By William Rabb

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Florida Insurers Crying Foul Over Slide’s ‘Favored’ Treatment in St. Johns Insolvency

By William Rabb | March 7, 2022

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The news that a startup Florida insurance company will assume $400 million in policies from the now-insolvent St. Johns Insurance Co. – without input from other carriers – has set tongues wagging and emails flying among Florida insurance executives.

In the charged atmosphere of Florida’s distressed property insurance market, where five carriers have been liquidated in the last 30 months, insurers say every advantage is needed. And some executives want to know why state regulators didn’t offer them the chance to take on some of the 147,000 policies – and more than $90 million in cash from unearned premiums – that newcomer Slide Insurance will receive under the terms of a recent court order and transition plan.

“It’s a good outcome for St. Johns agents and consumers, that’s true. But it’s also true that no one else had the opportunity to bid on at least a portion of their book of business,” said Locke Burt, chairman and CEO of Security First Insurance, based in Ormond Beach.

A number of executives told the Insurance Journal last week that the move by the Florida Office of Insurance Regulation was so quick and without consultation with the public or with other companies that it doesn’t pass the smell test. Florida carriers are asking how Slide CEO Bruce Lucas seemed to know that St. Johns was going under before anyone else knew.

With the unearned premium money flowing to Slide – and most Florida carriers stuck with a 1.3% assessment to help the state guaranty association cover St. Johns’ existing claims – it almost feels like long-time Florida insurers are subsidizing a startup competitor, or robbing Peter to pay Paul, one insurance executive said.

Ritchie (Linkedin)

“It’s an unfair advantage for Slide and it just seems like a sweetheart deal,” said Bob Ritchie, CEO of Tampa-based American Integrity Insurance.

Insurers are also worried that the assessment by the Florida Insurance Guaranty Association, due next month, could be the first of several: More insurers in Florida’s distressed property market are expected to become insolvent this year, and even a small assessment on a carrier’s premium can mean millions of dollars must be paid unexpectedly and passed on to policyholders, many of whom already are facing higher premiums.

“Are we going to have to do that every time now, maybe six more times in the next year or so?” one insurance vice president said. “This industry does not have, sitting around in cash, 1.3% of all the direct written premium. There’s a cash flow problem in the industry now.”

For a smaller carrier, with $250 million in premium, for example, the St. Johns assessment amounts to $4 million that must be paid by April 1. For all Florida insurers affected, the assessment would come to a total of about $180 million, insurers said.

Florida Insurance Commissioner David Altmaier’s office did not immediately respond to requests for an interview about the Slide transaction. But Lucas told the Insurance Journal that Slide will have to pay the assessment, just like other members of FIGA.

He also said there was nothing inappropriate about the transition of St. Johns policies to Slide, and that he had not spoken with Altmaier about it.

“We were just minding our business and rolling out our company and it just kind of fell into our lap,” Lucas said Friday. “These guys had a crisis and we were able to step in quickly to solve it.”

Lucas

Lucas declined to say which regulators he or other Slide officers had spoken with or when, or who approached whom about St. Johns. But he said that Slide had been in talks with St. Johns officials recently.

“We were in discussions with St. Johns. They were interested in having a conversation, but it’s not like there was some big advance warning,” he said. “It’s not like we were working on this for six months. We had a very short time window to make a decision. We made the decision based on the circumstances.”

The timeline of the final days of the 19-year-old, Orlando-based St. Johns gives an idea of how quickly the landscape changed. In early February, St. Johns, listed at one time as the eighth-largest P/C carrier in Florida, announced that it would stop writing new business in the state on Feb. 15.

On Feb. 17, the Demotech rating agency withdrew St. John’s financial stability rating altogether due to a lack of adequate reserves. A day later, Slide, a Tampa-based insurtech still raising capital, agreed to take over St. Johns’ homeowners book of business. Slide did not receive its certificate of authority as a carrier until Feb. 24, OIR’s website shows.

One day later, on Feb. 25, the Florida Department of Financial Services’ Division of Rehabilitation and Liquidation asked the circuit court in Tallahassee to approve the transition of policies to Slide. That same day, the Office of Insurance Regulation finalized a consent order, formalizing the deal and a change in business plan for the startup, according to the documents.

“The transition plan protects St. Johns’ policyholders by providing transition coverage by Slide for policyholders of St. Johns whose policies will be canceled pursuant to a liquidation order,” the consent order reads.

The document also notes that OIR had reviewed Slide’s change in business plan, its planned catastrophe reinsurance program and its ability to provide coverage to St. Johns’ insureds. Slide has been funded with $25 million in surplus and has indicated it will have $39 million in surplus by the end of March, the document explained.

