Another day, another Florida property insurance company finds itself in financial trouble. This time it’s Sunrise, Fla.-based FedNat Insurance Company and its subsidiaries, Maison Insurance and Monarch National Insurance, that are coming under increased scrutiny from regulators.
A pair of documents filed Thursday, one with the federal Securities and Exchange Commission (SEC), the other with the Florida Office of Insurance Regulation (FOIR), combine to paint a bleak picture for the company. FedNat and its subsidiaries serve approximately 152,000 policyholders in Florida and another 96,000 policyholders in Alabama, Louisiana, Mississippi, South Carolina and Texas. But the company recently announced plans to pull out of all other markets except Florida in a bid to shore up its financial footing.
FedNat acknowledged in an 8K filing with the SEC that “there is substantial doubt as to its ability to continue to operate under generally accepted accounting principles (“GAAP”).” For publicly traded companies, an 8K filing is required to notify their shareholders and the Securities and Exchange Commission (SEC) when a “material unforeseen event” occurs.
This unforeseen material event may be related to the other document released Thursday by Florida insurance regulators at FOIR. Late Thursday, FedNat entered into a consent agreement with FOIR in which the insurer agreed to file a plan with the state by Friday, April 29, 2022 (one week from today), outlining the insurer’s ability to secure and maintain a financial strength rating that would be acceptable to the secondary mortgage market.
A spokeswoman for FOIR declined to comment on the matter.
Earlier this month, FedNat was downgraded from an “A” rating to an “S” financial stability rating by Demotech, which provides unbiased financial strength ratings to insurance companies. Federally backed mortgage insurers Fannie Mae and Freddie Mac will not underwrite mortgages on properties unless the property insurer is rated “A” by Demotech.
FedNat also recently failed to file its 10k annual report with the Securities and Exchange Commission (SEC), triggering a non-compliance notice from NASDAQ. FedNat has until May 31, 2022 to file the report and has issued a press release stating that it will meet the deadline. However, as mentioned earlier, the 10K filing will include language warning investors of the company’s doubts about its ability to stay in business.
According to the consent agreement with Florida regulators, FedNat must also demonstrate that it can acquire sufficient reinsurance before its renewal date of July 1, 2022, as well as show that the company can support its existing business by obtaining capital. additional and meet its no-Loss and Florida policies.
Florida lawmakers plan to meet in May to deal with a string of failures in Florida’s property and casualty insurance market that has been plagued by lawsuits stemming from claims related to hurricanes and storms in recent years.