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HCI Group expects there to be enough reinsurance for its needs in 2023: CEO Patel

Florida-based insurtech HCI Group, Inc.’s Chairman and Chief Executive Officer (CEO), Paresh Patel, expects there to be sufficient reinsurance available for the firm’s needs in 2023, despite a reduction in supply in the State of Florida.

Prior to the 2022 Atlantic Hurricane season and costly impacts of Hurricane Ian in Florida and beyond, the state’s property market had become increasingly challenging, ultimately leading reinsurers to pull-back from the space to lower volatility.

It was also already a hardening market pre-Ian, and the storm has accelerated the trend with the event being described as the tipping point to a truly hard market.

Earlier this year, the Florida legislature attempted to stabilise the market through a special session, following fears of downgrades for numerous domestic carriers amid rising loss costs, social inflation, and a reduction in the supply of reinsurance.

In loss-hit lines and regions, such as Florida property and property catastrophe, reinsurance rates are forecast to rise materially through the 2023 renewals. At the same time, there’s expected to be a supply / demand imbalance in certain markets, notably Florida, as reinsurers remain reluctant to take on risk at any cost, seeking to participate higher up reinsurance towers.

Florida’s HCI Group has a comprehensive reinsurance programme split across four towers, providing protection to Homeowners Choice (Florida), TypTap (Florida) wind, TypTap (Florida) flood, and also a non-Florida tower.

The company’s CEO revealed last month that it’s facing a total pre-tax net loss of $78 million from Hurricane Ian, with all four towers being hit, and all having retention losses.

HCI’s Q3 results were announced this week, and during the earnings call, Mark Harmsworth, Chief Financial Officer, provided some colour on the impact of Ian on its different reinsurance towers.

“For Homeowners Choice, the growth loss estimate is $550 million, and the reinsurance tower limit is $936 million. For TypTap, the gross loss estimate for Florida wind is $370 million, and the reinsurance tower limit is $610 million. For TypTap flood, the gross loss estimate is $40 million, and the reinsurance tower limit is $61 million.

“And lastly, for the non-Florida tower, the expected gross loss is $10 million against the reinsurance limit of $525 million,” said Harmsworth.

He went on to note that while these figures are estimates and could change, things are progressing as expected, while the firm has “significant additional capacity in our reinsurance towers should claims start to develop outside of these expectations.”

Clearly, HCI is confident it has sufficient reinsurance in place for any escalation in Hurricane Ian claims, but with conditions in the Florida market seemingly even more difficult following the Cat 4 storm’s landfall, could obtaining the desired level of coverage be a challenge for the insurtech for the year ahead?

According to CEO Patel, while there is concern regarding the reinsurance industry, the debate is about capacity shrinking and repricing, not about the total lack of reinsurance.

“Homeowners Choice has already secured about three-fourths of its Florida reinsurance needs for next year, and TypTap is not that far behind,” said Patel. “The balance of reinsurance needs to be secured, but there will be a flight to quality, and we should be the beneficiary. Simply put, we expect there to be enough reinsurance available for our needs in 2023.”

“Finally, we have an experienced management team that has navigated successfully in Florida for 15 years. We are up for the upcoming challenges in 2023. In summary, we expect Ian to be a watershed event for the Florida market. Next year, we expect policyholders, capital providers, and reinsurers will gravitate towards high performance. We think we have a company to thrive in that environment,” he added.

Speaking about the Florida market more broadly, Patel said that going forward, demand for insurance will only increase.

“No one is considering going without insurance in the next hurricane season. The Florida legislature must solve the availability of homeowners’ insurance next year, and they will have a special session next month to do just that. And under any range of outcomes from that session, we are poised to benefit,” he said.

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