Three days later, on Feb. 28, the circuit court approved the transition plan. That same day, the FIGA board of directors approved the 1.3% assessment, the second for 2022 to cover insolvent companies’ outstanding claims. St. Johns wrote policies in South Carolina, so that state’s guaranty association also was involved in approving the liquidation.

“When you think about everyone that had to be lined up, from Slide, to OIR, DFS, FIGA, and the South Carolina guaranty association, does it seem reasonable that it all happened in 48 hours or so?” Burt asked.

Lucas said the transition followed standard procedure, and that other takeovers of insolvent companies’ policies have moved just as quickly. Lucas was previously head of Heritage Insurance, which took just four days to assume thousands of homeowner policies when Sawgrass Mutual Insurance Co. was put into liquidation in 2017, he said.

“When a company knows they are impaired, a lot of times it’s related to reserves and it happens pretty quickly. You get your reserve report and, boom, you’re out of time and there’s nothing you can do about it,” Lucas said. “We had the bandwidth to do a transaction and do it seamlessly.”

The transition plan itself has raised questions for other carriers. The plan notes that FIGA will transfer to Slide most of the unearned premiums from St. Johns, minus some unpaid premiums and unearned commissions, that result from policy cancellations. The transfer started with $40 million from FIGA last week and another $50 million is due by March 15. The remaining amount should be handed over by mid-May.

One insurance company’s senior leader said that puts FIGA in the position of being a venture capitalist, helping to provide seed money for a startup. Taking on a $400 million book of business would generally require about $200 million in private funding, something Slide may not have had access to without the FIGA transfers, Slide’s competitors complained.

Another approach would have been to let the state-run Citizens Property Insurance Corp. take on the St. John’s policies, then let Slide make a take-out offer on policies from Citizens, just as many other carriers have done.

But with Florida policymakers concerned about Citizens’ rapid rate of growth, and with Citizens in the midst of a depopulation plan, that may not have been an option. With so many carriers facing huge losses and still-high litigation costs this year, the more carriers Florida has, the better, some officials might argue in supporting the Slide position.

Current and former FIGA officials said the move to send millions in unearned premiums to one company is not that unusual, and has been approved a few times in the last two decades. It’s done to protect St. Johns’ former customers, said Corey Neal, executive director of FIGA.

The disgorgement of funds to Slide is needed in part so that Slide can refund premiums to St. Johns policyholders who decide to cancel instead of transitioning to the new company. But Ritchie, of American Integrity, questioned how many policyholders will want to cancel. Most will find it easier to sit tight while their homes remain covered, he said.

Lucas noted that some of the cash is needed to manage St. Johns’ reinsurance coverage. The insolvent carrier had a 70% quota share with some reinsurers, he said, referring to the type of contract in which the reinsurer receives a percentage of the premium for the book of business that is reinsured, while agreeing to pay a percentage of losses and loss adjustment expenses.

“If the quota-share reinsurers don’t turn over the money they’re holding, there’s a shortfall,” Lucas said.

Insurance industry leaders also have questioned how long St. Johns former policyholders will be covered by Slide. There’s nothing in the transition plan that requires Slide to renew policies when they expire, as some insolvency transitions have required for at least the first few years, said Burt, of Security First.

Lucas countered that Slide is free to non-renew just like everyone else.

“I’ve done two other insolvency transactions,” Lucas said. “Not one of those had any non-renewal stipulations in it. I’ve never even heard of that.”

Others in Florida’s insurance industry also wondered why FIGA would so quickly agree to disgorge funds to Lucas’ company, given the fact that FIGA is now engaged in a legal dispute with Lucas’ former company over similar issues. That litigation also shows that questions about a relatively new insurer’s role in helping to salvage an insolvent carrier are not new.

After Sawgrass Mutual became insolvent in 2017, the OIR signed off on a consent order transferring thousands of Sawgrass policies to Lucas’ Heritage Property & Casualty Insurance Co., established in 2012. But within months, the interpretation of that consent order and the transition plan became an issue.

FIGA’s attorneys argued in Leon County Circuit Court that Heritage had not assumed liability for as many Sawgrass claims as it should have under the agreement with OIR, leaving FIGA on the hook for more. Heritage answered that its assumption of claims before Sept. 1, 2017 was conditioned on Sawgrass Mutual transferring certain funds, including loss reserves and claim-handling fees. Heritage “has shown it did not receive transfer of those funds,” and thus did not assume the pre-existing claims, Heritage attorneys said in September 2021.

That case is still pending.

Lucas said that all of his competitors’ concerns about the St. Johns deal are unfounded.

“I think maybe some people are just trying to stir the pot,” Lucas said.

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