As Hurricane Ian bore down on the west coast of Florida, the department petitioned and received court approval to liquidate FedNat Insurance Company (FedNat) on September 27, 2022. FedNat is the sixth Florida and ninth Louisiana insurance insolvency of 2022. The Department filed the petition after the company admitted that it did not have sufficient cash to complete the May 13, 2022 Consent Order agreement to wind down its business and provide for an orderly runoff of its claim obligations. The FedNat, Monarch National and Maison policies subject to that consent order were canceled effective 45 days back in June 2022. The liquidation order triggers the Florida Insurance Guaranty Association (FIGA) and the guaranty funds in the other licensed states.
Monarch National Insurance Company (Monarch) assumed 83,000 FedNat policies via an assumption reinsurance agreement effective June 1, 2022. Monarch remains a going concern. Under this agreement and per the liquidation order Monarch is responsible for all policies and claims on the assumed business from June 1, 2022 forward. Any claims incurred prior to that date that remained unpaid on those assumed policies would fall under the FedNat liquidation order and be covered by the appropriate guaranty association.
FIGA has already assessed its maximum 2% assessment amount in the other than auto account in 2022 for the previous five property insurers who have gone under this year. Adding the claims of FedNat into the picture may further stress the claims paying ability of the fund. However, as the Florida business was canceled pre-insolvency and any unearned premium due already paid, FIGA will only be responsible for the run-off of any timely reported claims incurred prior to cancellation.
Should FIGA not have sufficient funds in any one year (such as is occurring in 2022) to cover losses due to a high volume of insolvencies through all their assessment and bond issuance authority, FIGA may have to prorate claims until such time additional funds can be secured by the association. While the FIGA statute provides a special assessment ability for insolvencies caused by hurricanes, FedNat does not appear to meet that requirement. However, FIGA has additional options and sources of funds to pay claims, including but not limited to, receipts from closed liquidation estates, other recoveries such as subrogation, and Early Access Agreements with a liquidation estate. Early Access is a court approved agreement where the liquidator provides available estate assets to the guaranty fund(s) to pay the covered claims and loss adjustment expenses. Guaranty Funds are the largest policyholder class level claimants in an insolvency proceeding, and these agreements accelerate the payment of the assets that would be paid to the funds in the course of the liquidation proceedings.
FedNat had filed to withdraw from Louisiana in May 2022 and cancel 13,500 policies in the state. Maison Insurance Company which had been domiciled in Louisiana had been merged into FedNat in August 2022 with FedNat being the surviving company. Because FedNat and Maison had canceled policies months prior to the insolvency, only a few unearned premium claims, mainly check reissuances are expected in Louisiana and about 1,500 open claims will become the responsibility of the Louisiana Insurance Guaranty Association (LIGA). LIGA recently had to borrow $600 million in order to cover claims from the recent spate of insurer insolvencies in the state.
FedNat policyholders in Texas, South Carolina, Alabama and Mississippi will have until October 28, 2022, to seek other coverage if they did not accept the replacement offer from SureChoice arranged by the Department prior to insolvency. Maison policyholders in Texas should contact their insurance agents to seek other coverage. Coverage under all policies, except those with flood insurance, affected by the liquidation will be canceled 30 days post-insolvency.