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Fla. assignment-of-benefits woes take 'extremely painful' toll on insurer

An insurer that assumed more than 6,000 personal multiperil policies from Citizens Property Insurance Corp. in late 2014 and early 2015 has reconsidered its future participation in an ever-challenging market.

Conifer Holdings Inc. revealed that it would take "decisive measures to curtail the challenging loss trends we have experienced, particularly in personal lines, and more specifically Florida homeowners in recent quarters" through the entry of an adverse development cover with Swiss Re and a plan to begin nonrenewing the problematic business in February 2018. The goal of the company's actions, Conifer Chairman and CEO James Petcoff said during an Oct. 3 conference call, is to head off a recent pattern of unfavorable reserve development in the Florida book that he characterized as "extremely painful."

It is a predicament that he attributed to the assignment of benefits on nonweather-related water loss claims, something that has dogged Citizens in particular in recent periods.

"The thing that amazes me is we're having this issue ... and we're doing stuff," Petcoff said in response to an analyst's question. "Where is the rest of the industry on this? And why aren't they speaking out as well as we are about this? That's what I don't understand. But ... I can't worry about the industry. We just have to put a wall around [it and] get everybody comfortable with where the balance sheet is."

Citizens President and CEO Barry Gilway has long lamented the state of affairs as it pertains to the assignment of benefits, including during an August public hearing on the state-run insurer's 2018 rate filing. But with the state Legislature's next session still three months away and the industry busy handling claims from Hurricane Irma, it has not garnered the same level of attention since then.

Petcoff said that while Conifer had taken "every underwriting mitigation available to us" in response to the situation, he does not believe the assignment-of-benefits situation will go away in the absence of legislative action. Although he noted that there is a temporary halt in nonrenewing business in the aftermath of Hurricane Irma, Petcoff said it would not impact Conifer's ability "to get off the assumed business in Florida" beginning early in 2018.

Conifer's White Pine Insurance Co. had 3,538 Florida multiperil condominium-owners and owner-occupied homeowners policies in force as of June 30 with associated annualized direct premiums written more than $7.2 million, according to Florida Office of Insurance Regulation data. American Colonial Insurance Co., which merged with and into White Pine less than one year ago, had 4,178 policies in force in those lines with associated annualized direct premiums written of nearly $8.7 million on the same date in 2016.

Approximately 74.1% of White Pine's condominium and owner-occupied homeowners multiperil policies in force as of June 30 involved properties in Broward, Miami-Dade and Palm Beach counties, the region of the state that industry representatives have identified as the hardest hit by the assignment-of-benefits situation.

White Pine reported nearly $2.4 million of adverse development of loss and loss-adjustment-expense reserves for prior accident years in its homeowners business during 2016, largely owing to assignment-of-benefits activity. It posted adverse development of more than $3.4 million during the first half of 2017.

Citizens and Conifer are not unique in the challenges that the assignment-of-benefits situation has created. A.M. Best on Sept. 29 revised its outlook on its A- financial strength rating for Tower Hill Prime Insurance Co., citing "multiple years of unfavorable underwriting performance." The rating agency listed the assignment-of-benefits issue as a source of "ongoing pressure" for the company.

Citizens ranked as the No. 2 writer of Broward, Miami-Dade and Palm Beach counties owner-occupied homeowners and condominium owners multiperil policies, based on June 30 policies in force. Tower Hill Prime and White Pine ranked 10th and 52nd, respectively. The data, sourced from the Florida Office of Insurance Regulation, excludes State Farm Florida Insurance Co. and select other entities. Universal Insurance Holdings Inc.'s Universal Property & Casualty Insurance Co. was the market leader with 212,486 policies in force.

Petcoff had previously conceded that Conifer's performance in the Florida homeowners business had not been aligned with the company's goals due to what he described as "systemic industry issues." With the entry of the adverse development cover, forthcoming nonrenewals, and actions to raise $35 million in debt and equity financing, he believes the company is positioned to return to operating profitability in the near term and to solidify its financial position over the longer term.