Southern Fidelity Insurance, policyholder for more than 80,000 Floridians, is the latest firm to be deemed insolvent since February. The insurance agency, saddled with financial losses, teetered on the brink of collapse for weeks before finally declaring itself to be bankrupt this week.
In a blow to its business operations, Southern Fidelity lost its financial stability rating earlier this month, which provides independent financial ratings that reinsurers use to price coverage. The rating, issued by Demotech, was lost in part due to the company’s failure to purchase adequate reinsurance coverage designed to protect policyholders in the event a major event wipes out the company’s financial reserves.
Demotech reported on its website that the firm already informed agents that it was suspending new underwriting and renewal policies while seeking to secure reinsurance for the 2022 hurricane season.
“After completing our review of first quarter 2022 financial statements and considering that the company’s reinsurance coverage for the 2022 hurricane season is not complete as of June 2, 2022, Demotech has withdrawn the financial stability rating previously assigned to Southern Fidelity Insurance Company,” the company said in a written statement published on its website.
In recent months, several other property insurers with substantial operations in Florida have run into financial trouble. Demotech downgraded Lighthouse Property Insurance Corp. in March, and the company was later placed into receivership and ultimately declared insolvent. In April, FedNat insurance entered into a consent agreement with the Florida Office of Insurance Regulation after it filed notice with federal regulators that it faced financial hardship.
The Florida Legislature convened at the Capitol in May in an attempt to provide relief to homeowners battling property insurance issues. Florida lawmakers, during a three-day special session, passed legislation (SB 2B) to alleviate rising insurance costs, increase insurance claim transparency, and crack down on frivolous lawsuits.
Despite the special session, insurance woes have mounted in recent months.
Southern Fidelity becomes the fourth insurance writer to go under since February, following Lighthouse Property Insurance Corp., Avatar Property & Casualty Insurance Co., and St. Johns Insurance Co.
The Capitolist reported 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 the fallout, FedNat CFO Ronald A. Jordan resigned from his position according to a filing from the FedNat Holding Company.
What I find mind boggling is the fact that attorneys continue to file and push lawsuits rather than trying to negotiate good faith settlements. I would not be surprised if it got down to a single carrier in the state (Citizen), they continue with their same game plan.
What you should really find mind boggling is how this insurance catastrophe in the State had been brewing for years. Alarms have been blaring and many in the industry begging Tallahassee to take on this crisis but the powers that be felt it a better use of their time and our tax dollars to fan culture wars and fight Mickey Mouse than to work on solving a problem that impacts every Floridian. Not addressing this until May was a dereliction of duty.
what could the state government do ?
Ironically, 75% or more of all law firms (in this state) involved in this type of litigation will also go under once all the Insurance Companies go belly up. The Insurance Industry provides the bulk of their revenue – what will they do when that source dries up? Oh, wait a minute, silly me, they’ll find some other industry to shake down.
The predatory nature of our legal Beagles, coupled with the State’s vulnerable geographic position and rising property values cause the Reinsurance Companies to turn away from the Florida property market. Disturbing is the lack of foresight by the legislature and Administration in coming up with a cost sharing (Citizens & policyholder deductibles agreed value, litigation no fault type property policy that incentivizes reinsurance carriers to re enter the market place. Instead the legislature do nothings protect their vested legal interests back home, their partner practices, their donor interests, and joeflorida citizens take another cyclic insurance ride that helps no one in reality. And now we add spalling risk to our commercial and high rise residential buildings. I am glad i got out of the business 10 years ago.
Florida isn’t the only state that has property losses or with greedy lawyers. Yet we seem to be the ONLY one with this problem! Could it be because of the special favor Rick Scott did for them-by allowing insurance companies to carve out their Florida policies from the rest of the country, so they wouldn’t have to average their profits and losses around the nation like any other business does. Instead, they were allowed to counter their losses in Florida with a big premium hike even though they were making money elsewhere.
We also have a crappy GOP governor and legislature that cares about culture wars-not the needs of the citizens of Florida.