Plagued by worsening financial issues and under pressure from credit rating agencies, Gulfstream Property and Casualty Insurance Co. entered the first months of 2021 determined to increase its capital contributions.
The Sarasota-based personal residential insurer had just come off a bleak 2020 calendar year and was struggling to maintain the minimum $10 million surplus.
Gulfstream believed it had finally found an adequate investor by early 2021. The suitor had approximately $3 billion in assets and was deep in due diligence with the Sarasota-based residential insurer when disaster struck. Severe winter storms hit the south-central region, where the company has thousands of policies in Texas and Louisiana. Gulfstream, which also operates in Florida, Alabama, Mississippi and South Carolina, was forced to demand higher required contributions. The suitor pulled out.
Insurer rating experts at Demotech advised Gulfstream executives in March that they must improve operating results if the carrier was to keep its financial stability rating. By then, money had dried up.
Gulfstream was one of several Florida-based private carriers to suffer significant losses in 2020. Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019. The surplus included a net loss of $22.6 million and a net underwriting loss of $34.9 million.
Without capital contributions of $17.1 million, the company would have been below the minimum $10 million at year’s end.
“They had to get rate increases, they had to get additional capital, and I think the reality is they were doing both,” Demotech President Joseph Petrelli told Insurance Journal. “Management had put in money. The company had filed for rate increases and received rate increases and then filed for more. They just couldn’t get enough money in fast enough.”
By May, Gulfstream had received Florida Office of Insurance Regulation approval to cancel approximately 20,311 personal residential policies. The company said it would no longer have risk on any policies outside Florida past June 1.
Even with reduced risk and a shrinking number of policies, Gulfstream couldn’t righten its finances fast enough. Demotech withdrew its “A” designation and shortly after that the OIR placed Gulfstream under administration supervision for failing to maintain the minimum surplus to pay claims.
Though administration supervision is usually confidential, the OIR determined it was in the best interest of the public, Gulfstream and its policy holders to forego that confidentiality.
The OIR notified Gulfstream on June 25 that was under administration supervision, a 90-day period during which Petrelli expects the state to be a “little bit of a matchmaker” so policies might go to another company rather than going to state-run Citizens Property Insurance.
Citizens President and CEO Barry Gilway said during a Wednesday, July 14 Board of Governors meeting that 35,000 Gulfstream policies will likely be subject to a liquidation order in the next week or so.
“We do have companies that are interested in picking up that book,” Gilway said. “The bottom line is we do believe there may be opportunities for one and maybe two companies to pick up the 35,000 policies. If they do, there is very limited impact on Citizens.”
Known as the state’s insurer of last resort, Citizens has seen a significant increase in its policies since late 2019. Company officials said policies are growing by more than 5,000 per week.
“After holding stable for a number of years at about 430,000 policies, now we’re up over 650,000, or so,” said Citizens spokesman Michael Peltier. Peltier, who declined to speak specifically on Gulfstream, said Hurricanes Erma and Michael in 2017 and 2018 have led to a series of long litigations for Florida insurers, eating into their surpluses.
“Companies have had to adapt which means in many cases shedding risk and those policies are coming to us,” he said.
Petrelli expects that the worst is over as companies have trimmed the number of policies they write and issue and strengthened their balance sheets.
Absent a Black Swan event, such as a severe hurricane or series of potent storms, Florida insurers that Demotech works with are in good shape.
“The reality is most of the companies we’ve dealt with either had their capital infusions or they’re big enough that they were okay on their own,” said Petrelli.
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