Tallahassee, Florida – State regulators on Friday asked a judge to take property insurance companies under control, and the sixth Florida property insurance company to declare bankruptcy this year amid widespread financial troubles in the industry.
The Florida Department of Financial Services had sought to be appointed receiver of the Fednut Insurance Company, which canceled 56,500 policies in May and nearly 83,000 in June. agreed to transfer its contract to another company.
Despite FedNat’s waiver of its policy, it remained liable for claims and other types of obligations from before June 1, according to court documents. The company notified state insurance regulators on Sept. 13 that it did not have sufficient funds for what is known in the insurance industry as a “runoff” of obligations.
“Defendants (FedNat) have notified the OIR that they have overstated their cash position and have failed to complete a solvent runoff,” said a court petition filed by the Department of Financial Services’ Rehabilitation and Liquidation Division. The OIR immediately dispatched an examiner to the company.On September 14, 2022, the defendants told the OIR that they had debts due in the ordinary course of business and that they did not have sufficient cash on hand to pay the debts. Defendant is therefore insolvent as defined (by a section of state law) and delinquency proceedings are in order.”
Insurance Commissioner David Altmaier sent a letter Wednesday to the state’s chief financial officer, Jimmy Patronis, who oversees the financial services sector, which ultimately triggered a petition in court on Friday.
This application was another sign of trouble in Florida’s property insurance system. Other insurers that have declared insolvency since February are Southern Fidelity Insurance Co., Weston Property and Casualty Insurance Co. Lighthouse Property Insurance Corp., Avatar Property & Casualty Insurance Co., St. Johns Insurance Co.
These bankruptcies have contributed to a significant increase in the number of customers pouring into the state-owned Citizens Property Insurance Corporation, which was set up as an insurer of last resort. As of Sept. 16, Citizens had 1.055 million contracts, more than double what he had two years ago.
Citizens has accepted 19,740 FedNat-insured customers to date, according to a document filed with the Citizens board last week. Although the document did not provide details of those policies, the Insurance Regulatory Office said in May that one regulator said he had “special policies” for early surrender of 56,500 of his FedNat policies. issued an order containing what it described as a “remedy”.
Prior to that order, FedNat had about 140,000 policies, regulator Virginia Christie said in an affidavit attached to Friday’s court filing. In addition to the cancellation, FedNat has agreed to transfer approximately 83,000 remaining policies to its affiliate, Monarch National Insurance Company. Monarch provided that he would not be held responsible for any debts prior to June 1st.
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According to court documents, the Insurance Regulatory Agency has been concerned about FedNat’s finances since at least March 2020, when the state began requiring FedNat to file monthly financial statements. In the second half of 2020, regulators began conducting frequent conference calls with company executives about the company’s financial situation.
“Despite the capital injection, defendants’ (financial) surpluses continued to decline and their underwriting losses continued to increase for the remainder of 2020 and through 2021,” the court’s petition said.
Along with agreeing to cancel the policy and transfer the remaining policy to Monarch, the Sunrise-based Federal Reserve has also stopped creating new policies this year, according to the petition. It also lost its financial rating on August 1 from rating agency Demotech.
When property and casualty insurers become insolvent, the nonprofit Florida Insurance Guaranty Association typically intervenes to pay claims. An organization known as FIGA has the authority to collect “assessments”, costs that are passed on to policyholders statewide.
FIGA is already using money from 1.3% and 0.7% valuations to pay other bankruptcy-related costs. Its board last month approved a plan to borrow $150 million, financed by extending the 0.7% valuation through 2023.
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