More than 50,000 Florida policyholders will soon be looking for a new carrier for their homeowners insurance after three Florida-based companies were approved by the state regulator to drop the policies. The moves come just a few weeks before the official start of hurricane season and as legislation designed to target the state’s insurance market issues awaits the governor’s signature.
In consent orders signed by Florida Insurance Commissioner David Altmaier, Universal Insurance Co. of North America (UICNA) was approved to drop 13,294 personal residential policies and Gulfstream Property & Casualty was approved to cancel about 20,311 personal residential policies. Both insurers will remove the policies over the next 45 days.
Southern Fidelity Insurance Co. was approved to nonrenew approximately 19,600 personal residential policies over the next 14 months, with approximately 2,300 receiving less than the required statutory written notice of nonrenewal.
The early cancellation and nonrenewals of policies is “an extraordinary statutory remedy reserved to address insurers which are or may be in hazardous financial condition,” the Florida Office of Insurance Regulation stated in the orders, which also require the insurers to take other steps to stay solvent.
The regulator’s actions are the most recent indicators of Florida’s stressed insurance marketplace that has been described as “spiraling towards collapse.” Altmaier and others have previously warned of problems for Florida’s domestic companies thanks to spiking litigation, dishonest contracting practices, catastrophe events and high reinsurance costs. Florida insurers were reported to have lost a combined $1.7 billion in 2020.
“OIR remains focused on the protection of consumers and fostering stability in Florida’s insurance marketplace,” OIR said in a statement to Insurance Journal. “Allowing for the early cancellation or nonrenewal of policies is not a decision made lightly, and requires a finding that such action is necessary to protect the best interests of the public or policyholders.”
The respective orders outline what “hazardous” financial conditions led to the approval of the policy cancellations and nonrenewals:
Universal Insurance Co. of North America (UICNA)
UICNA’s cancellation of 13,294 of its 57,000 Florida policies will occur as part of a financial restructuring plan that includes a merger with and into Universal North America Insurance Co., a Texas domestic company.
UICNA reported net losses of $4.1 million in 2019 and $22.5 million in 2020, and had decreased its surplus by more than $9 million as of Dec. 31, 2020, OIR stated in the order approving the policy cancellations. UICNA’s surplus deterioration came despite the company receiving capital contributions of $13.5 million, without which it would have been considered an impaired insurer as it would have fallen below Florida’s minimum required surplus of $10 million.
OIR said UICNA provided financial projections that show without the cancellation of the approximately 9,341 homeowners policies and 3,953 dwelling policies, the company’s financial condition would further deteriorate to an unsustainable level by the end of 2021.
Given UICNA’s catastrophe loss experience, higher reinsurance costs, and significantly increased litigation, the identified policies for cancellation would “provide an immediate impact to the company’s financial position and facilitate the completion of a financial restructuring plan to protect its policyholders and the public,” the order says.
The policy cancellations are also a condition of the company’s merger plan, OIR said, which is still subject to approval by the Texas regulator. If the merger plan is not approved, or if Universal North America Insurance Co. is unsuccessful in becoming licensed in Florida, “UICNA agrees it will consent to immediate administrative supervision, for the purpose of conserving assets while UICNA develops a fully funded plan,” the OIR order states.
UICNA must file its plan of merger with OIR and the Texas Department of Insurance no later than May 14, 2021, and must provide at least 45 days’ notice of cancellation to the affected policyholders. UICNA must also continue to file monthly financial statements with OIR until further notice and submit an updated business plan to the regulator by Aug. 1, 2021 for the period of July 1, 2021 through Dec. 31, 2024. The plan must include the company’s ability to generate “successful operation results by the implementation of underwriting changes, rate adjustments, operational savings, capital management, and other significant modifications to its current business model.”
No policies from the block of cancelled policies can be rewritten on a different UICNA policy form or an affiliated insurer for a period of three years from the date of cancellation.
Southern Fidelity Insurance Co.
