A Florida judge has signed-off on a plan by regulators to allow a failed Florida property insurer’s policyholders to be assumed by another company, although policyholders will retain the option to seek coverage elsewhere.
Leon County Judge Kevin Carroll on Friday approved the deal that could result in Heritage Property and Casualty Insurance Co. assuming as many as 36,000 policyholders left seeking coverage due to the insolvency of the Sunshine State Insurance Co.
The Jacksonville, Fla.-based Sunshine State was taken over by the Department of Financial Services Division of Rehabilitation and Liquidation on June 3 after the state Office of Insurance Regulation reported the insurer could no longer meet the state’s capital requirements.
Sunshine State officials said that an accounting error related to its 2008 and 2011 catastrophic reinsurance treaties and a 2013 fourth quarter operational loss left the insurer in an untenable financial position.
Subsequent to taking over Sunshine State, the DFS held a bidding process that involved 10 companies that were evaluated based on a number of criteria including rates, surplus, catastrophic coverage and other financial considerations.
As a result, the Clearwater, Florida-based Heritage secured the non-exclusive rights to assume Sunshine State’s residential homeowner and condominium book of business.
DFS Spokesperson Chris Cate said the goal is to continue Sunshine State’s policyholders’ coverage with as little disruption as possible.
“We make it a top priority to ensure that the impacted policyholders are able to maintain coverage with a sound company and that families are protected in the event of a damaging storm or other unforeseeable disaster,” said Cate.
Heritage CEO Bruce Lucas said the deal offered Sunshine State policyholders uninterrupted coverage with a financially sound insurer at affordable rates.
Heritage has approximately $250 million in premiums, with $125 million in surplus and an additional $85 million in reserves. Sunshine State’s 35,000 property policies represent roughly $60 million in premiums.
“We have a duty to help these policyholders and agents with a smooth and seamless transition to Heritage that ensures a continuation of coverage,” said Lucas. “It will be largely unperceivable by agent and policyholder.”
Under the terms of the deal, Heritage will offer all the affected Sunshine State policyholders coverage without the policyholders having to file a new application for coverage. That way Heritage can continue to use Sunshine State forms and rates until a policy renewal, at which time the policyholder will be offered the lower of Sunshine State or Heritage rates.
Sunshine State policyholders will not have to pay any new premiums while waiting for a refund of any unearned premiums from the insurer’s estate. And Heritage will be allowed to retain any unearned Sunshine State premiums.
Lucas also said that Heritage would pay a $100 deductible that the state guaranty fund is required to collect from all Sunshine State policyholders as part of an offset for assuming open claims.
Heritage said it is taking steps to actively retain all agents that have been marketing Sunshine State policies by agreeing agents to retain any unearned commissions that otherwise agents would have paid back to Sunshine State’s estate.
Heritage’s focus on policyholder’s rates, unearned premiums, and agents’ commissions is all part of a strategy to retain Sunshine State’s book of business.
Sunshine State was declared insolvent on June 3, and even with the judge’s approval, the Heritage deal will not be formally executed until the policies are transferred from Sunshine State to Heritage on June 27.
Since Heritage was only granted the “non-exclusive” rights to Sunshine State’s book of business that has left open a four-week window for other insurer’s to seek Sunshine State’s business. American Integrity Insurance Co. has already announced it has written a number of Sunshine State policies.
Lucas, however, believes Heritage’s terms will engender agents’ and Sunshine State policyholders’ support.
“So far only a few hundred policies have been cancelled by policyholders, which is a strong indication that the agents are rewarding our initiatives and putting their clients best interest first,” said Lucas.
Florida Association of Insurance Agents President Jeff Grady said the Heritage deal should be attractive to agents given the terms worked out by the insurer and regulators.
“We think it is an easy button that will avoid agents having to return unearned commissions,” said Grady. “That plus the rate stabilization at renewal should allow agents to wait for the transition.”