The information {that a} startup Florida insurance coverage firm will assume $400 million in insurance policies from the now-insolvent St. Johns Insurance coverage Co. – with none enter from different carriers – has set tongues wagging and emails flying amongst Florida insurance coverage executives.
Within the charged environment of Florida’s distressed property insurance coverage market, the place 5 carriers have been liquidated within the final 30 months, insurers say each benefit is required. And a few executives wish to know why state regulators didn’t provide them the possibility to tackle among the 147,000 insurance policies – and greater than $90 million in money from unearned premiums – that newcomer Slide Insurance coverage will obtain below the phrases of a latest courtroom order and transition plan.
“It’s a superb final result for St. Johns brokers and shoppers, that’s true. But it surely’s additionally true that nobody else had the chance to bid on no less than a portion of their e book of enterprise,” stated Locke Burt, chairman and CEO of Safety First Insurance coverage, based mostly in Ormond Seaside.
A lot of executives advised the Insurance coverage Journal final week that the transfer by the Florida Workplace of Insurance coverage Regulation was so fast and with out session with the general public or with different firms that it doesn’t go the scent take a look at. Florida carriers are asking how Slide CEO Bruce Lucas appeared to know that St. Johns was going below earlier than anybody else knew.
With the unearned premium cash flowing to Slide – and most Florida carriers caught with a 1.3% evaluation to assist the state warranty affiliation cowl St. Johns’ present claims – it virtually seems like long-time Florida insurers are subsidizing a startup competitor, or robbing Peter to pay Paul, one insurance coverage government stated.
“It’s an unfair benefit for Slide and it simply looks like a sweetheart deal,” stated Bob Ritchie, CEO of Tampa-based American Integrity Insurance coverage. “If OIR had labored this shortly to get business reforms handed, we wouldn’t want this,” he added.
Insurers are additionally apprehensive that the evaluation by the Florida Insurance coverage Warranty Affiliation, due subsequent month, might be the primary of a number of: Extra insurers in Florida’s distressed property market are anticipated to grow to be bancrupt this 12 months, and even a small evaluation on a provider’s premium can imply tens of millions of {dollars} have to be paid unexpectedly and handed on to policyholders, a lot of whom already are going through larger premiums.
“Are we going to have to try this each time now, possibly six extra occasions within the subsequent 12 months or so?” one insurance coverage vp stated. “This business doesn’t have, sitting round in money, 1.3% of all of the direct written premium. There’s a money stream downside within the business now.”
For a smaller provider, with $250 million in premium, for instance, the St. Johns evaluation quantities to $4 million that have to be paid by April 1. For all Florida insurers affected, the evaluation would come to a complete of about $180 million, insurers stated.
Florida Insurance coverage Commissioner David Altmaier’s workplace didn’t reply to requests for an interview concerning the Slide transaction. However Lucas advised the Insurance coverage Journal that Slide should pay the evaluation, identical to different members of FIGA.
He additionally stated there was nothing inappropriate concerning the transition of St. Johns insurance policies to Slide, and that he had not spoken with Altmaier about it.
“We have been simply minding our enterprise and rolling out our firm and it simply type of fell into our lap,” Lucas stated Friday. “These guys had a disaster and we have been capable of step in shortly to resolve it.”
Lucas declined to say which regulators he or different Slide officers had spoken with or when, or who approached whom about St. Johns. However he stated that Slide had been in talks with St. Johns officers just lately.
“We have been in discussions with St. Johns. They have been eager about having a dialog, nevertheless it’s not like there was some large advance warning,” he stated. “It’s not like we have been engaged on this for six months. We had a really brief time window to decide. We made the choice based mostly on the circumstances.”
The timeline of the ultimate days of the 19-year-old, Orlando-based St. Johns offers an concept of how shortly the panorama modified. In early February, St. Johns, listed at one time because the eighth-largest P/C provider in Florida, introduced that it will cease writing new enterprise within the state on Feb. 15.
On Feb. 17, the Demotech score company withdrew St. John’s monetary stability score altogether as a result of a scarcity of ample reserves. A day later, Slide, a Tampa-based insurtech nonetheless elevating capital, agreed to take over St. Johns’ householders e book of enterprise. Slide didn’t obtain its certificates of authority as a provider till Feb. 24, OIR’s web site reveals.
In the future later, on Feb. 25, the Florida Division of Monetary Companies’ Division of Rehabilitation and Liquidation requested the circuit courtroom in Tallahassee to approve the transition of insurance policies to Slide. That very same day, the Workplace of Insurance coverage Regulation finalized a consent order, formalizing the deal and a change in marketing strategy for the startup, based on the paperwork.
“The transition plan protects St. Johns’ policyholders by offering transition protection by Slide for policyholders of St. Johns whose insurance policies might be canceled pursuant to a liquidation order,” the consent order reads.
The doc additionally notes that OIR had reviewed Slide’s change in marketing strategy, its deliberate disaster reinsurance program and its means to supply protection to St. Johns’ insureds. Slide has been funded with $25 million in surplus and has indicated it should have $39 million in surplus by the top of March, the doc defined.
