Southern Fidelity Loses Rating; Heritage, People’s Trust Complete Re Programs


The Demotech insurance industry rating firm has withdrawn the financial stability rating for Southern Fidelity Insurance Co. after the carrier said it was unable to finish its reinsurance program at the beginning of hurricane season.Southern Fidelity was founded in 2005 and has written property insurance in Florida, South Carolina, Louisiana and Mississippi. The lack of its financial stability rating will not be excellent news for Southern Fidelity. A rating withdrawal often precedes insolvency or rehabilitation for carriers.

The corporate, with some 98,000 policies in force, told its agents in late May that it had suspended recent and renewal business in Florida. That news got here the identical day that Florida’s governor signed laws designed to assist some insurers with a state-funded, lower-level reinsurance program.

Demotech President Joe Petrelli, together with one other rating firm, AM Best, said that the insurance reform passed through the May 23-25 special session is a step in the precise direction but won’t be enough to assist some Florida carriers.

“Pressures remain for market participants, particularly for those struggling to completely place their reinsurance programs ahead of what’s predicted to be one other lively hurricane season,” AM Best analysts wrote Friday.

Senate Bill 2D created the $2 billion Reinsurance to Assist Policyholders program, dubbed the RAP fund. It provides a one-time backstop for hurricane losses. As an alternative of paying premiums to the fund, insurers will probably be required to offer premium relief to insureds, expected to be a couple of 3% to 4% discount.

But AM Best’s white paper notes that the fund “doesn’t apply to secondary perils, or events less severe than hurricanes, which have been problematic in Florida.”

While the speed decrease requirement “may provide some slight relief for consumers, it doesn’t address the considerable rate inadequacy issues driven by loss costs, other than reinsurance pricing. Moreover, primary insurers with already high leverage ratios will find their positions in jeopardy in the event that they are unable to position prudent reinsurance programs.”

A Florida State University professor of risk management and insurance, Charles Nyce, agreed that the RAP fund “won’t be an enormous needle mover. It might help just a few firms here before hurricane season on their reinsurance, but it surely won’t have much of a long-term effect.”

Some insurance trade associations said the legislative package, which included measures to discourage claims litigation and enormous plaintiffs’ attorney fees, would address a lot of the problems facing Florida property insurers. Others said it did little to assist some carriers struggling to finish their reinsurance programs this month.

Some carriers are managing, despite a pointy escalation in reinsurance costs. Universal Property & Casualty, Florida’s largest carrier, said last week it had accomplished its reinsurance program for 2022-2023 at a complete cost of $696 million.

And Heritage Insurance Holdings also reported that it had achieved full placement of its reinsurance program for 2022, including a catastrophe bond. The associated fee of this system was not announced.

“We appreciate our reinsurance partners’ recognition of our efforts to raised diversify and underwrite our business, and we plan to proceed to proactively and appropriately raise rates and take underwriting actions inside statutory guidelines to enhance our profitability for the long run,” Heritage CEO Ernie Garateix said in a press release.

Heritage and Universal said that they had not utilized the RAP fund but will likely achieve this next yr, as prescribed by the brand new law.

People’s Trust Insurance, which also announced last week that it had suspended writing recent homeowner policies in Florida, said it has met its reinsurance needs, but gave few details.

Our placed program meets or exceeds all state and rating agency requirements,” said Chief Operating Officer Tom Gallagher. “The corporate plans to resume selling recent policies inside the following 30 days.”


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