The rehabilitation plan was not enough. Southern Fidelity goes into insolvency
Two weeks after losing its financial stability rating, Southern Fidelity Insurance Co. went into receivership and is in liquidation, making it the fourth property insurer in Florida this year to bite the dust.
A Leon County Circuit Court judge on Wednesday ordered the state Department of Financial Services to act as receiver for the carrier, which was unable to complete its reinsurance program before the hurricane season.
The DFS petition cites an affidavit submitted by Virginia Christy, director of financial oversight for Southern Fidelity, noting that the company’s “catastrophe reinsurance program expired on May 31, 2022 and that the defendant” currently has no catastrophe reinsurance. to cover its existing policyholders during the 2022-2023 Atlantic Hurricane Season. “
Some in the industry had expressed hope that the company, which reported 98,000 policies in force at the end of 2021, might be able to avoid insolvency with some type of recovery plan submitted to the Office of Insurance Regulation – especially after rate increases of 84% and 111% earlier this year and the injection of $200 million in capital.
But the company’s June 8 rehabilitation plan did not satisfy regulators or provide enough protection for policyholders, the consent order petition says.
Christy’s affidavit explains that issues had been brewing for several years. She listed the many stages the company went through:
- In February 2019, Southern Fidelity merged with Capitol Preferred Insurance Co. (CPIC) and Southern’s underwriting losses became Capitol’s. For the following year, both companies continued to post poor operating results, according to Christy’s statement.
- CPIC then failed to file tariff applications with the OIR. In February 2020, the bureau asked companies to file monthly financial statements and estimates of capital needed.
- In May 2020, Capitol Preferred requested permission to drop 23,800 of Southern Fidelity’s policies. Three months later, CPIC and Southern requested substantial rate increases. Company officials also attempted to merge Capitol Preferred with Southern Fidelity. The OIR approved the plan in September.
- In the same month, Southern reported a surplus just above the required minimum, “indicating that the business was at risk of depreciation or insolvency if an immediate capital injection was not made”. In October 2020, the OIR placed Southern under “confidential administrative surveillance”.
- A month later, Southern was acquired by Gulf & Atlantic Insurance Co., which was owned by Hudson Structured Capital Management. Southern said it plans to cancel or not renew some 40,000 policies within four months.
- In late 2021 and early 2022, Southern Fidelity announced a rate increase of 84% for homeowner policies and 111% for home fire policies. By then, Hudson Structured Capital had provided $200 million in capital injections to the company.
- In May of this year, Southern Fidelity suspended new business in Florida. At the beginning of June, the rating firm Demotech withdrew the company’s financial rating.
The consent order application notes that the state of the SFIC was critical in April, when it reported only a $26 million surplus.
The order did not explain whether the Florida Insurance Guaranty Association will now be obligated to increase the surcharge on other carriers to cover outstanding claims.
Was this item valuable?
Here are some other articles you might like.
The most important insurance news, delivered to your inbox every working day.
Receive the trusted insurance industry newsletter