Reinsurance


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The Florida fund that helps private insurers pay out claims after a hurricane remains in good shape heading into a storm season.

Despite losses from Hurricane Irma, estimates show the Florida Hurricane Catastrophe Fund will have $17.3 billion available this year. This means that the fund has more money than it would need to pay out if storms racked the state.

The estimates were formally approved last week.

The financial health of the fund is important because the state can impose a surcharge on most insurance policies to replenish it if the money runs out. Some critics have called the surcharge a “hurricane tax.”

The fund built up its reserves during a lengthy period when there were no storms. The fund is expected to pay out $2 billion for claims associated with Irma.

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https://www.insurancejournal.com/news/southeast/2018/05/25/490339.htm

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In another step shifting risk to private markets, the Federal Emergency Management Agency (FEMA) said it intends to secure additional reinsurance for the National Flood Insurance Program (NFIP) through issuance of a catastrophe bond.

FEMA began purchasing private reinsurance in 2017 and recovered $1.042 billion from the private markets due to losses from Hurricane Harvey. In early January 2018, FEMA continued the practice by securing $1.46 billion in reinsurance from 28 private reinsurers to cover any qualifying NFIP flood losses in excess of $4 billion per event occurring in calendar year 2018.

FEMA said it now plans to transfer additional risk by engaging the capital markets for the first time through an insurance-linked securities (ILS) transaction on or about July 1, 2018.

Adding this new resource will enable FEMA to transfer risk through two avenues – the traditional reinsurance markets and the capital markets. Wright said that using both markets will create more competition and reduce the NFIP’s risk transfer costs. It will also enable FEMA to access greater market capacity and spread its risk across a more diverse pool of companies and investors, according to the announcement.

“The NFIP requires a stronger financial framework built on expanding our portfolio of actuarially-priced policies. Transferring more of the risk burden to the private capital markets continues to be part of that strategy,” said Roy Wright, director of the NFIP.

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With the National Flood Insurance Program (NFIP) currently set to expire on February 9, and many communities still recovering from this summer’s hurricanes, it’s no surprise that the 21st Century Flood Reform Act has passed the House and moved to the Senate. But it’s important to note that Hurricane Harvey—which is estimated to have caused $65 billion to $75 billion in damage in Texas, according to AIR Worldwide—is only the latest in a string of disasters that highlight two major issues in U.S. flood insurance: the underestimated geographical spread of the threat, and the millions of uninsured and underinsured Americans who don’t even know they’re at risk.

Much of Harvey’s flooding extended beyond what are traditionally considered the highest hazard flood zones. It’s not the first such event in recent memory. Iowa in September 2016, Louisiana in August 2016, and South Carolina in October 2015 saw flooding in unexpected places. In fact, of the 43 property/casualty insurance catastrophes identified so far in 2017 by Verisk’s Property Claim Servicesâ, 38 involve losses due to flooding

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https://www.insurancejournal.com/news/national/2018/01/25/478275.htm

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A U.S. government weather forecaster said on Thursday that La Niña conditions are likely to persist through the Northern Hemisphere winter.

La Niña is characterized by unusually cold ocean temperatures in the equatorial Pacific Ocean and is linked with floods and droughts. It is the opposite phase of what is known as the El Niño Southern Oscillation (ENSO) cycle.

The National Weather Service’s Climate Prediction Center (CPC) in its monthly forecast pegged the chance of La Niña developing at about 85 to 95 percent, with a transition to ENSO-neutral expected during the spring.

“Based on the latest observations and forecast guidance, forecasters believe this weak-to-moderate La Niña is currently peaking and will eventually weaken into the spring,” the agency said.

The agency last month projected the chance of the phenomenon developing through the Northern Hemisphere winter at about 80 percent, with a transition to ENSO-neutral most likely during the mid-to-late spring.

La Niña emerged in 2016 for the first time since 2012, before fading in early 2017.

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https://www.insurancejournal.com/news/national/2018/01/12/477026.htm

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The Federal Emergency Management Agency (FEMA) has completed a reinsurance placement with 28 private reinsurers to help the National Flood Insurance Program (NFIP) recover losses it may have to pay in 2018.

