Louisiana insurance market not a “Florida crisis in the making” – ALIRT

Louisiana’s homeowners’ property insurance marketplace is not another “Florida crisis in the making”, analysts at ALIRT Insurance Research have said, highlighting key differences between these markets.

Given the high-profile challenges faced by Florida’s homeowners’ property insurance market, ALIRT said its clients have increasingly been asking whether Louisiana is another market facing similar stresses.

Louisiana too has faced insurance company failures, while significant reinsurance recoveries have flowed to the states insurers following multiple years of landfalling hurricane and tropical storm activity.

Those catastrophe losses from hurricanes, tropical storms and also other severe and convective weather activity have significantly challenged some of Louisiana’s homeowner carriers.

But it’s also true that many were offshoots of Florida players, so some of the stresses they felt from Florida had perhaps made them a little less robust players in the Louisiana market as well.

ALIRT’s Principal David Paul explains in a research note that, “In short, we do not believe that the Louisiana homeowner’s market is another Florida crisis in the making, although there is an obvious nexus between the two states.”

Adding, “That said, the Louisiana homeowners insurance market does face challenges and we conclude by highlighting a group of 21 leading Louisiana homeowners specialists that are not members of large national insurance groups, with the intention of providing the reader with a sense of where current financial stresses may lie among this cohort.”

The Louisiana homeowners’ insurance market is far smaller than Florida, with just $2.1 billion of direct premiums written in the state in 2021, compared to Florida’s $12.3 billion.

“In short, the Louisiana HO market is substantially smaller with much lower coastal exposure. This is understandable given the difference in relative population, with Florida having almost 5 times more citizens,” ALIRT explained.

The mix of writers is also very different, with 61% of premiums in Louisiana written by 8 large national insurance groups, where as Florida sees the same 8 groups writing less than 25% of its premiums.

“This indicates that Florida is much more reliant on smaller regional or stand-alone personal property insurers, with more sophisticated insurance groups keeping their distance,” the analysts wrote.

As a result, ALIRT sees Louisiana state as having less dependence on smaller, thinly capitalised insurers, than Florida.

“ALIRT notes that of approximately 80 of insurers established since the mid 1990’s to serve the Florida HO market, almost 25% have since gone out of business. This statistic in itself should serve as a warning for the continued precariousness of some of the existing carriers,” they explained.

In addition, Louisiana has not been “plagued over the years by a rolling series of non-catastrophe related loss drivers,” unlike Florida.

The nexus between the two states comes in the sharing of Gulf coast wind risk between them.

On which Paul wrote, “One very clear – and perhaps unfortunate – trend is the expansion over the years of the aforementioned smaller Florida-predominant homeowners insurance specialists into Louisiana in an attempt to diversify their geographical footprint. This strategy backfired given the series of large wind-related losses in Louisiana in 2020 and 2021. While these insurers were diversifying away from their home state they were clearly not diversifying risk away from Gulf-related storms.”

Adding, “The nexus between the two markets has led to a spill-over effect for Louisiana, with more Florida-domiciled insurers retrenching and exiting the latter state, exacerbating an already difficult market environment.”

Louisiana’s issues came about after a series of significant storm losses for the state, but even so issues for carriers were less prevalent, except for among carriers that had already been active and challenged in Florida, it seems.

In addition, ALIRT feels Louisiana has dealt with property insurance market challenges well.

“In the final analysis, although the Louisiana homeowners market has remained expensive since 2005, the state – to its credit – has not attempted to create artificial pricing through price controls and subsidized reinsurance, nor has it allowed its property insurer of last resort to compete with the private market,” the analysis reads.

The ALIRT paper highlights the “multi-decadal dysfunction” of the Florida marketplace “which led to the exit of large national carriers and the rise of many small, weakly capitalized insurers with substantial dependence on reinsurance and a history of insolvencies.”

“ALIRT expects additional market exits and potential insolvencies in the Florida market given current financial profiles of a number of these smaller Florida domestic insurers. In fact, our April update on the Florida HO market noted that almost 70% of these dedicated Florida insurer had ALIRT Scores that fell into its “red zone” indicating potential remedial actions needed. The same is not nearly the case for the Louisiana market, which has traditionally had few dedicated Louisiana property insurers (admittedly, a number of these were placed into insolvency over the past year).”

The analysis suggests a better future for Louisiana’s property insurance market, than the one Florida currently faces without dealing with its dysfunctions.

“While the Louisiana market is currently facing a squeeze on capacity for certain coastal risks (much as happened after Hurricanes Katrina and Rita in 2005), the state has passed recent legislation to help promote a healthier property market. Should the market avoid outsized hurricane losses over the next couple of years (and reinsurance pricing ease), we expect that the state’s property market will bounce back with ample capacity to absorb the risks that are now flowing into Louisiana Citizens Property Insurance Corporation,” the analysis states.

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