Florida Fines Homeowners Choice Over Its Reinsurance Plans With Affiliate

The Florida Office of Insurance Regulation has fined Homeowners Choice Property & Casualty Insurance Co. $10,000 for failing to inform the office of the company's reinsurance plans.

The OIR said Homeowners Choice did not give notice of its reinsurance agreement with Claddaugh Casualty Insurance Co., an affiliate of Homeowners Choice, according to an order from the OIR. The agreement was never approved, said OIR spokeswoman Brittany Benner.

Homeowners Choice made an error in not filing out the appropriate forms related to its reinsurance arrangement with Claddaugh, a wholly owned subsidiary of Homeowners Choice Inc., President Paresh Patel told BestWire. The company will pay the fine. "We didn't hide, but we are guilty of not filling out an extra set of forms," Patel said.

Claddaugh, a Bermuda-based captive insurer started in 2008, has been used by Homeowners Choice for more than $9 million in reinsurance transactions. The OIR states it discovered the transactions after reviewing the Clearwater, Fla.-based insurer's annual financial statements.

"What insurance companies do is manage risk at an adequate price," said Patel. "We thought the price (in the private reinsurance market) for this risk transfer was too great so we decided to retain some of that risk. The money never left the group."

There was no triggering event last year to make a reinsurance claim, so the money went back to Homeowners Choice, which plans to use it to make the company stronger in 2010, said Patel.

The order is addressed to Francis X. McCahill III, president and chief executive officer of parent company, Homeowners Choice Inc. (NASDAQ: HCII). According to the insurer's Web site, McCahill also serves as president and as a director of HCII's subsidiaries: Claddaugh, Homeowners Choice Property & Casualty, Homeowners Choice Managers Inc., and Southern Administration Inc.

Homeowners Choice has 30 days from the March 15 order to pay the fine. It has 21 days from the date of the order to get the $9 million in premiums back from Claddaugh and provide confirmation to the OIR. Benner said the fine goes toward the Insurance Trust Fund, which funds regulatory duties and operations.

Homeowners Choice Property & Casualty Insurance Co. does not currently have a Best's Financial Strength Rating.

In afternoon trading on March 18, shares of Homeowners Choice Inc. were selling at $7.05, down 3.42% from the previous close.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)