Risk of Material Adverse Deviation … in a “Dire” Property Insurance Marketplace such as Florida

Columbus, OH, January 11, 2022: Since 2001, the statement of actuarial opinion regarding the net loss and loss adjustment expense reserves carried in the balance sheet of a Property and Casualty insurer as well as the gross loss and LAE reserves prior to the application of reinsurance has required the actuary’s perspective on the Risk of Material Adverse Deviation (RMAD).  Essentially, this is a discussion of whether the ultimate loss and LAE reserves will differ from the carried loss and LAE reserves by the dollar amount selected by the actuary as “material.”

Credentialed professionals review the marketplace where a carrier operates, establish a materiality standard, describe the rationale for the standard, and, when analyzing the operating environment of the insurer summarize the risk of material adverse deviation of carried loss and LAE reserves versus ultimate loss and LAE reserves.  Historically, a variety of rationales has lead professionals to one of two conclusions – yes, there is RMAD, or no, there is no RMAD.

For carriers focused on Florida’s residential property insurance marketplace, a marketplace described as “dire” by one of the professionals tasked with regulating the marketplace, the question at year-end 2021 will be “is a risk of material adverse deviation likely?  If so, why?  If not, why not?” 

To assist others in understanding the residential property insurance marketplace in Florida, on December 14, 2021, Joe Petrelli, Demotech, Wes Todd, Esquire, CaseGlide, Lisa Miller, Lisa Miller & Associates, and Guy Fraker, Crea8tefutures Advisory and Consultancy discussed excerpts of public statements made by David Altmaier, Barry Gilway, Simon Blank, and Tasha Carter.  They also shared their opinions on the operating environment of Florida’s residential property insurance marketplace. 

Petrelli noted that a tactile review of the public information related to statements of actuarial opinion related to carriers operating within virtually identical marketplaces in Florida revealed some actuaries expressed concern related to RMAD and others did not do so.

Todd noted that it could be beneficial to an actuarial review of loss reserves to have stratification and delineation of losses by type of loss, cause of loss, and perhaps even by adjustor and plaintiff counsel.  This information is readily available to actuaries opining on the loss reserves of CaseGlide clients.

Miller commented that the public testimony of Altmaier, Gilway, Blank and Carter appeared to indicate that operating results for carriers focused on residential property insurance in Florida had been volatile and challenging for many years.

According to Fraker, “by almost any traditional definition, or metric, Florida’s residential property and casualty insurance market no longer exists, having been replaced by a manufactured litigation market.  As a result, more than $4.5B annually is redistributed away from Florida residents, Florida insurers, insurance investors, and Florida’s economy.”

Others focused on Florida’s residential insurance marketplace may want to review the recording of the webinar.  The recording is available at https://youtu.be/7GDp1PdWepw.

About Demotech, Inc.

Demotech, Inc. was the first firm to review independent, regional and specialty insurers. Since 1985, Demotech has served the industry by assigning accurate, reliable, and proven Financial Stability Ratings® to Property & Casualty insurers and Title underwriters.  FSRs provide an objective baseline of the solvency of an insurer. Demotech’s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size. Demotech’s increasing accreditations and acceptances has resulted in its review of more than 450 insurers operating in the US.  Visit www.demotech.com for additional information.

About Florida’s Residential Insurance Marketplace

“Florida’s P&C Insurance Market: Spiraling Towards Collapse,” was authored by Guy Fraker, Cre8tfutures Innovation System & Consultancy.  He opined that Florida’s property insurance market is “spiraling towards collapse” and requires immediate attention if there is any chance of protecting the market, consumers, and ultimately, the state’s economy.  The report identifies the state’s “litigation economy” as the main contributor to insurance market woes as opposed to the many weather events Florida has endured.