With Hurricane Ian approaching, Florida says another insurance company is insolvent

Despite shedding the policies, FedNat remained responsible for claims and other types of obligations from before June 1, according to court documents. It notified the state Office of Insurance Regulation on Sept. 13 that it did not have enough money for what is known in the insurance industry as a “runoff” of the obligations.

“Respondent [FedNat] notified OIR that it had overstated its cash position and could not complete a solvent runoff,” said the court petition, filed by the Department of Financial Services’ Division of Rehabilitation and Liquidation. “OIR immediately sent an examiner to the company. On September 14, 2022, Respondent advised OIR that it did not have sufficient cash on hand to pay its obligations and debts as they come due in the normal course of business. Therefore, Respondent is insolvent as defined [by a section of state law] and delinquency proceedings are appropriate.”

READ MORE: Homeowners insurance in Florida is a precarious mess that was years in the making

Insurance Commissioner David Altmaier sent a letter Wednesday to state Chief Financial Officer Jimmy Patronis, who oversees the Department of Financial Services, that ultimately triggered the court petition Friday.

The filing was another sign of trouble in Florida’s property-insurance system. Other insurers declared insolvent since February were Southern Fidelity Insurance Co., Weston Property and Casualty Insurance Co.; Lighthouse Property Insurance Corp., Avatar Property & Casualty Insurance Co. and St. Johns Insurance Co.

Those insolvencies have contributed to massive growth in the number of customers pouring into the state-backed Citizens Property Insurance Corp., which was created as an insurer of last resort. As of Sept. 16, Citizens had 1.055 million policies, more than double the number from two years earlier.

The latest declaration of insolvency is another blow the fragile state of property insurance in Florida as Hurricane Ian approaches the state with landfall expected later this week along the Gulf Coast.

A document presented to the Citizens Board of Governors last week said Citizens had received 19,740 customers who previously had been insured by FedNat. The document did not provide details about those policies, but the Office of Insurance Regulation in May issued an order that included what one regulator described as an “extraordinary remedy” of the early cancellation of 56,500 FedNat policies.

Before that order, FedNat had about 140,000 policies, the regulator, Virginia Christy, said in an affidavit attached to Friday’s court filing. Along with the cancellations, FedNat agreed to transfer the roughly 83,000 remaining policies to a related company, Monarch National Insurance Co., with the condition that Monarch would not be responsible for obligations from before June 1.

Court documents indicate that the Office of Insurance Regulation has been concerned about FedNat’s finances since at least March 2020, when the state started requiring the company to file monthly financial statements. Later in 2020, regulators started holding frequent conference calls with company officials about its financial status.

“Despite capital infusions, Respondent’s [financial] surplus continued to decline, and its underwriting losses continued to increase throughout the remainder of 2020 and into and throughout 2021,” the court petition said.

Along with canceling policies and agreeing to transfer the remaining policies to Monarch, the Sunrise-based FedNat this year also stopped writing new policies, the petition said. It also lost its financial rating Aug. 1 from the ratings agency Demotech.

When property insurers become insolvent, the non-profit Florida Insurance Guaranty Association typically steps in to pay claims. Known as FIGA, the organization has authority to levy “assessments,” which are costs passed on to insurance policyholders across the state.

FIGA already is using money from assessments of 1.3% and 0.7% to pay costs related to other insolvencies. Its board last month approved a plan to borrow $150 million, with the debt financed by extending the 0.7% assessment through 2023.

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