Floridian Monarch ‘hungry’ for growth as it eyes M&A and reinsurance entry

Photo of Steven Hale from Inside P&C article

The carrier has been approved for a Citizens takeout, which is expected to occur mid-2023, management told Inside P&C exclusively in an interview. The group also plans to expand into reinsurance to provide capacity to a Florida market which is facing a challenging June 1 renewal.

When asked where Monarch fits into the Florida market, Hale Partnership CEO Steve Hale said, “[We’re] hungry.”

“We are wide open for M&A. We’re probably first most focused on product line expansion, and geographic expansion probably takes a back seat,” he added.

Last year, North Carolina-based distressed investment specialist Hale agreed to put $15mn into Monarch National, contingent on a restructuring that cancelled a major block of policies written across FedNat subsidiaries and transferred a subset of FedNat Insurance Company policies to the surviving entity Monarch.

Hale continued that the company has $210mn of premiums on $52mn of surplus, and there is capital available from Hale Partnership. “If we can agree to profitably grow with policyholders, and we think it is time to do that, so I’m more than willing to invest in Monarch.”

The executive said Monarch’s goal is to have “the best 2%” of the Florida market, with that desire extending to employees and agents in addition to policyholders. The company’s current market share is between 1% and 2% in the state.

We are wide open for M&A. We’re probably first most focused on product line expansion, and geographic expansion probably takes a back seat

The Florida Office of Insurance Regulation authorized the assumption of around 78,000 FedNat Insurance Company policies by Monarch effective 1 June 2022, bringing the latter’s total policy count to 83,000.

chart from P&C article sharing Monarch in numbers

Reinsurance capacity
The thinking behind going into reinsurance is to fill a need for capacity in the Florida market, Hale said.

Brokers have highlighted the “significant market movement” in Florida reinsurance rates in the past few years ahead of what is expected to be another difficult renewal period for cedants in the state.

“The rate on line is the highest it’s ever been. It’s unprecedented. The need, given the inflation in insured values, has also never been higher, so you’ve got a large need for limit that’s out there,” the executive said.

Speakers on a panel at the Bermuda Risk Summit in March said improvements to the assignment of benefits (AoB) system, re-rating and restructuring of programs plus last year’s legislative reforms have helped stabilize the Floridian market. However, it is still expected that hard market conditions will prevail at the June 1 renewal.

“Because it’s going to be a difficult reinsurance renewal for everyone, we’re here not just with reinsurance capacity but with an interest in deal-making and M&A, of course at the right price, for the right team, for the right geographic setting,” Hale said.

Recent legislation
During the state’s December special session, among other statutes, the legislature passed the Florida Optional Reinsurance Assistance (Fora) program and eliminated AoB rights and one-way attorney fees.

“Florida is now in a place post-reform where, from a regulatory perspective, it’s a new day,” Hale said.
While market participants agreed that the new legislation will bear fruit in 12-24 months, they said insurers must first pass the hurdle of June 1 renewals amid higher reinsurance pricing and limited availability of capacity. It is also unclear whether Fora will be sufficient to calm the reinsurance market’s concerns.

December’s legislation applies Citizens’ 20% rule to renewals, as opposed to just new business. The rule states that if a policyholder is quoted a policy at rates within 20% of the quote from Citizens, they are ineligible for Citizens insurance protection.
Florida is now in a place post-reform where, from a regulatory perspective, it’s a new day Hale added that the 20% rule will be more effective if rates in the private market come closer to Citizens’ rates.

That said, the executive added: “When you look at that and say what percentage of Citizens is within 20% of private market pricing that could be forced out? We think probably somewhere between 10% and 20%.

“We don’t think it’s a panacea right until that gap between their rates and the private market shrinks, because that’s where folks will be taking the Citizens policies, but we think it can move the needle at the margin for that 10% to 20% of policyholders.”

Hurricanes Ian and Nicole
When asked about the impact from Hurricane Ian, Hale said that the storm was about two-thirds up Monarch’s reinsurance tower. Monarch president and CFO David Lockhart said that the company is expecting around 6,500 to 6,750 claims from Ian, compared with initial estimates of 9,000 to 10,000. Lockhart added that Monarch bought down to a $5mn retention from Ian.

Meanwhile, Hurricane Nicole and Tropical Storm Alex came in below the company’s retention. He noted that Monarch only received “a couple hundred claims” from Nicole.

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