Three days later, on Feb. 28, the circuit courtroom accredited the transition plan. That very same day, the FIGA board of administrators accredited the 1.3% evaluation, the second for 2022 to cowl bancrupt firms’ excellent claims. St. Johns wrote insurance policies in South Carolina, in order that state’s warranty affiliation additionally was concerned in approving the liquidation.
“When you concentrate on everybody that needed to be lined up, from Slide, to OIR, DFS, FIGA, and the South Carolina warranty affiliation, does it appear cheap that all of it occurred in 48 hours or so?” Burt requested.
Lucas stated the transition adopted normal process, and that different takeovers of bancrupt firms’ insurance policies have moved simply as shortly. Lucas was beforehand head of Heritage Insurance coverage, which took simply 4 days to imagine hundreds of home-owner insurance policies when Sawgrass Mutual Insurance coverage Co. was put into liquidation in 2017, he stated.
“When an organization is aware of they’re impaired, plenty of occasions it’s associated to reserves and it occurs fairly shortly. You get your reserve report and, growth, you’re out of time and there’s nothing you are able to do about it,” Lucas stated. “We had the bandwidth to do a transaction and do it seamlessly.”
The transition plan itself has raised questions for different carriers. The plan notes that FIGA will switch to Slide a lot of the unearned premiums from St. Johns, minus some unpaid premiums and unearned commissions, that outcome from coverage cancellations. The switch began with $40 million from FIGA final week and one other $50 million is due by March 15. The remaining quantity must be handed over by mid-Could.
One insurance coverage firm’s senior chief stated that places FIGA within the place of being a enterprise capitalist, serving to to supply seed cash for a startup. Taking over a $400 million e book of enterprise would usually require about $200 million in personal funding, one thing Slide might not have had entry to with out the FIGA transfers, Slide’s opponents complained.
One other method would have been to let the state-run Residents Property Insurance coverage Corp. tackle the St. John’s insurance policies, then let Slide make a take-out provide on insurance policies from Residents, simply as many different carriers have completed.
However with Florida policymakers involved about Residents’ speedy fee of progress, and with Residents within the midst of a depopulation plan, that won’t have been an choice. With so many carriers going through large losses and still-high litigation prices this 12 months, the extra carriers Florida has, the higher, some officers would possibly argue in supporting the Slide place.
Present and former FIGA officers stated the transfer to ship tens of millions in unearned premiums to at least one firm will not be that uncommon, and has been accredited just a few occasions within the final twenty years. It’s completed to guard St. Johns’ former clients, stated Corey Neal, government director of FIGA.
The disgorgement of funds to Slide is required partly in order that Slide can refund premiums to St. Johns policyholders who resolve to cancel as a substitute of transitioning to the brand new firm. However Ritchie, of American Integrity, questioned what number of policyholders will wish to cancel. Most will discover it simpler to sit down tight whereas their properties stay coated, he stated.
Lucas famous that among the money is required to handle St. Johns’ reinsurance protection. The bancrupt provider had a 70% quota share with some reinsurers, he stated, referring to the kind of contract during which the reinsurer receives a share of the premium for the e book of enterprise that’s reinsured, whereas agreeing to pay a share of losses and loss adjustment bills.
“If the quota-share reinsurers don’t flip over the cash they’re holding, there’s a shortfall,” Lucas stated.
Insurance coverage business leaders even have questioned how lengthy St. Johns former policyholders might be coated by Slide. There’s nothing within the transition plan that requires Slide to resume insurance policies once they expire, as some insolvency transitions have required for no less than the primary few years, stated Burt, of Safety First.
Lucas countered that Slide is free to non-renew identical to everybody else.
“I’ve completed two different insolvency transactions,” Lucas stated. “Not a type of had any non-renewal stipulations in it. I’ve by no means even heard of that.”
Others in Florida’s insurance coverage business additionally questioned why FIGA would so shortly conform to disgorge funds to Lucas’ firm, given the truth that FIGA is now engaged in a authorized dispute with Lucas’ former firm over related points. That litigation additionally reveals that questions on a comparatively new insurer’s position in serving to to salvage an bancrupt provider should not new.
After Sawgrass Mutual grew to become bancrupt in 2017, the OIR signed off on a consent order transferring hundreds of Sawgrass insurance policies to Lucas’ Heritage Property & Casualty Insurance coverage Co., established in 2012. However inside months, the interpretation of that consent order and the transition plan grew to become a problem.
FIGA’s attorneys argued in Leon County Circuit Court docket that Heritage had not assumed legal responsibility for as many Sawgrass claims because it ought to have below the settlement with OIR, leaving FIGA on the hook for extra. Heritage answered that its assumption of claims earlier than Sept. 1, 2017 was conditioned on Sawgrass Mutual transferring sure funds, together with loss reserves and claim-handling charges. Heritage “has proven it didn’t obtain switch of these funds,” and thus didn’t assume the pre-existing claims, Heritage attorneys stated in September 2021.
That case remains to be pending.
Lucas stated that each one of his opponents’ issues concerning the St. Johns deal are unfounded.
“I believe possibly some individuals are simply making an attempt to stir the pot,” Lucas stated.
