Florida Insurers Cry Foul Over Slide’s ‘Favored’ Treatment in St. Johns Insolvency

March 21, 2022

The news that a startup Florida insurance company will assume $400 million in policies from the now-insolvent St. Johns Insurance Co. – without input from other carriers – has set tongues wagging and emails flying among Florida insurance executives.

In the charged atmosphere of Florida’s distressed property insurance market, where five carriers have been liquidated in the last 30 months, insurers say every advantage is needed. And some executives want to know why state regulators didn’t offer them the chance to take on some of the 147,000 policies — and more than $90 million in cash from unearned premiums — that newcomer Slide Insurance will receive under the terms of a recent court order and transition plan.

“It’s a good outcome for St. Johns agents and consumers, that’s true. But it’s also true that no one else had the opportunity to bid on at least a portion of their book of business,” said Locke Burt, chairman and CEO of Security First Insurance, based in Ormond Beach.

A number of executives told the Insurance Journal in early March that the move by the Florida Office of Insurance Regulation was so quick and without consultation with the public or with other companies that it doesn’t pass the smell test. Florida carriers are asking how Slide CEO Bruce Lucas seemed to know that St. Johns was going under before anyone else knew.

With the unearned premium money flowing to Slide — and most Florida carriers stuck with a 1.3% assessment to help the state guaranty association cover St. Johns’ existing claims — it almost feels like long-time Florida insurers are subsidizing a startup competitor, or robbing Peter to pay Paul, one insurance executive said.

“It’s an unfair advantage for Slide,” said Bob Ritchie, CEO of Tampa-based American Integrity Insurance.

Insurers also are worried that the assessment by the Florida Insurance Guaranty Association, due in April, could be the first of several: More insurers in Florida’s distressed property market are expected to become insolvent this year, and even a small assessment on a carrier’s premium can mean millions of dollars must be paid unexpectedly and passed on to policyholders, many of whom already are facing higher premiums.

“Are we going to have to do that every time now, maybe six more times in the next year or so?” one insurance vice president said. “This industry does not have, sitting around in cash, 1.3% of all the direct written premium. There’s a cash flow problem in the industry now.”

For a smaller carrier, with $250 million in premium, for example, the St. Johns assessment amounts to $4 million that must be paid by April 1. For all Florida insurers affected, the assessment would come to a total of about $190 million, insurers said.

Florida Insurance Commissioner David Altmaier’s office did not immediately respond to requests for an interview about the Slide transaction. But Lucas told the Insurance Journal that Slide will have to pay the assessment, just like other members of FIGA.

He also said there was nothing inappropriate about the transition of St. Johns policies to Slide, and that he had not spoken with Altmaier about it.

“We were just minding our business and rolling out our company and it just kind of fell into our lap,” Lucas said. “These guys had a crisis and we were able to step in quickly to solve it.”

Lucas declined to say which regulators he or other Slide officers had spoken with or when, or who approached whom about St. Johns. But he said that Slide had been in talks with St. Johns officials recently.

“We were in discussions with St. Johns. They were interested in having a conversation, but it’s not like there was some big advance warning,” he said. “It’s not like we were working on this for six months. We had a very short time window to make a decision. We made the decision based on the circumstances.”

The timeline of the final days of the 19-year-old, Orlando-based St. Johns gives an idea of how quickly the landscape changed. In early February, St. Johns, listed at one time as the eighth-largest P/C carrier in Florida, announced that it would stop writing new business in the state on Feb. 15.

On Feb. 17, the Demotech rating agency withdrew St. John’s financial stability rating altogether due to a lack of adequate reserves. A day later, Slide, a Tampa-based insurtech still raising capital, agreed to take over St. Johns’ homeowners book of business. Slide did not receive its certificate of authority as a carrier until Feb. 24, OIR’s website shows.

One day later, on Feb. 25, the Florida Department of Financial Services’ Division of Rehabilitation and Liquidation asked the circuit court in Tallahassee to approve the transition of policies to Slide. That same day, the Office of Insurance Regulation finalized a consent order, formalizing the deal and a change in business plan for the startup, according to the documents.

“The transition plan protects St. Johns’ policyholders by providing transition coverage,” the consent order reads.

The document also notes that OIR had reviewed Slide’s change in business plan, its planned catastrophe reinsurance program and its ability to provide coverage to St. Johns’ insureds. Slide has been funded with $25 million in surplus and has indicated it will have $39 million in surplus by the end of March, the document explained.

Three days later, on Feb. 28, the circuit court approved the transition plan. That same day, the FIGA board of directors approved the 1.3% assessment, the second for 2022 to cover insolvent companies’ outstanding claims. St. Johns wrote policies in South Carolina, so that state’s guaranty association also was involved in approving the liquidation.

“When you think about everyone that had to be lined up, from Slide, to OIR, DFS, FIGA, and the South Carolina guaranty association, does it seem reasonable that it all happened in 48 hours or so?” Burt asked.

Lucas said the transition followed standard procedure and that other takeovers of insolvent companies’ policies have moved just as quickly. Lucas was previously head of Heritage Insurance, which took just four days to assume thousands of homeowner policies when Sawgrass Mutual Insurance Co. was put into liquidation in 2017, he said.

“When a company knows they are impaired, a lot of times it’s related to reserves and it happens pretty quickly,” Lucas said. “We had the bandwidth to do a transaction.”

A more conventional approach would have been to let the state-run Citizens Property Insurance take on the St. John’s policies, then let Slide make a take-out offer, as carriers have done in previous insolvencies.

Lucas said that all of his competitors’ concerns about the St. Johns deal are unfounded.

“I think maybe some people are just trying to stir the pot,” Lucas said.