FL legislators weigh proposals to open up homeowners market to domestic E&S carriers

A Florida senate committee yesterday approved a legislative proposal that would allow E&S carriers based in the state to underwrite domestic business while another bill has been drafted that would allow surplus lines insurers to participate in take-outs from fast-growing residual insurer Citizens.

The moves could help alleviate pressure in the Sunshine State’s challenged homeowners market, which has seen admitted domestic carriers shed huge amounts of business in the face of underwriting losses, much of which has found a home by default at Citizens.

The Senate Banking and Insurance Committee yesterday passed SB 1402, which would rewrite current legislation that prevents surplus lines carriers from being domiciled in Florida.

The proposal is aimed at allowing a domestic insurer with policyholders’ surplus of at least $15mn to be made eligible as a domestic surplus lines carrier, subject to a resolution by its board of directors and approval by the Florida Office of Insurance Regulation (FLOIR).

It would then be allowed to issue surplus lines policies in any jurisdiction, including Florida, relating to any kind of coverage that an unauthorised insurer not domiciled in the state is eligible to write.

A domestic surplus lines insurer would be subject to the same financial and solvency requirements imposed upon domestic admitted insurers.

But critically surplus lines insurance policies issued by a domestic surplus lines insurer would have freedom of rate and form in line with those written by E&S carriers domiciled outside the state.

The move would open up the possibility of incumbent domestic admitted homeowners carriers setting up an E&S operation domiciled in the state that would allow them to write business without the constraint of having to file and await approval on rate changes.

Admitted carriers have in many cases been forced to slash their portfolios of business because they have not been able to react quickly enough through rate changes or terms and conditions to address the deepening underwriting losses of recent years that have hit the Florida homeowners market.

From a policyholder perspective, domestic surplus lines would not be backed by the Florida Insurance Guaranty Association if they become insolvent, leaving insureds on the hook if the coverage cannot pay out.

Current Florida legislation says that if an E&S carrier wants to write business in Florida, it must be domiciled and incorporated in another state.

E&S Citizens take-outs?

Another piece of proposed legislation aimed at the strained Florida property market is SB 1728, which has been drafted by Senator Jim Boyd, chairman of the Senate Banking and Insurance Committee.

It would provide that eligible surplus lines insurers may participate in depopulation, take-out or keep-out programs relating to policies removed from Citizens on the same terms as an authorised insurer.

To qualify, an E&S carrier would need to be approved by the FLOIR and comply with the same requirements as an admitted insurer undertaking a take-out.

It would also need to maintain a surplus of at least $50mn on a company or pooled basis, have a “superior, excellent, exceptional, or equally comparable financial strength rating”, and maintain reserves, surplus and reinsurance to cover a 1-in-100-year probable maximum hurricane loss at least twice in a single hurricane season.

The coverage provided by the E&S carrier must also be similar to that provided by Citizens.

The bill, which has been filed but not yet heard at the committee stage, would significantly open up the market for take-outs, which have seen little traction over the last year despite some start-up activity.

Many incumbent admitted carriers are currently in self-preservation mode as they look to manage down exposures in the face of fast-rising reinsurance costs and underwriting losses.

Citizens has swelled dramatically in size over the last 12 months and ended 2021 with more than 759,300 in-force policies after growing by 29 percent in the year.

The Boyd proposal would also set a requirement that Citizens cannot renew policies unless premium from a private carrier is more than 20 percent greater than its rate.

Another piece of legislation – SB 1058 – has been approved by the Senate Banking and Insurance committee that would mean that private insurers would be able to access coverage from the Florida Hurricane Catastrophe Fund for policies assumed from insolvent carriers.

The move could also help incentivise the private market to step in to pick up policies that would otherwise end up at Citizens, which is already eligible to seek assignment of a failed insurer’s contract with the state-backed reinsurance vehicle when it takes over their policies.