Florida’s property insurance crisis is about to hit home for tens of thousands of policyholders.
More than 68,000 policies of troubled Sunrise-based FedNat Insurance Company and its sister companies Maison and Monarch National will be canceled by the end of June, according to terms of a consent order filed Friday by the state Office of Insurance Regulation.
The order follows the downgrade of FedNat’s financial stability rating by ratings firm Demotech a month ago. The cancellations, meant to help FedNat’s parent company, FedNat Holding Company, survive after reporting $103.1 million in reported losses in 2021, will force the displaced policyholders to scramble to secure coverage just as hurricane season begins.
They’ll have to shop for insurance in an unprofitable market that has forced privately owned companies to cancel or non-renew high-risk policies and raise rates for remaining customers. Numerous companies have stopped writing new policies in the state, sending hundreds of thousands to state-owned Citizens Property Insurance Corp., the so-called insurer of last resort.
“I don’t know what companies will be willing to take on these policies,” said Sen. Jeff Brandes, a Tampa Bay-area Republican and leading voice for legislative reforms to stem losses that insurers blame on fraud, inflated claims, and excessive lawsuits. “Most Florida-based companies are looking to shrink, not grow. I would imagine a majority will go into Citizens.”
The cancellations are part of a rehabilitation plan that state insurance regulators required FedNat to submit following the rating downgrade from A - “Exceptional” to S - “Substantial.” Federally funded mortgage loan guarantors Fannie Mae and Freddie Mac require borrowers to maintain coverage with A-rated insurers. At the time of the downgrade, Demotech CEO Joseph Petrelli said FedNat could potentially restore its A rating with an infusion of capital that would enable it to enter the hurricane season with sufficient claims-paying capacity.
Under the plan, FedNat Insurance Co. will cancel 56,500 personal residential policies while Monarch will cancel 8,400 policies and Maison will shed 3,300 policies. The 68,200 policyholders will be given 45 days notice of the cancellations.
FedNat Insurance Co. will transfer the remaining 83,000 of its policies to Monarch, which has entered into an agreement with a new investor to provide capital “through an acquisition,” the consent order states. FedNat Insurance Co., meanwhile, will wind down operations and stop writing new business.
Affected policyholders will include owners of single-family homes, condo owners and renters.
The consent order, signed by Insurance Commissioner David Altmaier, called the early cancellation of policies “an extraordinary statutory remedy reserved to address insurers which [without the cancellations] are or may be in hazardous financial condition.”