FedNat details Florida downsizing plan, says Monarch to be acquired

Further details of under pressure U.S. primary insurance carrier group FedNat’s plan to reduce its scale and refocus its business on Florida have emerged in a filing with the regulator, that details a significant cancellation of policies and potential sale and recapitalisation of its carrier Monarch.

We previously reported that FedNat had admitted substantial doubt over its ability to continue as a going concern, with a potential fall into receivership or failure to secure reinsurance seen as issues that could be fatal for the insurer.

That came after rating agency Demotech downgraded FedNat’s vital ‘A’ rating and replaced it with a Financial Stability Rating (FSR) of ‘S’ (Substantial), which may no longer prove a sufficient measure of credit worthiness for insuring mortgaged properties in the state of Florida.

Then, in reporting its latest set of results, FedNat also explained that its plan of action that was sent the Florida Office of Insurance Regulation (FOIR) involves the company shrinking considerably and reverting to a Florida only carrier, in order to be able to buy sufficient reinsurance.

Now, details of that plan have emerged in a filing and while FedNat aims to focus its business on Florida, that’s not at any cost and the company wants to cancel a significant number of policies to rationalise its insurance portfolio for the state.

The consent order filed with the regulator details the cancellation of some 68,200 personal residential homeowners and dwelling policies, all located in the state of Florida.

These cancellations are split across FedNat Insurance Company with 56,500 policies to be cancelled, Monarch National Insurance Company with 8,400 and Maison Insurance Company with 3,300.

The rationale behind cancelling all these policies is as part of the financial restructuring plan from FedNat, to reduce its exposure in Florida.

That at the same time as the company said it is planning to shift its focus back to Florida only, as FedNat said it sees such a good opportunity there.

But clearly that opportunity likely comes from fresh policies written after more rate increases are sought, which would seem an inevitable part of this overall restruturcing process.

Starting today, agents and insureds will be issued a 45-day notice of cancellation for these policies and it is to be expected that a significant number, perhaps the vast majority, could end up finding their way into Florida’s Citizens Property Insurance Corporation.

FedNat said that, as the downgrading by Demotech is expected to prevent it from obtaining catastrophe reinsurance in the private reinsurance market, this shedding of policies is essential as part of the process to ensure it can get the necessary amount of reinsurance cover this year.

The Florida Office of Insurance Regulation (FLOIR) said that FedNat had 140,000 policies in-force in Florida as of May 12th and that the early cancellation of some of these would “provide an immediate positive impact to its financial position and facilitate the completion of a financial strategic plan which protects its policyholders and the public.”

The strategic plan also details new additional capital being flowed into FedNat’s Monarch insurance carrier through an acquisition, as well as Monarch assuming roughly 83,000 policies from FedNat Insurance Company, then the running-off and winding down of FedNat Insurance Company.

To achieve this, Monarch has entered into an agreement with a “new investor” the regulators consent order explains, with this proposed capital injection and acquisition of Monarch now under review.

The acquisition and investment offer is conditional on the cancellation of these policies, as too is the ability to buy reinsurance to cover the remainder.

This sounds almost like an investor has been able to cherry-pick the FedNat portfolio it would agree to acquire, based on the ability to buy reinsurance against it, while also enabling any loss impacted, or lower-grade properties to be non-renewed at the same time, making it perhaps an optimal time to buy into the company.

The acquirer, or investor, is currently unknown, although may well end up being a name known for backing Floridian carriers, or an existing Florida-market player.

At the moment it looks as if Monarch may be the only carrier brand to survive this restructure, so it’s uncertain whether the FedNat Holding company would continue to exist once any investment has been completed and its other shuttered business portfolios run-off.

Read our coverage of Florida’s property insurance crisis below:

Florida Special Session to focus on fraud, AOB abuse & affordability: CFO Patronis.

More insurers seeking rate hikes of 23% to 49% in Florida.

Cat Fund reform is crumbs, Floridians need a feast: Demotech’s Petrelli.

Florida litigated claims rise again, but “hope” in Special Session: CaseGlide.

FedNat plans to become “much smaller”, shift to Florida-only: CEO.

Florida – “The theatre is on fire,” FHCF change won’t solve it: RenRe CEO.

Swiss Re not optimistic on Florida reinsurance pricing: CFO Dacey.

To ensure progress in Florida reinsurers could pull capacity: Assured Research.

Full placement of Florida reinsurance programs to be challenging: AM Best.

Florida Governor sets property insurance special session for end of May.

“Cause for concern” as AOB & litigated claims rise in Florida: CaseGlide CEO.

FedNat downgraded, posing another threat to Florida’s insurance ecosystem.

Ida insolvencies continue, as Florida runs out of road: ALIRT.

Florida property insurance market “in collapse”, special session uncertain.

Florida renewal “one of the toughest in recent memory” – JMP Securities.

Policy growth means more cat bonds & reinsurance for Florida Citizens.

Florida Citizens seeks higher rate increases at upcoming hearing.

Lighthouse the first to lose Demotech rating, as Ida losses weigh.

AIG’s Lexington pulls-back in Florida, raising questions on E&S market.

AM Best cites Florida market challenges as it downgrades Florida Farm Bureau.

Demotech calls for Florida market reform with rating downgrades likely.

Florida Citizens targets “the best deal we can get” on risk transfer: Montero.

Florida insurers’ litigation exposure still of concern: CaseGlide CEO Todd.

No quick fix as Florida property insurance reforms fail to pass.

Another one bites the dust – Florida’s insurance failures continue.

Florida P&C claims litigation concerning, as cases soar: CaseGlide CEO Todd.

Florida P&C rate filings show reinsurance firming needs to continue.

Assignment of benefit (AOB) claims rising for Florida P&C insurers.