Florida OIR Sought Potential Buyers for Magnolia Insurance

Florida Insurance Commissioner Kevin McCarty has called the financial troubles of Magnolia Insurance Co. "unfortunate" and said that his office decided it was best to assume supervision of the company, after efforts to avoid the step failed.

Jack McDermott, spokesman for the Office of Insurance Regulation, said the office tried to do everything it could for the company to avoid this step, including finding "potential buyers of the company" -- which will remain an option under administrative supervision.

McCarty made his comments in a short statement released by the OIR. According to a notice to policyholders and agents as well as a consent order from the OIR, Magnolia has consented to administrative supervision because the OIR "finds it to be in an unsound condition."

Magnolia was one of about a dozen companies approved by the state as a "take-out company" to remove policies from the last-resort insurer, Citizens Property Insurance Corp., as part of a depopulation program to reduce the state-run insurer's exposure. According to data from Citizens, Magnolia did not take any policies from Citizens in 2009, but in 2008, the first year the company was in operation, it removed more than 100,000 policies in three separate batches in June, August and November. The OIR has said it reviews the financial records of each take-out company every time a batch of policies is removed from Citizens.

"The OIR did review Magnolia at the time of the take-outs and since that time," McDermott said. "These problems are part of being a private company. Some succeed and some fail."

McDermott said companies in the Florida property insurance market have been experiencing difficulties due to rises in non-catastrophe losses and reinsurance costs, even after several years of no weather-related catastrophe losses.

The order, signed by McCarty on Dec. 14, states Magnolia cannot write any new business or renew business "without prior consent" from state regulators and without telling the policyholder of the existence of the order to which the insurer has voluntarily agreed. The insurer cannot expend any funds or destroy any records without written approval from a deputy supervisor from the OIR or state Department of Financial Services.

H. James Irl, the company's president, resigned as part of the consent order and is prohibited from any managerial control of Magnolia. McDermott said the OIR has the right as the supervisor to request management step down. He said he could not "talk about specifics" as to why the OIR requested Irl resign or why he was the only senior manager at Magnolia asked to do so.

McDermott said he also could not talk more about what led to the OIR making a determination that Magnolia was unsound.

The OIR has instructed agents to place Magnolia policies up for renewal with another carrier, but the order does not place Magnolia in rehabilitation or liquidation. The supervision is to last at least 120 days, but it may be extended for an additional 120 days if the OIR sees fit.

"We will reassess the situation after 120 days and determine the best potential outcome," McDermott said. "A company could emerge in good shape after supervision. That does happen. It doesn't make news but companies have regained their financial footing."

Florida domestic insurer American Keystone Insurance Co. was ordered into liquidation in October. First Commercial Insurance Co. and its subsidiary, First Commercial Transportation & Property Insurance Co., were placed into liquidation in late August. In April, Coral Insurance Co. was ordered into liquidation over a surplus shortfall (BestWire, Oct. 12, 2009).

Attempts to contact Magnolia for comment were unsuccessful.

The top five writers of homeowners multiperil in Florida in 2008, according to BestLink, were: State Farm Group, with a 17.7% market share; Citizens Property Insurance Corp., with 16.2%; Universal P&C Insurance Co., with 7.2%; USAA Group, with 5.1%; and Tower Hill Group, with 4.5%.

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