Expanding on its first private reinsurance placement last year of $1.042 billion, the 2018 deal calls for FEMA to transfer up to $1.46 billion of the NFIP’s financial risk to the private reinsurance market. This new reinsurance agreement is effective from January 1, 2018, to January 1, 2019.

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https://www.insurancejournal.com/news/national/2018/01/08/476500.htm

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Ross Hancock sold his four-bedroom house in Coral Gables, a city of pastel luxury at the edge of Miami, because he was worried that sea-level rise would eventually hurt his property’s value. He and his wife, Darlene, downsized to a small condo on Biscayne Bay, perched atop one of the highest coral ridges in the area. There, he presumed, they would be safer.

Then Hurricane Irma hit.

The September storm pushed water onshore with such force that it penetrated the seams of Hancock’s building, defeating stormproof windows and damaging a third of the units. It knocked out the elevators, ruined the generator, and flooded the parking lot. Months later the park next door remains strewn with mangled yachts hurled from from the ocean.

Hancock’s unit was spared, but he’s facing a potential $60,000 bill from the condo association for his share of what insurance won’t cover. Now, four years after leaving Coral Gables, he and his wife want to move again—this time, out of Florida. But more than two months after listing their property, they haven’t found a buyer.

“It’s not the greatest time to be showing it,” Hancock said, noting the damage to the building. Still, Irma convinced him that it doesn’t make sense to wait. “At some point, we won’t be able to sell.”

Decisions by people such as Hancock to sell their homes demonstrate that one of the great mysteries of climate change isn’t scientific but psychological: When will the growing risks associated with rising seas and more severe storms begin to affect home values in otherwise desirable coastal markets?

Nowhere is that question more pressing than South Florida, which has some of the country’s priciest properties—and some of the most vulnerable. A state built on real estate speculation, whose chief attribute was proximity to the water, now faces a whole new problem: There’s not enough land, high enough above the water, for its residents to pull back from the rising seas. By the end of the century, database company Zillow Group estimates, almost a half-million Miami homes could be—literally—underwater. That’s more than anywhere else in the country.

In a working paper posted this month on Social Science Research Network, an online repository of academic research, professors from the University of Colorado at Boulder and Pennsylvania State University found that homes exposed to sea-level rise sell at a 7 percent discount compared with equivalent but unexposed properties.

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https://www.insurancejournal.com/news/southeast/2018/01/02/475789.htm

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Citizens Property Insurance Corp., the Florida state-run insurer of last resort, is anticipating its policyholder count will increase in 2018 for the first time since its efforts to shed policies through depopulation began several years ago.

As it moves on from a tumultuous 2017 that included a major hurricane and ongoing assignment of benefits (AOB) abuse, Citizens executives said at its board of governors meeting last week that it anticipates more than 60,000 policyholders from private insurance companies will return to the state-run insurer of last resort.

Citizens President, CEO and Executive Director Barry Gilway told the board at the Dec. 13 meeting that the Florida domestic insurance market’s combined ratio and surplus have declined, and the majority of Florida insurers experienced negative net income for the first time in five years.

While the active 2017 storm season is one factor contributing to deteriorating insurer results, the biggest factor is increasing costs from nonweather-related losses and AOB abuse fueled by attorneys and contractors. The industry has started taking steps to limit losses from AOB, with some insurers not writing in certain areas of the state where it is the rampant.

Citizens, which is statutorily obligated to offer coverage when the private market will not, will have to pick up these policies. Gilway said he expects Citizens will see significantly less depopulation next year.

“When the market is healthy, and companies are making money, depopulation soars; when it becomes negative, depopulation drops. We are not expecting a lot of depopulation next year,” Gilway said.

Instead, Gilway said, Citizens is expecting its overall policy count of 442,000 – the lowest it has been since the company was formed in 2002 – to climb back up to around 500,000. Citizens policy count reached a high of 1.4 million before the depopulation program began in 2012.

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https://www.insurancejournal.com/news/southeast/2017/12/20/474844.htm

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