Some insurance companies do not timely or fully pay claims because they are running out of cash. Others do not pay timely or fully to make more money, charge less in premiums, and to run their competitors into a situation where they run out of money. Some insurance companies do not charge too little from an actuarial basis and pay fully and promptly because their underwriting and claims practices are ethical.
I am involved in a Hurricane Michael wrongful claims practice case with FedNat Insurance Company where they did no adjustment of the contents loss before closing the claim and reported that to the Florida Office of Insurance Regulation. The real property estimator said he may have been criticized for not completing work on time, but he was overwhelmed with the severity of Hurricane Michael claims. The policyholder only had one claims adjuster show up late on a fall afternoon for a brief period of time and was eventually severely underpaid. Florida law should hold insurance companies fully accountable for underpaying and delaying claim payments to their customers.
But is Fed Nat acting this way because it cannot afford to be ethical in its claims practices? Here is a FedNat report of its fourth quarter:
Q4 2021 highlights (as measured against the same three-month period last year, except where noted):
• Net loss of $8.6 million or $0.49 per diluted share as compared to net loss of $38.1 million or $2.77 per diluted share.
• Adjusted operating loss of $7.3 million or $0.42 per diluted share as compared to adjusted operating loss of $32.0 million or $2.33 per diluted share.
• Loss before income taxes of $9.9 million as compared to $47.6 million
• $8.1 million or $0.46 per diluted share of claims from severe weather events, net of recoveries and fee income, primarily impacting Florida, Texas and Louisiana, as previously disclosed.
• $4.4 million of reserve strengthening, net of reinsurance recoveries and fee income, related to prior accident quarters, as previously disclosed.
• Gross attritional loss ratio for current quarter of 29.5% as compared to 35.7% in the fourth quarter of 2020, demonstrating tangible progress from past rate actions.
• 22.7% decrease in Florida homeowners in-force policies to approximately 160,000, reflecting continued execution of our strategy to limit exposure in Florida until rates more accurately reflect increased costs of claims and reinsurance.
• 22.1% decrease in non-Florida homeowners in-force policies to approximately 120,000, in-line with our strategy to refocus operations on the Florida market and exit non-Florida markets, including non-renewal of FedNat Insurance Company’s (FNIC) non-Florida business and runoff of Maison Insurance Company (Maison).
• Non-insurance company liquidity of $40 million at December 31, 2021.
• Book value per share of $3.40 at December 31, 2021.
The CEO reported that its operations could have been worse, but it had placed its Louisiana customers following their hurricane losses into a state of “run off”:
Michael H. Braun, FedNat’s Chief Executive Officer, said ‘The strategic shift that FedNat announced in November to refocus on the Florida homeowners market is proceeding as planned with the orderly runoff of Maison’s insurance operations and the nonrenewal and transfer of FNIC’s non-Florida business. We expect the runoff of Maison’s business to be substantially completed by the end of 2022 and the non-renewal and transfer of FNIC’s non-Florida business to be substantially finished by the second quarter of 2023. Upon completion of the transition, we expect FedNat to be a financially stronger company, with less volatility, that will be rightsized to our current capital and surplus position, with approximately $450 million of in-force premium exclusively in Florida and approximately $113 million in surplus. The benefits of the transition have already begun to materialize and the pace of runoff will accelerate further during the second quarter of 2022.’
I was in Louisiana last November with a FedNaT aka Maison Insurance Company policyholder. She complained about the same thing the Hurricane Michael policyholder is suing FedNat for—delayed and lowballed payments. Given FedNat’s losses and operational changes, anybody must ask whether FedNat is doing this because it cannot afford to pay its bills?
FedNat made a horrible decision to go into the Louisiana and Texas insurance marketplace. Two category 5 hurricanes struck Louisiana and Texas had a freak $40 billion freeze loss. This is how FedNat described it on its website:
Michael H. Braun, FedNat’s Chief Executive Officer, explained the shift in strategy, ‘The geographic expansion strategy that FedNat launched in 2013 to write homeowners insurance in coastal markets outside of Florida, and then accelerated in 2019, was well-intended given the challenges we were facing in the Florida homeowners market at that time. The acquisition of Maison, and to a lesser extent, the expansion of FNIC’s non-Florida book, ended up being significantly challenged due to the unprecedented number of catastrophe weather events that affected Texas and Louisiana over the past 15 months, coupled with the hardening reinsurance market that began in mid-2019, after our announcement of the acquisition.’
“Significantly challenged” in lay terms means: “We lost a lot of money from those decisions.” As a result, FedNat stock sold for over $30 per share in 2014 and was listed at $1.27 per share yesterday.
This is not good. It is not in the public interest that FedNat is fighting for survival and that its investors have recently lost so much money. The public needs insurance companies that make a fair profit and grow by placing those profits into surplus to fund greater growth by selling more policies. Part of the regulation of insurance companies is to ensure that they can financially survive and pay their claims obligations fully and promptly. I do not want to worry if FedNat or any insurance company is acting wrongfully because it cannot fully and promptly meet its claims obligations.
On the other hand, I have to prove a case against FedNat and advocate for those that trusted FedNat to meet its promises. If you are a policyholder, public adjuster, or policyholder attorney with a delayed, underpaid, or wrongly “closed” claim, I would love to share information about your story and how FedNat treated you or your client.
Thought For The Day
The successful man will profit from his mistakes and try again in a different way.