Monday, February 28 2022
Things are moving fast in Florida’s distressed property insurance market.
Just days after St. Johns Insurance Co. announced it would stop writing new homeowner business in Florida, the Demotech rating agency withdrew the carrier’s financial stability rating on Thursday, due to the company’s lack of sufficient reserves and bleak financial reports.
A day later, the Tampa-based insurtech startup known as Slide agreed to take over St. Johns’ homeowners book of business, Demotech and other sources have confirmed.
"We talked with Bruce Lucas and his company and we’ll probably assign a rating in the near future,” said Demotech President Joe Petrelli.
Lucas is CEO of Slide, a startup that has gained considerable attention after the company announced it had raised $100 million in capital last November. Lucas also is known for his success with Heritage Insurance, which grew rapidly into a super-regional insurer serving 15 states. Company officials could not be reached for comment Friday.
Also this week, Avatar Property & Casualty Insurance, based in Tampa, announced that it, too, had stopped writing new business in the state as of Thursday, making it the seventh company in recent weeks to suspend new writing or to non-renew thousands of policies in Florida.
“After careful consideration, we are taking precautions for the best interests of our policyholders, agents, business partners, and associates,” Avatar said in a bulletin to agents.
Demotech also withdrew its rating for Avatar on Friday, after a call with company executives.
While a rating withdrawal often portends insolvency for carriers, Petrelli said that Slide’s assumption of the homeowner book could help St. Johns survive. St. Johns is one of the larger insurers in Florida, with more than 160,000 policyholders. The transaction must be reviewed by the Florida Office of Insurance Regulation, but the office may expedite the matter in light of the shrinking number of carriers willing to do business in the state.
Petrelli said Avatar may also be able find some financial assistance, but more will be known in coming days.
The St. Johns non-rating, following years of healthy financial scores, was the result of the company revealing that it would not have as much surplus on hand as the rating agency requires, Petrelli said.
“Based on conversations with the company and seeing their plan of action going forward, we decided to withdraw the rating,” Petrelli said.
St. John’s third-quarter 2021 quarterly statement shows the firm had $46 million in policyholder surplus. But since then, the financial picture has darkened, and the company said it would not have that much in the bank by the end of 2022.
“They had a disastrous fourth quarter,” Petrelli said.
It’s unclear at this point what effect the takeover by Slide, and the non-rating of Avatar, will have on policyholders. Executives with the Orlando-based St. Johns and with the Tampa-based Avatar could not be reached for comment Friday. Petrelli said the Avatar rating withdrawal may not affect existing policyholders with mortgages, unless Avatar is put into liquidation by state regulators.
Short of insolvency and liquidation, Florida’s Office of Insurance Regulation can take other steps, including agency supervision, to manage distressed companies. A spokeswoman for the office said OIR is working closely with St. Johns and Avatar “to facilitate options for consumers so they have continuous access to coverage.”
Petrelli noted that St. Johns still has some amount of reserve funding.
“The question is, how does it manage its reserves,” he said.
The rating withdrawals are the starkest indication yet that Florida’s property insurance market is in meltdown, insurance industry leaders and state officials said this week. The industry has blamed hurricane losses, unnecessary and even fraudulent roof-replacement claims, and excessive litigation over claims.
Insurance groups have urged Florida lawmakers to pass a new round of legislation that could help stem the red ink. The most comprehensive bill, SB 1728, was approved Wednesday by a key Senate subcommittee, and now goes to the full Appropriations Committee.
The bill, by Sen. Jim Boyd, R-Bradenton, would allow insurers to write more policies that cover only the actual cash value of roofs, not full replacement value, except for damage due to a named hurricane. The bill also would attempt to limit solicitation by roofing contractors promising “free roofs” paid for by insurance companies, even when damage is from age and normal wear and tear.
Monday, February 28 2022
Two more property insurers, including one of the largest insurers in Florida, have stopped writing new policies in the state, marking the fifth and sixth carriers this year to pull back from the turbulent Florida waters.
“At this time, St. Johns Insurance has made the difficult decision to suspend all new business writing statewide as of Feb. 15, 2022,” the company said in a bulletin sent to its agents.
