Florida’s property insurance crisis is about to affect tens of thousands of policyholders.
More than 68,000 policies from struggling Sunrise-based insurance company FedNat and its sister companies Maison and Monarch National will be canceled by the end of June, according to the terms of a consent order filed Friday by the Agency. state insurance regulation.
The order follows the downgrading of FedNat’s financial stability rating by ratings firm Demotech a month ago. The write-offs, intended to help FedNat’s parent FedNat Holding Company survive after reporting reported losses of $103.1 million in 2021, will force displaced policyholders to scramble for coverage just as the hurricane season begins.
They will have to buy insurance in an unprofitable market that has forced private companies to cancel or not renew high-risk policies and raise rates for remaining customers. Many companies have stopped writing new policies in the state, sending hundreds of thousands to state-owned Citizens Property Insurance Corp., the so-called insurer of last resort.
“I don’t know which companies will be willing to adopt these policies,” said Sen. Jeff Brandes, a Republican from the Tampa Bay area and a leading voice for legislative reforms to stem the losses insurers blame on fraud, inflated and excessive claims. court case. “Most Florida-based companies are looking to shrink, not grow. I imagine a majority will go to Citizens.
The cancellations are part of a rehabilitation plan that state insurance regulators required FedNat to submit following the downgrade of the rating from A – “Exceptional” to S – “Substantial”. Federally funded mortgage guarantors Fannie Mae and Freddie Mac require borrowers to maintain coverage with A-rated insurers. At the time of the downgrade, Demotech CEO Joseph Petrelli said FedNat could potentially restore its A rating with a capital injection that would allow it to enter hurricane season with sufficient claims-paying capacity.
Under the plan, FedNat Insurance Co. will cancel 56,500 personal residential policies while Monarch will cancel 8,400 policies and House will cancel 3,300 policies. The 68,200 policyholders will receive 45 days notice of cancellation.
FedNat Insurance Co. will transfer the remaining 83,000 policies to Monarch, which has reached an agreement with a new investor to provide capital “through acquisition,” the consent order says. FedNat Insurance Co., meanwhile, will cease operations and stop writing new business.
Affected policyholders will include single-family homeowners, condo owners and renters.
The Consent Order, signed by Insurance Commissioner David Altmaier, called the early termination of the policies an “extraordinary statutory remedy reserved for insurers who [without the cancellations] are or may be in a dangerous financial situation.
Paul Handerhan, president of the Federal Association for Insurance Reform, a consumer-focused watchdog group, said while it’s unfortunate that 68,200 policyholders are canceled and likely end up in citizens, the plan FedNat’s rehabilitation program is “the best alternative to a bad situation, which has enabled 80,000 policyholders to retain their insurance coverage.
The consent order stated that without the cancellations, the three companies would not be able to obtain adequate reinsurance coverage for the 2022-23 hurricane season and maintain a level of excess sufficient to meet stability requirements. state finance.
Brandes said the developments are yet another symptom of a life sustaining insurance market. “It’s not a small business,” he said. “It is one of the largest insurance companies in Florida and one of the few publicly traded companies.”
Reinsurance is coverage that insurers buy to ensure they can pay claims after catastrophic weather events.
In a note to investors coinciding with FedNat’s May 9 announcement of a net loss of $31.3 million in the first quarter of the year, company executives said it would continue efforts to exit states outside Florida and reduce the number of its policies in Florida.
Under the turnaround plan he submitted, the company would become “much smaller, with far fewer policies in force, and potentially lead to additional capital flowing into the holding company or into our insurance companies.” , the statement said. The policy reduction should “enable the company to obtain excess loss reinsurance on a smaller Florida-only business portfolio.”
FedNat blamed $29 million of its first-quarter losses on 11 “notable” weather events, including a wildfire, that affected Florida, Texas, Louisiana and South Carolina in the early months of the winter. ‘year.
Losses in 2021 were also caused by extreme weather conditions, such as the prolonged winter freeze in Texas that caused numerous cases of burst water pipes. Hurricane Ida also caused heavy damage in Louisiana in August.
Last year’s net loss of $103.1 million follows a net loss of $78.2 million in 2020 that the company attributed to five hurricanes that struck policyholders in southern states.
The company is one of five publicly traded insurers based in Florida. FedNat insured 189,644 Florida policyholders in June 2021, but since then has reduced that number to 140,000 as of May 12, the consent order says. In a May 10 earnings call, FedNat CEO Michael Braun said the company had dropped about 100,000 policies in the previous year.
Policy costs for the company’s customers, meanwhile, have doubled over the past five years, Braun said.
In 2019, the last year the company released county-by-county policy tallies before declaring this information a “trade secret,” records show it insured 56,465 homes in Broward, Palm Beach and Miami counties. -Dad.
The consent order does not specify how cancellations will be distributed among state policyholders or whether private market companies have the capacity to absorb them. Many, if not most, had little choice but to enter the state-run citizens.
Citizens have added about 6,000 policies a week since March and are now approaching one million policies, up from 420,000 in 2019. Lawmakers warn that letting Citizens get too big exposes nearly all insurance customers in Florida to financial assessments special if the citizens can. t pay claims after a disastrous storm season.
The cancellations come at a critical time for the Florida insurance market. Four private market companies have gone out of business in the past year, and several are reportedly struggling to pay their needed reinsurance purchases in time for hurricane season.
On May 23, the state legislature will convene for a special five-day session to address the skyrocketing costs and plummeting availability of homeowners insurance in the state.
Potential solutions include reducing the availability of fees that plaintiffs’ attorneys are able to collect in settling claims. Insurers say loopholes in Florida’s insurance laws are prompting attorneys to work with repair contractors to inflate bills and file multiple lawsuits against insurers, resulting in destabilizing financial losses.
Brandes said Gov. Ron DeSantis and State House and Senate leaders are drafting legislation for the special session, and he expects the bills to be introduced by Wednesday. He said the crisis will continue unless the bills address abusive claims, excessive litigation and attorney fees. “If you don’t turn this ship around, it’s going to brush against the iceberg until it sinks,” he said.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].