Mid-Year Insurance Review

Homeowners Market

The Homeowners insurance market continues to be hard hit in catastrophe-prone areas such as Florida, California, and Louisiana as more carriers exit or stop writing new policies. Natural catastrophe events and rising costs (materials and labor) to rebuild or make repairs have caused sharp premium increases. For example, in Florida, homeowners are paying premiums about four times higher than those in other parts of the country. In addition, many more Floridians are insured by Citizens, the insurer of last resort.

In California, State Farm and Allstate are no longer writing new Homeowners policies due partly to the increased risk of wildfires and surging rebuilding and replacement costs. In Louisiana, 17% of policyholders had their Homeowners insurance canceled, according to a report by Louisiana State University.

The Impact of Vesttoo on the Market

An audit into Vesttoo, a digital platform for assessing risk in insurance investments that allows insurance companies to obtain reinsurance through the capital markets for traditional risks, revealed that fake letters of credit (LOCs) were issued for about $4 billion to support collaterization. Vesttoo has been providing reinsurance to many of the hybrid fronting models formed by MGAs and insurance carriers.

The insurance and reinsurance market is currently trying to identify the extent of the exposure to the fraudulent collateral. The scandal, in fact, has created a systemic issue throughout the industry, with insurers and MGAs seeking to ensure they have the right collateral in place by replacing Vesttoo’s collateral certificates or by getting more funding to maintain their credit rating. With an already hard market and restricted capital available, insurance-linked securities (ILS) have been the source for collateralized reinsurance instruments. On the heels of the Vesttoo scandal, we may see an even harder insurance market with less capital available.

Prior to the Vesttoo situation, outside of the catastrophe market, we were seeing a deceleration of Property and Liability insurance rate increases. Insurance companies had reached rate adequacy on their books, which was a positive sign. We’ll be watching closely how Vesttoo impacts the market moving forward.

The Growth of the Program Space

The program space has been very successful, with a great deal of standard business making its way into the specialty market as insurers and reinsurers increasingly look to create more specialized categories to focus on targeted risks. This allows for better underwriting and understanding of each risk individually, which is very exciting for ISC as we continue expanding our programs.