Florida Specialty Insurance Company has been accused by a state insurance regulator of operating in an “unsound condition” by failing to obtain permission before entering into a business arrangement.
In an affidavit seen by The Insurance Insider, the Florida Office of Insurance Regulation (Floir) claimed the carrier, which is now in liquidation, was “willfully violating Florida law” by not seeking the regulator’s sign-off for the transaction.
The agreement at issue, reached 9 April through an affiliate, "would non-renew a portion of the company's HO3 portfolio", according to the affidavit.
Florida Specialty was put into receivership by a court in Florida on 2 October. The carrier had been struggling for months, after a major quota share deal with AIG came to an end earlier this year.
In March, the company was put under special administrative supervision by Floir, where a regulatory official was required to be physically present at the carrier’s Sarasota office in order to protect the interest of policyholders.
Floir official Virginia Christy said in an affidavit, filed as part of the liquidation proceedings, that the company had “willfully violated Florida law” by not obtaining permission for the deal from the regulator, and that it operated in a manner that was “hazardous to policyholders, creditors, stockholders and the public”.
Christy further accused the company of taking on insurance risk when the insurer’s directors knew the business was insolvent.
Florida Specialty became insolvent in July 2019. The company failed to pay $7.2mn of reinsurance premiums owed to Florida Hurricane Catastrophe Fund that were due on 1 August.
As of 30 June, Florida Specialty had net assets of $44mn and liabilities of $45.3mn.
Previously, the company had a quota share arrangement in place with AIG unit National Union Fire Insurance Company. However, $8.5mn that Florida Specialty had accounted for as part of this agreement was disputed by AIG and never paid, tipping the Floridian into insolvency.
AIG told the Floir that Florida Specialty had been “fully paid” under the terms of its reinsurance agreement.
The collapse of the homeowners’ carrier impacts about 90,000 policyholders.
It is understood that the Floir is now looking for a buyer for the company as part of a rescue plan. If Florida Specialty policyholders can’t find alternative coverage, they will be guaranteed coverage from state-owned Citizens Property Insurance Corporation for the next year.
Any claims filed from now on will be handled by the Florida Insurance Guaranty Association (FIGA). The state’s Department for Financial Services is overseeing the entity’s receivership process.
Floir “has been working with Florida Specialty for over a year in an attempt to help the company develop a viable business plan”, Florida Insurance Commissioner David Altmaier said.
“When it became clear that Florida Specialty was unable to develop such a plan, OIR worked with the Department of Financial Services, Citizens, and FIGA to provide Florida Specialty policyholders with a path for coverage options in the private market or guaranteed coverage with Citizens if private market coverage could not be secured.”
“Our goal has been to protect consumers, who are especially vulnerable during hurricane season, and to encourage consumers to seek coverage in the private sector,” the commissioner said.
“While we never want to see an insurer go into receivership, the good news is that we have a safety net in place to protect consumers.”