January 24, 2022

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The head of one of the larger property insurance companies in Florida said Friday that without a doubling of some of its rates, it will be forced to seek more capital from investment firms, a prospect that may not be sustainable in the long run.

At a rate hearing held by the Florida Office of Insurance Regulation, the deputy commissioner of property and casualty, Susanne Murphy, asked Southern Fidelity Insurance officials if the troubled company could survive.

“Is it accurate to say that without increases of the sort that you are seeking approval of today, that Southern Fidelity Insurance Co. would not be a going concern?” Murphy asked.

Susanne Murphy

Bryon Wells, the co-CEO of Clearwater-based Southern Fidelity, which is seeking increases of 85% and 111%, answered this way: “This rate increase is vital to the financial stability of this company as we move forward. Without these increases we would have to have substantial amounts of capital.”

The company, with almost 99,000 policyholders in Florida, has received several rate increases in the last two years, but now needs some of the largest ones ever, thanks to what insurers have called continuing losses and claims litigation costs in Florida.

Friday’s rate hearings, which also examined smaller rate requests from Cypress Property & Casualty and from Centauri Specialty Insurance, gave some insight into the financial problems facing some Florida-admitted carriers. The meetings also highlighted what the insurance industry has said is a vital need – more legislation that could help curb claims litigation and prevent more companies from becoming insolvent.

Southern Fidelity’s chief actuary, Missy Shelley, said that 2019 and 2021 legislative reform efforts have had only modest impacts on litigation costs. The frequency, severity and cost of represented claims more than tripled from 2017 to 2021, and did not slow down after the 2019 assignment-of-benefits legislation. The trendline for non-represented claims, though, has stayed almost flat, data from the carrier show.

But with little movement on insurance bills in the Florida Legislature this year, there is growing concern that further reform measures won’t get done.

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While several insurance bills have been introduced, an omnibus bill drafted by the chairman of the Senate Banking and Insurance Committee has been touted as the best bet to curb solicitation by roofers, limit more roof-damage claims to actual cash value, and help put the brakes on the growth of the state-run Citizens Property Insurance and its under-priced polices.

But two weeks into the 2022 session, Sen. Jim Boyd’s Senate Bill 1728 has not made it to a committee hearing, sparking anguish from industry leaders. Although a Boyd staff member said that because the bill was filed just before the Jan. 11 deadline, it did not make it on the committee’s Jan. 18 agenda. But the measure also is missing from the committee meeting agenda for Tuesday, Jan. 25.

“He’s chairman of the committee. If the chairman isn’t putting his own bill on the agenda, it may not see any movement this year,” said Michael Carlson, president of the Personal Insurance Federation of Florida. “That’s disheartening.”

State Sen. Jeff Brandes, R-St. Petersburg, a frequent proponent for more reforms, said Friday that he, too, is concerned about the lack of action on the Senate bill.

“I truly hope there’s a grand plan with the House,” said Brandes, a member of the Banking and Insurance Committee.

Brandes has crafted his own bill, SB 186, that would help offset any future deficits that Citizens incurs by placing a surcharge on premiums. The measure also could help curtail Citizens’ growth by limiting policyholders’ ability to say no to take-out offers, and would allow more surplus lines carriers to participate in the Citizens take-out program.

That piece of legislation is scheduled to be discussed at Tuesday’s Senate Banking and Insurance Committee meeting.

But insurance industry advocates have said more is needed, and some are beginning to wonder why lawmakers and Gov. Ron DeSantis aren’t doing more to address the problems still facing Florida’s property insurance market.

“It’s been a comedy of apathy, trial bar influence and legislative malpractice that has led Florida to these 30% annual rate increases,” said Brandes, who is term-limited and will be out of the Legislature after this session.

Now, he added, “it’s a five-alarm fire but no one’s coming to the rescue.”

Some Florida Democrats have also taken notice of DeSantis’ apparent absence on the simmering property insurance issue. An outspoken former state representative, Sean Shaw, tweeted last week: “Manatees dying, insurance rates soaring, and no affordable housing…and you wonder why all the Gov talks about is race and the press,” according to FloridaPolitics.com.

A few legislators have said that lawmakers, facing redistricting, abortion and COVID issues, may have little appetite this year for more insurance reforms. SB 76, approved last spring, made needed changes but may take a while to show results, they have said.

But Brandes pointed out that the Legislature won’t meet again until March 2023, meaning that any legislation that gets passed then won’t take effect until summer of that year or January 2024.

“Many companies will not be able to survive until then,” he said.

Southern Fidelity could well be one of those companies, if regulators don’t approve the requested rate increases. The carrier, now part of Gulf & Atlantic Insurance Companies, shows in its third quarter financial report that its direct losses in the preceding 12 months were double those for the previous 12 months.

The company posted a $116 million net loss, preceded by a $119 million net loss in 2020. Southern maintained a statutory surplus of $45 million at the end of the quarter. But the company also has received more than $200 million in capital investment, much of it from HSCM Bermuda, part of Hudson Structure Capital Management, which took a majority stake in Gulf & Atlantic in 2020.

It’s not clear if Hudson will continue to support Southern Fidelity. Hudson’s founder and managing partner, Michael Millette, could not be reached for comment Friday.

It’s also uncertain when regulators will make a decision on the rate request. A spokesperson for the Florida Office of Insurance Regulation said the agency has no timeframe, but that the decision would come after the written comments period closes Feb. 4.