Louisiana seeks takeover of two failing insurers following Ida

The Louisiana insurance commissioner is seeking a government takeover of two regional insurance companies that are facing insolvency due to losses from Hurricane Ida to ensure the company’s policyholders are paid what they are owed, officials say.

The insolvency could cause thousands of Louisiana residents to get kicked off their insurance policies. However, policyholders whose insurers go out of business are guaranteed up to $500,000 in payments through a state program.

Insurance Commissioner Jim Donelon filed injunctions in Baton Rouge’s 19th Judicial District Court on Wednesday against two carriers who had their financial stability ratings withdrawn by industry watchdog Demotech in October. The carriers, State National Fire Insurance Co. of Baton Rouge and Access Home Insurance Co. of New Orleans, are responsible for 1% of the state’s property insurance market. They take in a combined $20.5 million in direct premiums, according to state data.

Once Donelon receives approval from the courts, he can sell off the insurer’s assets to pay down claims.

“We’re going to put them in receivership and ultimately liquidate the companies as a result of their insolvency,” Donelon said in an interview last week with The Advocate.

The commissioner’s lawsuit comes days after the state’s fourth-largest homeowners’ insurer, FedNat Holding Co., announced it would stop renewing Louisiana policies in January. Another insurer, America’s Insurance Co., which receives nearly $27 million in direct premiums, lost its accreditation in October. Donelon cannot sue to take it over, however, because the firm is not based in Louisiana.

Rating agencies review insurers’ financial information on a quarterly basis after major disasters to determine whether they have the resources to pay out claims to policyholders.

“If a company does not meet our financial metrics, and it doesn’t look like they’re going to be able to raise additional capital, we’ll downgrade or withdraw their rating,” President and founder of Demotech Joe Petrelli told The Advocate. “These insurers are headed in the wrong direction financially.”

Once the liquidation order is issued by the court, the Louisiana Insurance Guaranty Association will begin paying the policyholders where the companies cannot. The state created the nonprofit to act as a safety net for consumers, providing up to $500,000 in payments for unpaid claims and $10,000 for premium refunds.