Monday, July 19 2021
Plagued by worsening financial issues and under pressure from credit rating agencies, Gulfstream Property and Casualty Insurance Co. entered the first months of 2021 determined to increase its capital contributions.
The Sarasota-based personal residential insurer had just come off a bleak 2020 calendar year and was struggling to maintain the minimum $10 million surplus.
Gulfstream believed it had finally found an adequate investor by early 2021. The suitor had approximately $3 billion in assets and was deep in due diligence with the Sarasota-based residential insurer when disaster struck. Severe winter storms hit the south-central region, where the company has thousands of policies in Texas and Louisiana. Gulfstream, which also operates in Florida, Alabama, Mississippi and South Carolina, was forced to demand higher required contributions. The suitor pulled out.
Insurer rating experts at Demotech advised Gulfstream executives in March that they must improve operating results if the carrier was to keep it sfinancial stability rating. By then, money had dried up.
Gulfstream was one of several Florida-based private carriers to suffer significant losses in 2020. Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019. The surplus included a net loss of $22.6 million and a net underwriting loss of $34.9 million.
Without capital contributions of $17.1 million, the company would have been below the minimum $10 million at year’s end.
“They had to get rate increases, they had to get additional capital, and I think the reality is they were doing both,” Demotech President Joseph Petrelli told Insurance Journal. “Management had put in money. The company had filed for rate increases and received rate increases and then filed for more. They just couldn’t get enough money in fast enough.”
By May, Gulfstream had received Florida Office of Insurance Regulation approval to cancel approximately 20,311 personal residential policies. The company said it would no longer have risk on any policies outside Florida past June 1.
Even with reduced risk and a shrinking number of policies, Gulfstream couldn’t righten its finances fast enough. Demotech withdrew its “A” designation and shortly after that the OIR placed Gulfstream under administration supervision for failing to maintain the minimum surplus to pay claims.
Though administration supervision is usually confidential, the OIR determined it was in the best interest of the public, Gulfstream and its policy holders to forego that confidentiality.
The OIR notified Gulfstream on June 25 that was under administration supervision, a 90-day period during which Petrelli expects the state to be a “little bit of a matchmaker” so policies might go to another company rather than going to state-run Citizens Property Insurance.
Citizens President and CEO Barry Gilway said during a Wednesday, July 14 Board of Governors meeting that supervision will 35,000 Gulfstream policies will likely be subject to a liquidation order in the next week or so.
“We do have companies that are interested in picking up that book,” Gilway said. “The bottom line is we do believe there may be opportunities for one and maybe two companies to pick up the 35,000 policies. If they do, there is very limited impact on Citizens.”
Known as the state’s insurer of last resort, Citizens has seen a significant increase in its policies since late 2019. Company officials said policies are growing by more than 5,000 per week.
“After holding stable for a number of years at about 430,000 policies, now we’re up over 650,000, or so,” said Citizens spokesman Michael Peltier. Peltier, who declined to speak specifically on Gulfstream, said Hurricanes Erma and Michael in 2017 and 2018 have led to a series of long litigations for Florida insurers, eating into their surpluses.
“Companies have had to adapt which means in many cases shedding risk and those policies are coming to us,” he said.
Petrelli expects that the worst is over as companies have trimmed the number of policies they write and issue and strengthened their balance sheets.
Absent a Black Swan event, such as a severe hurricane or series of potent storms, Florida insurers that Demotech works with are in good shape.
“The reality is most of the companies we’ve dealt with either had their capital infusions or they’re big enough that they were okay on their own,” said Petrelli.
Sunday, July 18 2021
After Surfside disaster, some foresee ‘huge problems’ for associations
Owners of older condominiums in Florida can expect to pay more for insurance coverage as a result of the Surfside collapse — if they can find insurance at all. The tragedy is already sparking discussions among insurance experts across the state about how they might be able to get out of paying for future collapses. Experts say that condo owners should brace for higher costs and possible changes to commercial policies that condo associations buy to cover their buildings, as well as to policies that unit owners buy to cover what happens inside their four walls.
With two-thirds of condo buildings in South Florida at least 30 years old, thousands of condo owners will likely be forced to reach deeper into their pockets, experts say — not only for higher insurance costs, but also for engineering reports and repairs that insurers are expected to start requiring. “Before this tragedy happened, condos had problems finding private insurers,” said Jan Bergemann, who heads a statewide advocacy group for condominium owners called Cyber Citizens for Justice. “Believe me, [the collapse] will just increase the problem and if insurance companies demand engineering reports, we will see huge problems for these condo associations.”
Barry Gilway, CEO and president of state-owned Citizens Property Insurance Corp., told his company’s governing board that private-market insurers will use the collapse to justify dropping coverage of older condo buildings. Condo associations will be left with no choice but to seek coverage from Citizens, the so-called “insurer of last resort,” he said. “We can expect companies to be far more stringent in their underwriting requirements,” he told the board on Wednesday. “And that will send more business our way.”
