citizens, producing a gross state-run insurer deficit of $3.7 billion
FL’s guarantee fund will also assess for at
least $400 million
Insurance Information Institute On-Line
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