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Monday, March 30 2020

Demotech has affirmed 37 of the 46 Florida-based companies rated by the actuarial firm, as of March 26, according to information gathered from Demotech’s website. That leaves fewer than 10 Florida insurers that are still awaiting a decision on their financial stability ratings (FSR) from the Ohio-based ratings agency.

Demotech said it is continuing to review both public and proprietary financial information and have discussions about business plans with the yet-to-be-affirmed insurers.

In mid-March, Demotech affirmed a slew of companies (see chart) and this week affirmed several others, including Capitol Preferred Insurance Co., Gulfstream P&C Insurance Co., and Security First Insurance Co.

The companies that are still in discussions and will either be affirmed or downgraded, as of March 26, include: Avatar Property & Casualty Insurance Co., Centauri Specialty Insurance Co., Cypress Property & Casualty, Omega Insurance Co., Safepoint Insurance Co., Tower Hill Select Insurance Co., and Tower Hill Signature Insurance Co.

The Florida Office of Insurance Regulation approved Tower Hill Select and Omega merging into Tower Hill Signature on March 25.

Demotech Actions

“Demotech has downgraded a number of carriers. Another subset of the carriers that we review and rate have opted to be purchased so that investors can exit the Florida residential property insurance marketplace. A larger number have been affirmed based upon (or in spite of?) their year-end operating results. Another group continues to dialogue with us and share their thoughts on the marketplace, how their business model must adapt, etc.,” Demotech President and Founder Joseph Petrelli said in a statement to Insurance Journal on March 25.

Companies that have not had their ratings affirmed as of press time are not necessarily being downgraded, and delays in ratings affirmations should not be misconstrued, according to Demotech. Many companies have avoided ratings downgrades by being acquired (see chart), or injecting significant capital into their books, while others have been able to sustain their rating by providing Demotech proprietary or confidential information that is not in the public domain, the company said.

Florida Insurers Financial Stability Rating (FSR)

  1. American Coastal
    A’; Affirmed 3/18/20
  2. American Integrity
    A; Affirmed 3/18/20
  3. American Platinum P&C
    A; Affirmed 3/18/20
  4. American Traditions
    A; Affirmed 3/18/20
  5. Anchor P&C Insurance Co.
    M – Downgraded 1/14/20; Ceased operations; Policies acquired by Homeowners Choice
  6. Avatar P&C
    A; Last Affirmed 12/13/19; Awaiting Update (Previously announced merger w/Centauri canceled)
  7. Bankers Insurance Co.
    A; Affirmed 3/18/20
  8. Capitol Preferred Insurance Co.
    A; Affirmed 3/23/20
  9. Castle Key Indemnity Co.
    A’; Affirmed 3/18/20
  10. Castle Key Insurance Co.
    A’; Affirmed 3/18/20
  11. Centauri Specialty Insurance
    FSR Under Review 3/21/20
  12. Cypress P&C
    A; Affirmed 12/3/19; Awaiting Update
  13. Edison Insurance Co.
    A; Affirmed 3/18/20
  14. FedNat Insurance Co.
    A; Affirmed 3/18/20
  15. First Community Insurance
    A; Affirmed 3/18/20
  16. First Protective Insurance
    A; Affirmed 3/18/20
  17. Florida Family Home
    A’; Affirmed 3/18/20
  18. Florida Family Insurance
    A’; Affirmed 3/18/20
  19. Florida Peninsula Insurance
    A; Affirmed 3/18/20
  20. Frontline Insurance Unlimited
    A; Affirmed 3/18/20
  21. Gulfstream P&C Insurance Co.
    A; Affirmed 3/23/20
  22. Heritage P&C Insurance Co.
    A; Affirmed 3/18/20
  23. Homeowners Choice P&C
    A; Affirmed 3/18/20
  24. Maison Insurance Co.
    A; Affirmed 3/18/20
  25. Monarch National Insurance
    A; Affirmed 3/18/20
  26. Olympus Insurance Co.
    A; Affirmed 3/18/20
  27. Omega Insurance Co.
    Being Acquired by Tower Hill Signature Insurance
  28. People’s Trust Insurance
    A; Affirmed 3/18/20
  29. Prepared Insurance
    Being Acquired by Lighthouse Property Insurance Corp.
  30. Safe Harbor Insurance Co.
    A’; Affirmed 3/18/20
  31. Safepoint Insurance Co.
    A; Last Affirmed 12/4/19; Awaiting Update
  32. Security First Insurance Co.
    A; Affirmed 3/18/20
  33. Southern Oak Insurance Co.
    A; Affirmed 3/18/20
  34. Stillwater Insurance Co.
    A; Affirmed 3/18/20
  35. Stillwater P&C Insurance Co.
    A; Affirmed 3/18/20
  36. St. Johns Insurance Co.
    A; Affirmed 3/18/20
  37. Tower Hill Preferred
    A; Affirmed 3/18/20
  38. Tower Hill Prime
    A; Affirmed 3/18/20
  39. Tower Hill Select
    Being Acquired by Tower Hill Signature Insurance
  40. Tower Hill Signature
    A; Last Affirmed 12/3/19; Awaiting Update
  41. TypTap
    A; Affirmed 3/18/20
  42. United P&C Insurance Co.
    A; Affirmed 3/18/20
  43. Universal Insurance Co. of North America
    A; Affirmed 3/18/20
  44. Universal P&C Insurance
    A; Affirmed 3/18/20
  45. US Coastal P&C
    A; Affirmed 3/18/20
  46. Weston Insurance Co.
    A; Affirmed 3/19/20

