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Ratings agency Demotech has affirmed the ‘A’ ratings of the Florida homeowners carriers it rates, which account for approximately 66% of the state’s market, after review of 2020 year-end and projected Q1 2021 results.

However, Demotech warned of tough times ahead if nearly a dozen carriers cannot improve their operating results before the end of the first quarter and the Florida Legislature fails to enact reforms as companies faced underwriting losses of more than $1.5 billion in 2020.

Demotech said March 12 the following nine companies must improve operating results if they are to keep their financial stability rating (FSR):

  • Access Home Insurance Co. (an affiliate of Cypress Property & Casualty Insurance Co.)
  • Avatar Property & Casualty Insurance Co.
  • Cypress Property & Casualty Insurance Co.
  • Lighthouse Property & Casualty Insurance Co.
  • Lighthouse Excalibur Insurance Company (an affiliate of Lighthouse Property & Casualty Co.)
  • Johns Insurance Co.
  • Olympus Insurance Co.
  • Gulfstream Property and Casualty Insurance Co.
  • Gulfstream Select Insurance Co.

In the ratings announcement, Demotech stressed these companies “must record and report markedly improved” results while also meet or exceed financial metrics that it deems consistent with carriers rated ‘A’.

Demotech President Joseph Petrelli said in a e-mail to Insurance Journal the nine companies that must enhance results “will be harder pressed to do so if the Florida Legislature does not pass meaningful and significant tort reform.”

Florida carriers’ net underwriting losses for 2020 are expected to reach a combined $1.6 billion, industry data shows. Net income losses totaled nearly $840 million. Florida carriers have now endured five consecutive years of net income and net underwriting losses thanks to what they say is a combination of excessive litigation, contractor schemes, several years in a row of major catastrophes and the increasing cost of reinsurance.

Without reforms to benefit property insurers, “it is likely that additional capital contributions will be necessary for many carriers to have staying power for tort reform in 2022,” Petrelli said, adding that in 2020, Demotech rated carriers infused almost as much capital as they lost. “In other words, they funded their operating losses through capital infusions so as to continue to try to execute their business plan, despite the trying circumstances.”

Given the level of operating losses reported in the past few years, more than a few carriers seem likely to operate at a loss as 2021 unfolds and will need to pre-fund those anticipated losses through capital contributions in Q2 and Q3 to keep a surplus level that is acceptable and sustain FSRs at the A level, Petrelli said.

Petrelli also recently warned that absent meaningful reform, insurers focused on the Florida property insurance marketplace will not be an investment of choice, making it harder for them to secure needed capital.

Florida property insurance marketplace will not be an investment of choice, making it harder for them to secure needed capital.

Demotech is watching to see how the Florida Legislature, which is in session until April 30, responds to the state’s mounting insurance crisis, and, from now until then it will conduct initial reviews of reinsurance programs, catastrophe response programs and disaster response programs. It will wait for formal Q1 statements expected on May 15 before revaluating company ratings.

Demotech announced a number of other ratings affirmations at the beginning of March, and noted various ways carriers are addressing the financial impact of the issues in the Florida market in order to sustain their FSRs. In addtion to infusing additional capital to replenish surplus and “report acceptable financial metrics,” companies are securing rate revisions that reflect the incremental cost of reinsurance and the frequency and severity of claims, and re-evaluating their business models and/or plan. Carriers are also completely re-underwriting their current books of business and, when allowable, canceling or non-renewing policies that are “outliers.”

Demotech: Investor Interest in Florida Will Diminish Without Legislative Action

Demotech affirmed 12 other companies that have taken “specific actions to enhance results as well as secure and infuse a substantial amount of additional capital to mitigate the cumulative impact of the operating results on their balance sheets.”

The insurers are positioned to record and report “markedly improved operating results in 2021” while also meeting or exceeding the financial metrics for an FSR of ‘A.’

Those companies include:

  • The American Coastal Insurance Co.
  • Family Security Insurance Co. (an affiliate of UPC)
  • FedNat Insurance Co.
  • Heritage Property & Casualty Insurance Co.
  • KIN Interinsurance Network
  • Maison Insurance Co. (an affiliate of FedNat Ins Co)
  • Monarch National Insurance Co. (an affiliate of FedNat Ins Co)
  • Tower Hill Preferred Insurance Co.
  • Tower Hill Prime Insurance Co.
  • Tower Hill Signature Insurance Co.
  • United Property & Casualty Insurance Co.
  • Universal Property and Casualty Insurance Co.

Five other carriers made moves through acquisition by other entities that replenished their balance sheets in order to remain viable:

  • Centauri National Insurance Co.
  • Centauri Specialty Insurance Co.
  • Weston Insurance Co.
  • Weston Specialty Insurance Co.
  • Southern Fidelity Insurance Co.

It’s not all bad news for Florida companies, Demotech noted in the ratings announcement. American Integrity Insurance Co., Florida Peninsula Insurance Co., Homeowners Choice Property & Casualty Insurance Co., Southern Oak Insurance Co., and TypTap Insurance Co. are trending toward an upgrade, thanks to above average enterprise risk management functions and favorable operating results over time in conjunction with their current capital position.