Florida’s Capacity Insurance Gets Downgraded, Stops Writing

Florida’s Capacity Insurance Gets Downgraded, Stops Writing

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AM Best has withdrawn its financial strength rating for Capacity Insurance, a commercial insurer with a small footprint in Florida, and the company has decided to withdraw from the Florida market.

“Due to a variety of circumstances, the Florida market has undergone tremendous changes over the last year. As a result, we halted binding new business effective June 21, 2022,” the Capacity website reads.

The insurer since 1989 has provided property-casualty coverage for light mercantile, offices, lessor’s risk, gas stations, houses of worship, trade contractors, funeral homes and other small-to-mid-sized businesses.

In 2009 Capacity was acquired by Team Focus Insurance Group, which was acquired by Peak6 InsurTech and investment firm one year ago. Capacity’s affiliate and managing general agency, MacNeill Group, continues to work with other carriers, the company’s website noted.

AM Best announced Thursday that it withdrawn Capacity’s financial ratings after the company said it no longer wished to participate in the rating process. The rating firm had recently downgraded Capacity’s financial strength rating to “C++ marginal” and said the outlook for the company is negative.

The downgrades reflect Capacity’s balance sheet and “an unfavorable shift” in its capitalization, as well as erosion of its surplus.

“Furthermore, the company’s capital structure is dependent on a $7 million surplus note (due in 2029) that was issued in early 2022,” AM Best wrote in the news release. “The company has continued to report adverse loss reserve development stemming primarily from management’s efforts to correct current reserves and subdue future deficiencies.”

Recent corrective actions taken by the company did not solve the problem, AM Best noted.

A spokesman for Peak6 said Friday that the insurer has undergone significant changes in the last 18 months. “Over the past year, the Florida market has been extremely difficult, especially in the reinsurance arena, further decreasing the profitability of Capacity Insurance,” a statement from the company said.

On July 5, Capacity’s board of directors accepted the resignation of its chairman and appointed Andy McGuire to the position. It also authorized management to move ahead with the plan to voluntarily withdraw from the state. Two days later, it submitted a withdrawal plan to the Florida Office of Insurance Regulation and is awaiting review. The carrier is committed to paying all outstanding claims from its existing book of business, the company said.

Capacity has only about 2,700 policies in force. In 2019, it had some $17 million in direct written premium, or less than 0.1% of the Florida market, according to a report from consultant Guy Fraker.

“PEAK6 InsurTech continues to view Capacity Insurance as an asset and will retain its license to write in Florida so it may revisit opportunities to reenter the Florida market for all lines of coverage in the future,” the Peak6 statement noted.

Topics
Florida

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