New receivership, carrier wind-downs add to Fla. property insurance market woes

The receivership of a third carrier that participates in the Florida residential property insurance market in a span of fewer than two months will provide even more unwanted momentum to the "exponential" growth already underway at the state's insurer of last resort.

The Louisiana Department of Insurance said April 11 that it had placed Lighthouse Property Insurance Corp., a Tampa, Fla.-based company that generated $45.5 million of its $123.4 million in direct premiums written for the first nine months of 2021 from the Sunshine State, into receivership. Florida regulators previously placed St. Johns Insurance Co. Inc. and Avatar Property & Casualty Insurance Co. into liquidation on Feb. 25 and March 14, respectively.

Not only is the market losing significant amounts of capacity to insolvencies, but it also faces the withdrawal in whole or in part of several leading homeowners insurers amid a litigation environment that has triggered dismal financial results.

These developments will undoubtedly further swell the size of the state-run Citizens Property Insurance Corp., which in March experienced its fastest year-over-year growth in total policies in force in nearly 15 years. The company had budgeted for growth of 40.2% in policies in force in 2022, but its recent pace of expansion threatens to produce an even larger number.

Lights out

Year-end 2021 financial statements for Lighthouse are not available, but rating agency Demotech said March 30 that the company produced an operating loss in 2021 due to its evaluation of losses and loss adjustment expenses associated with Hurricane Ida. The Louisiana Department of Insurance said Lighthouse had approximately 16,000 Ida-related claims and held a 3.3% share of the state's homeowners market. Through the first three quarters of 2021, Lighthouse generated an operating loss of $40.1 million, and its policyholders' surplus had tumbled to $18.6 million from $43.7 million during those nine months.

Lighthouse had 28,785 residential property insurance policies in force in Florida as of Dec. 31, 2021, according to a Florida Office of Insurance Regulation database, with owner-occupied homeowners and condominium-owners coverage accounting for 89.8% of the total. Its Florida residential property insurance direct premiums written in 2021 totaled $64.1 million, of which nearly $60 million likely would have appeared on the homeowners line in its annual statement.

The company's Florida policy count is smaller than either St. Johns or Avatar. The Florida Office of Insurance Regulation said St. Johns, which also maintained a small presence in South Carolina, had 147,000 policies in force at the time of its liquidation. The regulator's database showed that Avatar had 38,282 personal and commercial residential property insurance policies in force in Florida as of Dec. 31, 2021, with associated annualized direct premiums written of $75.3 million.

A rising trendline

Insolvencies do not represent the lone driver of the flow of business into Citizens.

The company said that its March 31 policy count had climbed to 817,926 as of March 31, up from 759,305 at the end of 2021 to its highest point at a month's end since 2014. It last grew at a faster year-over-year rate than the 43.5% clip it achieved in March in June 2007, underscoring what CEO Barry Gilway decried during a March 31 public rate hearing as "exponential" growth.

Contributing factors beyond the recent insolvencies, according to Gilway, included decisions by multiple carriers to not actively write new Florida business, a carrier's move to cancel policies on Florida homes with roofs that are 15 years of age or older in reference to a The Progressive Corp. subsidiary, the Florida retreat of an American International Group Inc. subsidiary that focuses on higher-value homes, "a ridiculous competitive position" in reference to the significant gap that often exists between Citizens' rates and those of private peers, and earlier receivership involving Florida Specialty Insurance Co. and American Capital Assurance Corp. The net result of Citizens' large and growing book of business is a greater risk to its customers and all Florida property owners of emergency assessments in the event of one or more major hurricanes.

The company budgeted for its policy count to surpass 1.06 million by year's end, but Gilway indicated that it had been adding policies at a pace of about 6,500 per week at the end of March. That would represent a pace that is 10.9% higher than the budgeted growth implied.

Disclosures in regulatory filings suggest fuel for more expansion in the coming months.

Tower Hill Signature Insurance Co. and Tower Hill Preferred Insurance Co. separately indicated in the management's discussion and analysis sections of their annual statements that they would "begin to wind down in 2022." The companies combined to account for $531.1 million of the Tower Hill group's $642.4 million in 2021 Florida homeowners direct premiums written, which ranked behind only Universal Insurance Holdings Inc., Citizens and the Florida affiliate of State Farm Mutual Automobile Insurance Co. Tower Hill has created Tower Hill Insurance Exchange, a new reciprocal exchange that will extend renewal offers to displaced customers of the two winding-down companies in a process that the group expects will play out through 2022 and into 2023.

Tower Hill Prime Insurance Co., which wrote $111.3 million in Florida homeowners direct premiums written in 2021, said it was continuing to increase its specialty book of business outside of Florida in an effort to "reduce risk and increase profitability."

Florida Farm Bureau Casualty Insurance Co. confirmed published reports about its temporary suspension of new homeowners and dwelling fire writings. It also outlined various actions that could reduce its in-force books of business, including the non-renewal of homeowners and fire policies on homes with 20-plus-year-old asphalt roofs or 25-plus-year-old tiled roofs as well as its pursuit of a 49.2% rate increase on homeowners business.

Rate increases of significant but lesser amounts along with more surgical underwriting initiatives by other Florida residential property insurers to limit their exposure to certain risks and geographies within Florida could further increase the Citizens migration.

Safe Harbor Insurance Co. implemented "stricter" new and renewal inspection requirements, closed select areas to new business, and incrementally migrated its business away from owner-occupied and mobile homeowners coverage to dwelling and condo business that the insurer expects will produce lower average loss ratios.

Southern Fidelity Insurance Co. Inc. said it had been actively non-renewing policies in areas most affected by litigated claims activity and the assignment of benefits, "shedding" nearly 42,000 policies during 2021.

Olympus Insurance Co. said it slashed policies in force by 36.0% and 41.5%, respectively, in northeast and central Florida due to concerns about mass claims solicitations in those areas. It has also migrated its book toward customers with higher credit scores and newer homes, including through a requirement in nearly 30 counties that insured homes must be no older than 10 years of age.

There are some notable exceptions as it pertains to private carrier appetite. FedNat Holding Co. decided in late 2021 to refocus on Florida, based on a scenario characterized by higher pricing and lesser competition. Southern Oak Insurance Co. is targeting growth in excess of 7% in its policies in force in 2022 despite what the company acknowledged was a "difficult" 2021. The company said it believes that 2021 represented the "beginning of a turnaround in underwriting results," citing improvements in its loss trends on 12-, 24- and 36-month moving averages.

Amid several years of financial difficulties for the market as a whole and the absence of further litigation reform from the Florida legislature, however, that sense of optimism may not be widely shared.