Hudson Structured Capital Management Ltd., doing its (re)insurance business as HSCM Bermuda, announced Nov. 3 that it intends to take a majority ownership of Southern Fidelity Insurance Company and its affiliated entities on or about Nov. 12.

In exchange for its majority ownership stake, HSCM Bermuda will provide a capital injection into Southern Fidelity and take an active role in maintaining and expanding Southern Fidelity’s footprint in the Florida, Louisiana and South Carolina homeowners’ insurance markets.

“2020 has been a challenging year for the Southeast homeowners’ insurers,” said Edouard von Herberstein, partner and chief underwriting officer of HSCM Bermuda. “As rates and the underwriting environment begin to improve, we are excited to support Southern Fidelity as they rebuild,” von Herberstein said.

“Southern Fidelity Insurance Company is proud to announce this new partnership with HSCM Bermuda. This alliance will strengthen Southern Fidelity’s position in the marketplace, and we look forward to continuing to serve our agents and policyholders,” said James Graganella, CEO of Southern Fidelity.

Launched in 2016, HSCM Bermuda is an asset manager with more than $2.75 billion in capital commitments and assets under management.

Southern Fidelity Insurance Company has done business through independent agents in Florida, Louisiana, South Carolina and Mississippi since 2005.


Southern Fidelity Insurance Co. acquired Capitol Preferred Insurance Co. in August, after posting collective year-to-date losses of $40 million as of June 30, the Tampa Bay Times reported.

At the time, Capitol Preferred was under state supervision and all of its 82,800 policies were to shift to Southern Fidelity and be unaffected by the acquisition, the Times said, quoting a spokeswoman for Florida Office of Insurance Regulation.

As a condition of the Southern Fidelity/Capital Preferred merger, the Office of Insurance Regulation required Southern Fidelity to raise additional capital by the end of the year. The specific amount was not disclosed, but investment firm Hudson Structured Capital entered the picture and announced plans to take a majority stake in the insurer, if approved by regulators.

Regulatory filings show Capitol Preferred reported a loss of $5.1 million in 2017, $17.9 million in 2018 and $25.7 million in 2019. Its year-to-date losses in June were $20.7 million, the Times reported.

At the same time, Southern Fidelity saw losses spike from $108,700 in 2017 to $1.9 million in 2018 and $22.6 million in 2019. As of the end of June, its losses for the year totaled $19.3 million.

Each of the two companies requested double-digit rate increases for their Florida business. Capitol Preferred asked for 26 percent and Southern Fidelity wanted 31 percent.

Earlier this year, the Florida Office of Insurance Regulation took an “extraordinary” measure by allowing Capitol Preferred to cancel 23,800 homeowners policies to maintain its financial stability.

As part of the deal to merge with Capital Preferred, Southern Fidelity was required to cut the fees it pays to its managing affiliate, a subsidiary that handles day-to-day operations, according to the Times.

As of 2018, the most recent data available, Southern Fidelity’s managing affiliate collected 31 percent of the company’s premiums as a fee. It was paid $18.2 million for its services that year. Under the agreement with regulators, Southern Fidelity can pay the company 26 percent of premiums over the next two years.

According to the Times. Southern Fidelity is paying off a $25 million loan it obtained in 2006. The loan is set to mature in June next year.

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