The St. Johns closure applies to all lines of business. Any outstanding quotes had to be bound in the system by 6 p.m. Tuesday, the bulletin noted.
The Orlando-based St. Johns is listed as the eighth-largest homeowners carrier in Florida, with more than 160,000 policies, according to a list maintained by the Florida Association of Public Insurance Adjusters.
Later Tuesday, word spread that Lighthouse Insurance also had stopped writing new business.
“As we manage our reinsurance placement options, Lighthouse has made the difficult decision to suspend new business writing for all products in Florida, effective end of business today,” reads a bulletin sent to agents on Tuesday.
Lighthouse said it would honor any policies quoted Tuesday or before, with effective dates on or before Feb. 28.
The news about struggling insurance carriers in Florida has become almost routine. In the past three months, some of the best-known insurers have said they will stop writing new homeowner policies or won’t renew thousands. These include United Property & Casualty, TypTap, Florida Farm Bureau, and Progressive.
One Florida property insurance insider called a market meltdown, and other carriers will likely soon follow.
St. Johns executives could not be reached for comment Tuesday. The one-page bulletin briefly explains that the suspension is one of several actions the company has taken recently.
“In an effort to maintain balance within our portfolio, we have been employing many strategies to manage our risks: non-renewals, new business eligibility rules, rate changes, overall exposures in territories and portfolio performance,” the bulletin reads. “Sometimes, adjustments may be needed in order to adapt to the ever-changing marketplace.”
Florida agents that sell St. Johns’ policies said that the announcement did not come as a surprise in a state that has been squeezed by storm losses, spiraling claims litigation costs, and higher reinsurance prices.
“St. Johns has been pulling back for a while and increasing premiums, pushing people away,” said Chris Coulter, a managing agent in Orlando associated with the Robert O’Neil Insurance agency.
While an almost-unprecedented number of companies have pulled back from the Florida market in recent months, other carriers can still be found to write homeowners insurance, Coulter said.
“It all depends on what part of the state you’re in,” he said.
Policyholders are taking notice, though, especially with spikes in premiums this year.
“Everyone is seeing rate increases, especially when they get that letter in the mail that they have an escrow shortage,” said Bryan Madril, owner of the Madril Agency in Pensacola, which has sold St. Johns policies for a number of years.
The loss of St. Johns is not a major blow to Madril’s business, but it will force agents to scramble to find new carriers for homeowners.
“They were a good fit for us,” Madril said. “We’ll have to look for alternative markets.”
St. Johns is a privately held company that was established in 2003. It is owned by the St. Johns Holding Co. and the majority shareholder is St. James Insurance Group, a managing general agency, according to the company website.
Jesse Schalk is president and Jonathan Mertz is chief operating officer.
A company balance sheet shows that as of December 31, 2020, the company had $153 million in assets and $106 million in liabilities, along with $46 million in surplus.
Last week, the company asked for a use-and-file rate increase of 12% on HO-3 policies and a 15% increase in condo or HO-6 policies, for a total of 169,335 policies in the state. St. Johns also asked for a 14.9% increase on dwelling fire policies. That followed an 8.8% increase for some base rates, filed in September, according to an explanatory memo filed with the Florida Office of Insurance Regulation.
Lighthouse was founded in 2008 and is authorized to write in Florida, Louisiana, North Carolina, South Carolina and Texas.
Insurance industry advocates have said the rate increases and writing suspensions show that the Florida market is in deep crisis, affecting homeowners, businesses and the real estate market. Many have pinned their hopes on more legislation that could help curb claims litigation and roof-replacement costs, among other changes.
The most comprehensive measure, Senate Bill 1728, by Sen. Jim Boyd, passed the Senate Banking and Insurance Committee earlier this month and is on the agenda for Wednesday’s meeting of a Senate Appropriations Committee subcommittee.
“That’s the number one question we’ve been getting from agents: ‘What is the Legislature going to do to help,'” said B.G. Murphy, director of government affairs for the Florida Association of Insurance Agents.