Southern Fidelity’s order, signed April 28, is the latest in a series of moves by OIR designed to “remediate the financial condition” of the company and to facilitate a long-term financial restructuring plan. OIR said it previously approved a rate increase, a merger with its sister company Capitol Preferred Insurance Co., the cancellation of an identified block of policies, and a capital contribution plan developed by Southern Fidelity’s new indirect owners, HSCM Bermuda.
The 19,600 policies Southern Fidelity is seeking to nonrenew are generating significant losses, and OIR found after evaluation that dropping the policies is “necessary to protect the best interest of its policyholders and the public.”
“Information filed by the company in support of its request demonstrates that without the approval of this plan of nonrenewal, the company would not be able to satisfy the surplus requirements of [Florida law], nor complete its long-term restructuring plan,” the order states.
Southern Fidelity is required to actively facilitate the placement of the policies to be nonrenewed through “robust” communication with its agents and by providing data to other insurers expressing interest in offering replacement coverage under a confidentiality agreement.
Southern Fidelity must also provide OIR with an actuarial review of its homeowners programs to “properly position its rates so as to avoid adverse selection and improve future loss ratios,” as well as adhere to file and use rate filings on a prescribed schedule. The company wrote more than 133,000 policies in Florida as of Dec. 31, 2020, making it among the top five insurers in the state.
Gulfstream Property & Casualty Co.
The financial condition of personal residential insurer Gulfstream, which has 56,000 policies in Florida, will deteriorate to an unsustainable level by mid-2021 without action, the May 6 consent order from OIR states. As such, the company has been approved to early cancel approximately 20,311 personal residential policies. Gulfstream has also signed a letter of intent with a new investor that stipulates the policy cancellations as a condition of its investment.
The company also reported that it will no longer have risk on any policies outside of Florida, except for about 90 policies in Texas that will non-renew by June 20, 2021, as part of an ongoing renewal rights transaction and withdrawal from the state of Texas.
Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019, the order states. Its surplus included a net loss of $22.6 million, a net underwriting loss of $34.9 million and capital contributions of $17.1 million, without which its surplus would have fallen below the required $10 million.
If Gulfstream is unable to complete its obligations in the investor letter of intent or the move is not approved by OIR, Gulfstream will consent to immediate administrative supervision for the purpose of conserving assets while it develops a fully funded plan, the OIR order states.
Gulfstream has voluntarily ceased writing new business, OIR said, and may only resume doing so if its revised business plan is filed and approved by the regulator. Gulfstream must submit an updated business plan to OIR by July 1, 2021.
Demotech President Joseph Petrelli said Florida companies are taking action to nonrenew and cancel policies to lower their exposure in particular geographic areas and their reinsurance costs. Demotech requires “rigorous” reinsurance programs from the Florida insurers it rates, and advised in March that several companies may need to remove certain policies from their books “whose underwriting characteristics generate a disproportionate cost of reinsurance,” to sustain their ratings.
“Between the geographical issues and the disproportionate reinsurance cost issues, we think that’s a smart move on behalf of companies,” Petrelli told Insurance Journal in response to the recent orders.
For consumers, the actions make a tough market even tougher. Florida Insurance Consumer Advocate Tasha Carter said she has been assisting homeowners daily who are facing challenging consequences because their policies have been cancelled or nonrenewed. As insurers offset sustained losses with rate increases and coverage restrictions, homeowners are left to pay higher rates with fewer options and less coverage, she said.
“In addition to raising rates, the cancellation of high-risk policies is another step insurers are taking to reduce their exposure and mitigate their risk in an effort to improve their overall financial stability to ensure financial protection for policyholders,” Carter said in a statement to Insurance Journal. “I am hopeful that the implementation of the [property insurance] legislation will lead to a reduction of rates and increased coverage and capacity.”
In the meantime, OIR encouraged consumers who receive a cancellation notice from their insurer to immediately contact their agent to obtain replacement coverage, and noted the companies will also contact their appointed agents to facilitate the placement of policies with other insurers.
“OIR’s priority is to ensure consumers have access to coverage and will make every effort to help consumers find replacement coverage,” the regulator said.