Florida personal lines insurers, struggling to deal with inflation and high claims severity, are likely to get a little bit of a break this hurricane season if consensus forecasts are accurate.

The 2023 Atlantic hurricane season, which begins June 1, is expected to produce a "near-normal" amount of named storms, according to the National Oceanic and Atmospheric Administration. AccuWeather and Colorado State University's Department of Atmospheric Science also expect an average season.

Colorado State researchers predict there is a 22% chance of a major hurricane — one with sustained winds of 111 mph or higher — to make landfall on the US East Coast, and a 28% chance of one striking along the Gulf Coast.

Severity trends, coupled with the possibility of a major hurricane or two threaten to present "a boatload of problems" for personal lines insurers in the Sunshine State, CFRA Research analyst Cathy Seifert said.

"In Florida, a lot of the personal lines insurers have a big exposure to the auto line of business and they're just getting hammered there with adverse claim trends, inflation and frequency," Seifert said in an interview. "From that perspective, I think many of the personal lines carriers are heading into hurricane season with a little bit of an albatross around their necks in the form of their auto insurance problems."

Florida was hit by two hurricanes in 2022. Its Gulf Coast was devastated by Hurricane Ian, which caused $53 billion in insured losses. Progressive Corp. was one of the hardest-hit personal lines carriers as it incurred $760 million in September 2022 losses related to the storm. Vehicle losses, including boats and recreational vehicles, accounted for $585 million of those losses.

The state was also impacted by Hurricane Nicole, a rare November tropical system that slammed into Florida's eastern coastline near Vero Beach. It generated an estimated $1.6 billion in insured losses.

Regulatory, legislative relief

Florida property and casualty insurance underwriters have adequate surplus and have been able to get rate increases from state regulators to shore up their financial status, Seifert said.

"I think regulators are mindful of the need for rate increases, and so most insurers have not gotten much pushback when they've tried to put through rate increases," Seifert said.

Rate hikes approved in the fourth quarter of 2022 sparked an 18.1% year-over-year increase in average premium per policy and a 15.5% rise in gross premiums written for Heritage Insurance Holdings Inc., CEO Ernie Garateix said during a March 3 earnings conference call.

Meanwhile, the state legislature passed sweeping tort reforms that included the elimination of one-way attorneys fees, shortening the statute of limitations and getting rid of assignment of benefits.

A break for the Atlantic basin?

The presence of a strong El Niño has enhanced the prospects for a season with less-intensive storms, said Dan Kottlowski, AccuWeather's lead hurricane expert. El Niño produces a vertical wind shear, which inhibits the formation of storms.

"An El Niño brings the westerly winds deep into the tropics and creates vertical winds," Kottlowski said in an interview. "Instead of thunderstorms building vertically, they become tilted." Once that occurs, the storm stops spinning and dies out.

Kottlowski said the wild card for the season is water temperature. Temperatures in the Caribbean, the Gulf of Mexico and the southern Atlantic off the Carolinas are "way above normal," he said.

When tropical systems pass over areas with deep warm water they tend to intensify quickly, which is what happened with Hurricane Ian. Even though the number of storms could be lower this year, there could be a storm like Ian if it tracks over deep warm water in the Gulf or Caribbean, Kottlowski said.