A” = Unsurpassed A’= Unsurpassed; A= Exceptional; S = Substantial; M = Moderate

In comments on its March 23 affirmation of Gulfstream P&C, Demotech Vice President Sharon M. Romano Petrelli said a delay in a rating affirmation should “not be made into something bigger than it is.” Gulfstream’s company business model kept them at the A level, despite increases in reinsurance costs anticipated in 2020 and litigation trends in the state. “The management team at Gulfstream has met or exceeded our financial metrics for the past several years,” she said.

Joseph Petrelli added that while Demotech reviews public information on all the carriers it reviews and rates, it also reviews holding company and affiliated entity financials when necessary.

“Gulfstream invited us to do so to better understand how they had positioned themselves to address the myriad issues facing the residential property insurance markets in Florida,” Petrelli said. “Given the breadth and scope of their capability to honor their commitment to policyholders, we needed additional time to digest their additional information.”

For Security First, which was affirmed on March 24, Petrelli said succession planning, managing claim litigation in a difficult judicial environment, and astute reinsurance purchasing are “three facets of the company’s enterprise risk management program that support” sustaining an FSR at the A level, “despite the projected increases in reinsurance costs anticipated in the near future.”

Demotech did not release a statement on the ratings affirmation of Capitol Preferred, which has a 36.5% rate increase request still under consideration by the Florida Office of Insurance Regulation. The company’s CEO told regulators at a rate hearing in February that the company needed the increase because of reinsurance costs, assignment of benefits (AOB) abuse and first party lawsuits.

January Warning

These long-awaited ratings announcements follow Demotech’s warning in January that it may downgrade as many as 18 of the 46 Florida domestic insurers it rates.

In a letter to Florida’s Citizens Property Insurance President and CEO Barry Gilway that was obtained by Insurance Journal, Petrelli outlined several factors in the state that were placing insurer ratings in jeopardy, including abuse of assignment of benefits agreements and first party litigation.

“The economics of the marketplace over the past several years have made it impossible for Demotech to sustain each of the Florida focused carriers that we review each quarter at a [FSR] of A, Exceptional,” he said.

Petrelli said that after Demotech reviewed the third quarter 2019 financials of carriers, it requested year-end projections of operating results for nearly half of the 40-plus carriers it reviews and rates.

“Having provided these carriers with ample time to implement revised business models, secure capital infusions, implement rate revisions, re-underwrite established books of business and utilize other enterprise risk management activities, it is apparent that few have returned to profitability,” Petrelli wrote.

Since then, several Florida companies have made moves. Anchor P&C ceased its operations and sold its policies to Homeowners Choice Insurance. Prepared Insurance was acquired by Lighthouse Property Insurance Corp. This week, the state approved the merger of the two Tower Hill companies.

Demotech would not disclose the names of the insurers it is still reviewing, but Petrelli said he expects it will announce several downgrades at the end of March. Petrelli told Insurance Journal this week that Demotech is in the process of having “thoughtful and focused” discussions with the management of the insurers not yet affirmed.

“If we are convinced that their action has addressed previous matters brought to their attention, and will facilitate their operational effectiveness in the ever-changing circumstances of the most difficult operating environment in the US, and provide them with the opportunity to make a reasonable profit, we sustain the Financial Stability Rating,” he said.

He also noted that some downgrades from ‘A’ FSR (Exceptional) to S (Substantial) are as much a reflection on the operating environment in Florida as they are on a carrier.

“It is the marketplace more than carrier-specific metrics that is driving the need for downgrades. If these carriers were focused on any other jurisdiction, they would be sitting in the driver’s seat,” he said.

Petrelli added that carriers that have sustained their ratings to date have shown Demotech “how they intend to fulfill their commitment to Floridians through their business model.”

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