United Insurance Holdings Corp. (UPC Insurance) has confirmed that it is effectively placing its personal lines subsidiary into run-off due to concerns over a lack of available reinsurance capacity.
UPC reported last month that its Board had initiated a review to explore range of strategic and capital raising alternatives, including a potential sale or merger.
Since then, the company has booked $21 million of catastrophe losses for Q2 and completed a reorganization plan to consolidate its four Florida domiciled insurance carriers into two.
And now, UPC says it has filed plans of withdrawal for United Property & Casualty Insurance Company (United P&C) in Florida, Louisiana and Texas and also intends to withdraw in New York.
The withdrawals, which have already received regulatory approval in Louisiana but are still pending in Florida and Texas, entail non-renewing personal lines policies in the aforementioned states.
UPC notes that these plans “would effectively place United P&C into an orderly run-off” so long as the business remains in compliance with the rules and regulations of each state.
“Due to significant uncertainty around the future availability of reinsurance for our personal lines business, I believe placing United P&C into an orderly run-off is prudent and necessary to protect the Company and its policyholders,” explained Dan Peed, UPC Chairman & CEO.
As noted by Peed, the ability to procure reinsurance is a key factor in its decision to place the business into run-off. For some carriers, the hardening reinsurance market environment and pull-back from providers of capacity has led to a very challenging situation in coastal states such as Florida.
It’s been reported throughout the recent renewals that some have struggled to obtain their desired reinsurance protection at any price, as reinsurers look to lower volatility and stabilise earnings in the face of elevated nat cats and rising loss costs.
“The Company is actively pursuing opportunities to leverage our people, technology, and other capabilities,” Peed added. “Our commercial business continues to perform well and provides the Company a stable platform to build new engines of growth and profitability.”
Additionally, United P&C has received notification from Florida rating agency Demotech of its intent to withdraw United P&C’s Financial Stability Rating.
And likewise, KBRA has opted to downgrade United P&C’s strength rating from A- to BBB- following the announcement that the unit will be placed into run-off.
Analysts also noted the substantial decline in UPCIC’s surplus as of June 30, 2022 and the poor operating performance and significant surplus declines of recent years, which were largely driven by catastrophe losses.
KBRA says it will maintain its issuer and debt rating of BBB- for the larger United holding company, as well as the financial strength ratings of A- for subsidiaries for American Coastal Insurance Company (ACIC) and Interboro Insurance Company (IIC), although all ratings have been placed on watch downgrade.