Just days before lawmakers are set to convene at the state capitol to reform property insurance, FedNat Insurance Co., a Florida-based property insurance agency, entered into a financial restructuring plan. While not insolvency, meaning the company is not being liquidated, FedNat is forced to terminate roughly half of its Florida policies.

The Capitolist reported last month that FedNat acknowledged in an 8K filing with the SEC that “there is substantial doubt regarding its ability to continue as a going concern under generally accepted accounting principles (“GAAP”).” For publicly traded companies, an 8K filing is required to notify their shareholders and the Securities and Exchange Commission (SEC) when an “unscheduled material event” takes place.

In April, FedNat entered into a consent agreement with Florida’s Office of Insurance Regulation (OIR) in which the insurer agreed to file a plan with the state no later than Friday, April 29th, 2022, outlining the insurer’s ability to secure and maintain a financial strength rating that would be acceptable to the secondary mortgage market.

Now, it’s clear that the plan includes terminating Floridian coverage. Roughly 56,000 homeowner policies will be canceled by FedNat, while its sister company Maison Insurance, which is not domiciled in Florida, will eliminate approximately 3,300 policies.

“The early cancellation of policies … is an extraordinary statutory remedy reserved to address insurers which are or may be in a hazardous financial condition without the cancellation of some or all of its policies,” reads a May 13 consent order filed by the Florida Office of Insurance Regulation.

FedNat and its affiliates serve approximately 152,000 policyholders in Florida, and another 96,000 policyholders spread across Alabama, Louisiana, Mississippi, South Carolina, and Texas. But the company recently announced it planned to pull out of all other markets except for Florida in an effort to shore up its financial foundation.

Monarch National, based in Florida, will cancel about 8,400 policies but will also take on FedNat’s remaining 83,000 policies, according to the consent order.

Florida lawmakers plan to convene in May to address the spate of failures within Florida’s property and casualty insurance market that has been clobbered by lawsuits stemming from hurricane and storm-related claims over the last several years.

“The good news is, on property insurance, I think we’re going to get really, really significant reforms,” Gov. Ron DeSantis said during a recent press conference.

The financial-rating agency AM Best two weeks ago said that further “action is essential” to stabilize Florida’s property insurance market.

The agency issued a four-page commentary that described a slew of problems for insurers, such as high reinsurance and litigation costs, and pointed to companies seeking hefty rate increases and reducing the number of policies they write.

“Insurance industry leaders in Florida have been warning that the current environment for those offering personal property coverage is on shaky ground, given the state’s risks and litigiousness,” the commentary said. “Escalating losses have prompted advocacy groups to call for legislative reform to stabilize the insurance market. Growing support led to legislation introduced in 2019 and again in 2021 aimed at lowering the runaway costs of litigation, a key driver of operating losses, but reform has not achieved the desired effect. Further action is essential to stabilize the market.”