Citizens doesn’t want older condos. If Gilway has his way, those buildings won’t be insured by Citizens unless owners can prove that they aren’t at risk of collapsing. He said the company should prepare to tighten its own eligibility criteria, including requiring associations to submit structural engineering reports. What the company will need to figure out, he said, is “how aggressive do we get” in establishing criteria meant to reject buildings most likely to generate costly claims. “Can we put in underwriting criteria that are very explicit, for example, that we will not write a [building] without a full structural integrity engineering report? Will we need to require a 40-year certification in order to [cover] a residential condominium? By doing that, we can stop that business from coming in.”
Citizens will likely require approval from the Office of Insurance Regulation for any changes to eligibility criteria. In addition, the state Legislature is expected to look into possible revisions to condominium laws when committee meetings begin this fall in preparation for the 2022 session. Private-market insurers, however, have the flexibility to change provisions of commercial policies — and even cancel policies in the middle of policy terms — without prior approval from state regulators, said Charles Nyce, associate professor of risk management and insurance at Florida State University’s College of Business. Some companies might decide to exclude or limit coverage for building collapses, Nyce said.
Private-market insurers, which currently cover all but about 330 commercial condo policies that are in Citizens, could impose requirements similar to those sought by Gilway, experts said. “Gilway is correct. A lot of insurers are going to be taking a harder look at what that risk looks like,” said Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents. Insurers will likely require older buildings to submit documentation showing that they passed local inspections, Ulrich said. They’ll also insist that condo associations order structural engineering reports and send copies to them for review, he said. Biggest cost hikes likely won’t be premiums 7/18/2021 S
More frequent inspections and engineering reports will cost associations money that will be recovered from owners. Insurers will be forced to increase premiums to cover the costs of reviewing those reports. But the biggest cost increases for owners probably won’t be in the form of higher insurance premiums, said state Sen. Jeff Brandes, a Tampa-area Republican who in recent years has been heavily involved in the Florida Legislature’s insurance reform efforts. Brandes says the steepest price hikes will result from insurers’ requirements that condo associations make “substantial investments” to fix any structural defects identified in those required structural engineering reports. And “they’re not going to write [policies] unless they have a signed agreement that the work is going to be done,” he said.
Condo associations will have little choice but to make the improvements and pass the costs to owners if they want to remain insured, he said. A potential way to fund repairs While commercial condo policies that cover building structures are written by just a few state-regulated insurance companies and unregulated surplus lines carriers, the most common policies are those purchased by condo owners themselves that cover what’s inside, and not outside, a unit, including personal property, bathroom and kitchen fixtures, cabinets, countertops, plumbing, floors, carpeting and interior walls. Those condo policies, which are typically sold by many of the same state-regulated insurers that cover single-family homes, are required by law to provide at least $2,000 in coverage for special assessments levied by condo associations for losses.
The way it typically works is if a condo association’s building policy cannot fully cover the cost of a repair, the association will bill owners for the remainder of the repair cost as a special assessment. Condo owners can recoup that special assessment, up to the limit of their coverage, from their own insurers. Coverage for special assessments is meant to pay for unexpected but minor damage, such as replacing fascia after a hurricane, as well as liability claims, like a drowning in a community pool. Coverage is triggered not when the event occurs but on the date the owner gets the bill for the assessment. “Routine maintenance is not covered,” said an executive of a Florida-based insurer, whose president would not authorize him to speak for attribution. Some insurance industry insiders, the executive said, are concerned that if increased scrutiny of structural integrity triggers a tidal wave of required repairs, lawmakers could decide to require loss assessment coverage to help foot the bills.
“The industry has to look out for a stroke-of-the-pen decree that the insurer is on the hook for all loss assessments, even problems that started 30 years ago,” he said. If that happens, he expects many insurers to stop offering condo unit coverage. Chip Merlin, president of Merlin Law Group, a Tampa-based law firm specializing in property insurance litigation, said he’s concerned that insurers will try to water down or eliminate loss assessment provisions in all of their policies to prevent it from being applied to structural repairs. Waiting to learn cause of collapse Some experts interviewed for this story say it’s premature to predict how the insurance industry will react to the collapse.
Investigations into what caused it are still in the early stages, and the insurance industry is waiting for results before making major changes to coverage criteria or prices, Nyce said. “Hopefully most companies will want to find out the cause first,” he said. “This was not a normal event.” Questions yet to be answered include: Were inspectors not doing their jobs and certifying buildings as safe? If insurance companies feel Miami-Dade County was not doing its job, rates in that county may go up.
“There are lots of theories. If it’s determined there were common construction practices in the 1970s and 1980s that caused it, then yeah, we’ll probably see rates rise for older buildings.” Merlin sees the possibility of a different outcome. With property managers and association boards now prioritizing maintenance and repairs, one could argue that condo buildings are safer today than before the tragedy happened, he said. “If you are in a building and you see cracks in concrete and rebar that’s deteriorating, you’re going to be asking your board or property manager, ‘What are we doing about this?’ ” Hopefully all of the repairs will make insurers want to cover more condo buildings “and we’ll see that reflected in lower rates,” he said.