SARASOTA, Fla. – Skip Walz received an unwelcome surprise last week when a letter arrived informing him that his home insurance company is being liquidated. With peak hurricane season approaching, Walz scrambled to find another insurer before his policy is canceled Aug. 27.
Thousands of other homeowners across Florida are in the same predicament after Sarasota-based Gulfstream Property & Casualty Insurance went into liquidation on July 28.
“A lot of people are struggling with this,” Walz said.
Formed in 2004, Gulfstream primarily operated in Florida but also once sold policies in Louisiana, Alabama, Mississippi, Texas and South Carolina.
The liquidation is forcing Gulfstream’s roughly 33,000 remaining Florida customers – the company had 2,900 policies in Sarasota and Manatee counties as of 2019 – to shift carriers just as the hurricane season ramps up.
It also is saddling the state with an estimated $60 million to $65 million in unpaid claims and premium refunds, according to Florida Insurance Guarantee Association Executive Director Thomas Streukens.
Beyond the financial fallout and the headaches for homeowners, Gulfstream’s failure raises questions about state oversight of property insurers, Walz said, and could add to concerns about the overall health of an industry that has been highly unstable at times. Gulfstream’s collapse left Walz, a Vero Beach retiree, wondering what happened, and whether Florida’s insurance regulators could have done more to protect and warn homeowners.
“Just canceling all these people right in the middle of hurricane season, to me, doesn’t make sense,” Walz said. “It’s bad management of the industry somehow.”
Regulators with the Florida Office of Insurance Regulation (OIR) have been formally overseeing Gulfstream’s operations for months as the company sought to improve its finances after a $35 million net underwriting loss in 2020.
“OIR’s priority remains the protection of consumers and encourages consumers to immediately contact their agent to secure replacement coverage,” said Alexis Bakofsky, OIR’s director of communications.
Florida’s property insurance industry has been rocked by catastrophic hurricane seasons, notably Hurricane Andrew in 1992 and the eight storms that hit the state in 2004 and 2005. As large insurers retreated from the state, smaller companies such as Gulfstream moved in to fill the void and some of them struggled, with 12 Florida-based insurers failing during a 10-year stretch ending in 2014.
But Streukens said Gulfstream is just the third Florida-based property insurer to fail since 2014, a time period that included a few big-name hurricanes such as Irma and Michael that made landfall in Florida.
Streukens said Gulfstream still has roughly 100 Irma claims open.
“Irma is still wreaking havoc on the Florida marketplace,” he said.
Gulfstream’s problems may have extended beyond Florida, though. Louisiana, where Gulfstream has its second largest number of policies, was hit by three hurricanes and two tropical storms last year.
“The Southeast, it’s been very difficult, diversification just hasn’t worked,” said Joseph Petrelli, the president of the insurance industry rating agency Demotech. Petrelli also echoed an argument made by insurers and many Florida lawmakers, who say insurance litigation costs are out of control in Florida. Excessive litigation is hurting many insurers, Petrelli said.
Gulfstream has around 300 outstanding claims that are in litigation, Streukens said.
Florida lawmakers passed legislation this year aimed at what they described as unscrupulous legal practices. Critics said the legislation will make it harder to get legitimate claims paid.
Consumer advocates blame the insurance industry’s own practices for many of the problems it faces, saying they contribute to financially fragile companies that don’t keep enough money in reserves and divert too much revenue to affiliated companies for services, making their finances look worse than they are.
Bakofsky said: “The Florida insurance market is one of the most complex in the world and the property market is currently facing significant challenges as the frequency of claims increases and those claims become more expensive.
“These challenges are largely due to increased litigation, exacerbated by higher catastrophe claim losses as a result of multiple hurricanes over the past several years, and rising reinsurance costs as a result of a hardening reinsurance market,” Bakofsky added. “These developments have presented challenges not only to the property industry, but also to Florida consumers.”
Gulfstream’s executives could not be reached for comment.
Whatever the cause of Gulfstream’s demise, Walz said insurance regulators should have done a better job overseeing the company. “You’re supposed to have state insurance regulators watching these companies,” Walz said, while lamenting that “this snuck up on people with no warning.”
Petrelli said his team spoke with Gulfstream management last year about the company’s financial situation. The company’s surplus had dropped too low. “We said they needed to infuse some money,” Petrelli said.
Gulfstream entered into a consent order with OIR on May 4. The company asked to cancel 23,311 out of 56,000 policies in Florida, saying the cancellations would improve its financial position.
The consent order states that, after losing money in 2020, Gulfstream would have dropped below the state’s $10 million surplus threshold had it not been for a $17.1 million capital infusion.
Gulfstream provided state regulators with information indicating that, without the policy cancelations, its financial condition “will deteriorate to an unsustainable level by mid-2021,” according to the consent order. The company also provided OIR with a letter of intent from an interested investor, a possible financial lifeline for the insurer. As part of the consent order, Gulfstream was required to submit a business plan demonstrating “the Company’s ability to generate successful operating results.”
The hoped for financial turnaround didn’t materialize.
“The investor and Gulfstream were negotiating in good faith to close the transaction, but the acquisition was not concluded,” Bakofsky said in an email. On June 21, Gulfstream told OIR that it was “unable to comply with the minimum surplus required by” state law. On June 25, Gulfstream entered into another consent order with OIR that placed the company under public administrative supervision. Demotech pulled its rating of Gulfstream the same day.
Gulfstream’s policyholders were notified of the 90-day administrative supervision, which aimed to safeguard Gulfstream’s assets while “facilitating a financial reorganization of the Company and/or the placement of its policies with other insurers.”
Walz thought he had time to figure out his home insurance situation, but shortly afterward the liquidation notice went out.
“These people did everything right,” Walz said of Gulfstream policyholders. “They played the game by the rules and then the state just pulled the rug out from under them and said: ‘Here you go, you’re on your own, good luck.’”
© 2021 Sarasota Herald-Tribune, Fla. Distributed by Tribune Content Agency, LLC.