Lack of reinsurance pressures Gulf carriers: Applied’s Sahara & Menzies

Despite having completed its reinsurance renewal early for its Centauri branded carrier subsidiaries, Applied Underwriters leadership have said that the general lack of catastrophe reinsurance is posing issues for Gulf state insurance carriers as hurricane season gets underway.

Gulf coastal state insurance carriers are facing similar challenges to Floridian carriers, when it comes to securing their reinsurance for the hurricane season.

While the market there has not been as restrictive as Florida, in terms of reinsurance capital provision and reinsurer risk appetites, it is still repricing higher in 2022 and as a result the renewal dynamic has exacerbated any challenges certain carriers have been facing after a number of seasons of hurricane landfalls along the Gulf Coast.

Applied Underwriters, as well as its Centauri Insurance subsidiaries (Centauri Specialty Insurance Co. and Centauri National Insurance Co.), said that given their readiness, they are affirming their commitment to underwriting in the Gulf Coast markets.

This comes at a time they see the Gulf Coast property insurance space as under pressure, because of, “the effects of recent carrier insolvencies, voluntary and involuntary moratoria imposed by some stressed carriers and insufficient or late reinsurance renewals by many carriers all threaten the market.”

Steve Menzies, Chairman of Applied Underwriters said that the Centauai carriers are in a good position “having its reinsurance treaties completed early enough to avoid capacity problems.”

Menzies explained, “We are standing solid in the market for our many brokers and their insureds with no compromises in our financial integrity or product quality, as brokers and consumers anxiously seek coverage—often on tight deadlines for renewals and new policies. The demand created by other insurers’ insolvencies and lack of adequate reinsurance financial backing is high, and our staff is meeting it efficiently, with an overall firm delivery commitment that will help sustain the market in the various states around the Gulf and serve our brokers and customers.

“Since acquiring Centauri, we have increased its infrastructural facilities, collaborating with Applied’s national operations platforms that are among the most sophisticated in the world. Applied’s approach in every one of our insurance operations across the globe has been to create operational, informational, infrastructural and financial foundations that support our companies in every circumstance. We have set just such a construct at Centauri.”

Applied’s President, Jamie Sahara, said that a general lack of availability of catastrophe reinsurance coverages “at any price” is pressuring the market and that the resultant state of property insurance on the Gulf Coast has implications for his company.

“It’s common sense. With so much demand, we only have so much capacity,” Sahara explained. Adding, “Our first priority is to our renewal customers. So, we ask our agents to please understand that we’re going to have to moderate the flow of new business, and we recommend that they get their new business applications in as early as possible.”

Sahara continued, “Most of the monoline Gulf carriers were not able to complete their catastrophe reinsurance treaties, including Citizens, and many have suffered financially in recent past years, making my overall outlook for the industry in the Gulf states generally not optimistic; but, hopefully, we will see minimal hurricane activity this year so that many of our peers can catch their breath. Thankfully, we were prepared and had the advantage of a good 2021. We’re all set for 2022 with enhanced operational capabilities, so brokers may look to us with confidence.”

Menzies said that the conflict between some states’ legislative positions and the efforts of insurers and the departments that regulate them have created further stress on the entire system, similar to the experience in Florida it seems.

“Everyone involved in the provision of homeowners insurance works hard to keep the dikes from bursting even in the face of hurricanes and other catastrophic events, but invariably we find ourselves having to wrestle with state legislative measures that ceaselessly work to create a veritable bonanza for plaintiff’s lawyers,” Menzies said. “Legislatures are lobbied hard and wind up enabling predatory exploiters to extract billions from the system, profiting themselves but leaving the insurance market under extraordinary duress, even, to some degree, broken or, in some quarters, on the verge of collapse. Even all of the discipline and sophistication of Applied and its subsidiaries cannot perdure many more years of unjust awards and irrational, frivolous lawsuits. It is our hope that it ends soon and provides some additional strength to the market place. Our insureds in the Gulf states deserve better.”

Interestingly, Centauri has halted writing certain property business in Florida until later this year, having cited the need to not assume more risk than its reinsurance arrangements there would allow it to.

The carriers said this is temporary, until market volatility subsides, but further underscores the challenging state of Florida’s insurance and reinsurance marketplace.