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that the company’s reinsurance coverage for the 2022 hurricane season is not complete as of June 2, 2022, Demotech has withdrawn the financial stability rating previously assigned to Southern Fidelity Insurance Company,” the company said in a written statement published on its website.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.