Florida regulators making sure it’s covered
The official Atlantic Hurricane Season is less than two weeks away (June 1) and we thought we’d share the lengthy process that Florida insurance regulators have been going through to get ready – and make sure that our insurance companies are ready, too. The Florida Office of Insurance Regulation (OIR) process includes an annual “Reinsurance Data Call and a Catastrophe Stress Test (CST).” OIR is the only state regulator in the nation that conducts a CST, which requires insurance companies to apply their purchased reinsurance program to a historical storm scenario and evaluate the loss. The results of the test are used by OIR to estimate surplus amounts after these simulated events and ensure each company would meet its minimum surplus requirement after each scenario. The series of events for the 2024 CST were as follows:
- Scenario 1 – 1945 Homestead Hurricane, then 2004 Hurricane Charley, then 2004 Hurricane Frances
- Scenario 2 – 1921 Tampa Bay Hurricane, then 2017 Hurricane Irma, then 2018 Hurricane Michael
- Scenario 3 – 1928 Lake Okeechobee Hurricane, then 2005 Hurricane Wilma, then 2016 Hurricane Hermine
Using the historical data and damages above, seven Sunshine State insurance companies were projected to fall below the minimum surplus requirement in 2024. However, since the simulations, many have seen a stark change in preparedness, reducing their exposure anywhere from 24% to 86%, and others on the list are covered by loans or resources from holding and parent companies. Many carriers stated they anticipated further reductions thanks to the modeling. In all, the projected losses from the three scenarios changed from $39.4 billion in insured losses to approximately $20.2 billion for Scenario 1, from $41.9 billion to $23.2 billion in Scenario 2, and from a whopping $87.7 billion down to $32.2 billion in Scenario 3.
While these numbers certainly showcase the efficacy of the CST, the Reinsurance Data Call also supports the efforts to minimize loss statewide by testing companies’ ability to withstand a single 1-in-100-year storm. Prior to the start of the season, insurers must provide OIR a Probable Maximum Loss (PML), the structure of its reinsurance tower, complete a survey, and swear to the accuracy of the information. By June 1 the companies must finalize their PML and actually purchase reinsurance and provide proof of adequate reinsurance levels within 30 days. We are thankful regulatory bodies such as OIR exist to help Floridians keep their peace of mind and maintain the prudence and preparedness of insurance companies across the state.
LMA Newsletter of 5-19-25
