In yet another ominous sign for Florida’s failing property insurance market, Tampa-based Lighthouse Property Insurance Corp. lost its financial stability rating, which means it will likely be placed under state receivership and dissolved.
On Wednesday, ratings firm Demotech announced the withdrawal, effective Tuesday, of Lighthouse’s former A rating.
“Despite a substantial capital contribution in the fourth quarter 2021, the operating loss in 2021, which reflected the evaluation of losses and loss adjustment expenses associated with Hurricane Ida, resulted in a level of capitalization below what was needed to sustain [its stability rating] at the A level,” Demotech president Joseph Petrelli said in a brief news release.
Lighthouse reported having 13,200 policies in Florida at the end of 2021. Of those, 947 were in Broward, Palm Beach and Miami-Dade counties. Those policyholders will have to find new carriers or go into state-owned Citizens Property Insurance Corp. if the state Office of Insurance Regulation seeks a court order to put Lighthouse in receivership.
Hurricane Ida, the fifth-costliest hurricane on record, struck the Gulf Coast on its way toward the Northeastern United States. Lighthouse also wrote policies in Louisiana, North Carolina, South Carolina and Texas.
Demotech, in a letter signed last week by Petrelli and the company’s other top executives, warned Gov. Ron DeSantis, Senate President Wilton Simpson and House Speaker Chris Sprowls that failure to call a special session to address financial instability of the state’s insurance market would likely force Demotech to withdraw financial stability ratings of “a number” of companies.
Demotech withdrew Lighthouse’s stability rating just hours after DeSantis called a special session to address congressional redistricting but not the insurance crisis.
DeSantis later told reporters that he expected property insurance reform to be dealt with by the legislature “sometime this year” and possibly not until after the 2022 election in November. That’s when Sprowls, who refused to take up several reform bills considered in the Senate, will be replaced as House speaker.
Loss of Lighthouse’s rating follows failure of four Florida-based property insurers since April 2021.
In February, state officials announced that Orlando-based St. Johns Insurance, a former top-10 insurer with more than 200,000 policies as recently as 2019, went into receivership after losing its financial stability rating.
Slide, a newly formed insurer, agreed to absorb 147,000 of the St. Johns policies, preventing those homeowners from having to find new carriers willing to take them.
Earlier this month, about 37,000 customers of Avatar Property & Casualty weren’t so fortunate. They were given until April 13 to find new insurers after that company lost its rating.
A spokeswoman for the Florida Office of Insurance Regulation, which typically oversees initial steps in insurance company liquidations, did not immediately respond to a request for comment about the Lighthouse rating withdrawal.
But when an insurer loses its financial stability rating, “it’s highly likely that the state will put it into receivership,” said Paul Handerhan, president of the consumer-oriented watchdog group Florida Association for Insurance Reform.
Federally-backed mortgage guarantors such as Freddie Mac and Fannie Mae will not approve mortgage loans if properties are insured by carriers without Demotech’s A rating.
Together, about 50 Florida-based insurers reported more than $1 billion in operating losses in 2021. Insurers say the industry is being torn apart financially by severe weather claims, roof replacement claims, contractor fraud, and excessive litigation.
State records show that Lighthouse was sued 116 times in 2020 and 269 times in 2021. Since Jan. 1, 41 suits have been filed against the company.
More than 100,000 lawsuits were filed against Florida insurers last year. Florida accounts for 76% of all property insurance litigation in the country, state insurance regulators said last year.