Weston, the property insurer in which Hudson Structured Capital Management (investing as HSCM Bermuda) has a majority stake, lost its rating earlier this week after Demotech withdrew it and downgraded the carrier to NR (not rated).
This was not necessarily a fatal blow, as Weston Insurance could have benefited from the new guarantee type reinsurance agreement with Florida Citizens.
However, it appears that there are other reasons for the regulator's decision in this case, and Weston appears to be struggling to make a comeback at this point.
The Florida Office of Insurance Regulation's David Altmaier wrote that his office had decided to initiate delinquency proceedings against Weston because the insurer had been deemed impaired or insolvent, and he explained why.
According to the affidavit, the regulator has been concerned about Weston's financials for some time, possibly as early as 2020.
Weston's losses for 2021 exceeded its surplus, and the company also struggled to place reinsurance at the recent June renewals.
This is despite Weston's successful $45 million Marlin Re Ltd. (Series 2022-1) issuance in the catastrophe bond market in 2022 to secure additional reinsurance coverage.
That wasn't enough, according to the affidavit, and lower layers of reinsurance Weston required could not be filled, even though it participated in the new Florida RAP reinsurance arrangement.
With approximately 20,000 policies in Florida, if Weston goes into receivership, additional policies will flow to residual market insurer Citizens, making Weston the fifth carrier to go insolvent in Florida this year.
So far, it appears that Weston has not been deemed eligible for the new Citizens scheme, which guarantees claims above the FIGA caps, to support its ability to recover, and given the comments in the affidavit, that also appears unlikely at this time.
There will be an impact on Hudson Structured's position in the company, though we believe its stake in Weston has already been discounted given the carrier's struggles in recent years.