In the grip of worsening financial problems and under pressure from rating agencies, Gulfstream Property and Casualty Insurance Co. entered the first months of 2021 with the determination to increase its capital contributions.
The Sarasota-based personal residential insurer had just emerged from a gloomy 2020 calendar year and was struggling to maintain the minimum surplus of $ 10 million.
Gulfstream believed it had finally found a suitable investor in early 2021. The suitor had around $ 3 billion in assets and was doing 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 police in Texas and Louisiana. Gulfstream, which also operates in Florida, Alabama, Mississippi and South Carolina, has been forced to demand higher assessed contributions. The suitor withdrew.
Demotech’s insurer rating experts told Gulfstream executives in March that they needed to improve their operating results if the carrier was to maintain its financial stability rating. By then, the money had dried up.
Gulfstream was one of many Florida-based private carriers to experience significant losses in 2020. Gulfstream reported a decrease in surplus of over $ 5.2 million as at December 31, 2020 compared to the same date in 2019. The surplus included a net loss of $ 22.6 million and a net technical loss of $ 34.9 million.
Without capital contributions of $ 17.1 million, the company would have been below the minimum of $ 10 million by year-end.
“They had to get rate hikes, they had to get additional capital, and I think the reality is they were doing both,” Demotech chairman Joseph Petrelli told Insurance Journal. “The management had put in the money. The company had requested rate increases and received rate increases, and then requested more. They just couldn’t get enough money fast enough.
As of May, Gulfstream had received approval from the Florida Office of Insurance Regulation to cancel approximately 20,311 personal residential policies. The company said it would no longer be at risk on policies outside of Florida after June 1.
Even with reduced risks and a reduced number of policies, Gulfstream has not been able to turn its finances around fast enough. Demotech withdrew its “A” designation and shortly thereafter, OIR placed Gulfstream under administrative scrutiny for failing to maintain the minimum surplus to pay claims.
Although administration oversight is generally confidential, OIR has determined that it is in the best interests of the public, Gulfstream and its policyholders to waive this confidentiality.
The OIR informed Gulfstream on June 25 that it was under administrative scrutiny, a 90-day period during which Petrelli expects the state to be a “bit of a go-between” so that politicians can move to a other business rather than going to state ownership. Insurance.
Citizens President and CEO Barry Gilway told a board of governors meeting on Wednesday, July 14 that oversight of 35,000 Gulfstream policies would likely be subject to a winding-up order during next week.
“We have companies that are interested in purchasing this book,” Gilway said. “Ultimately, we think there might be opportunities for one, or even two, companies to purchase the 35,000 policies. If they do, the impact on citizens is very limited.
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 were increasing by more than 5,000 per week.
“After being stable for a number of years at around 430,000 policies, we have now grown to over 650,000 or so,” said Citizens spokesperson Michael Peltier. Peltier, who declined to speak specifically on Gulfstream, said Hurricanes Erma and Michael in 2017 and 2018 led to a series of lengthy litigation for Florida insurers, eating away at their surpluses.
“Businesses have had to adapt, which in many cases means eliminating risk and these policies are reaching us,” he said.
Petrelli expects the worst to be over as companies have reduced the number of policies they write and issue and have strengthened their balance sheets.
In the absence of a Black Swan event, such as a severe hurricane or a series of powerful storms, the Florida insurers that Demotech works with are in good shape.
“The reality is that most of the companies we have dealt with have had their capital injections or they are big enough to fend for themselves,” Petrelli said.
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