Blog

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.