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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