Florida’s Southern Oak Told to Correct Its Business Plan; Other Companies Are Being Examined

Florida's Southern Oak Insurance Co. has some explaining to do and several other of the state's property insurers may be soon to follow.

The Florida Office of Insurance Regulation has ordered the Jacksonville, Fla.-based, take-out company to submit a corrective action plan to regulators to address concerns about reinsurance, managing general agents and exposure.

The OIR is reviewing annual financial statements of all companies and "is currently conducting examinations of a few companies, including the review of MGA agreements," said Brittany Benner, spokeswoman for the OIR, which "intends to conclude these examinations, taking corrective action if necessary, prior to the 2010 hurricane season," she said.

Benner said the OIR cannot disclose the names of the companies being examined.

Last year, three companies in Florida were put into receivership: Coral Insurance Co., American Keystone Insurance Co. and First Commercial Insurance Co. -- a writer of workers' compensation and commercial automobile insurance. Companies generally get placed into receivership when impaired or insolvent.

Additionally, two companies are in what is called administrative supervision: Magnolia Insurance Co. and another the OIR says it cannot disclose. Here, companies are monitored by the OIR when they are experiencing financial difficulties. The company remains in control of its operations.

State Chief Financial Officer Alex Sink has asked the OIR for a status report on the state's insurers, especially because many appear to be having significant difficulties although the Sunshine State has been lucky to avoid a major hurricane since 2005. Benner said Insurance Commissioner Kevin McCarty will be providing an overview of the property insurance market to the Florida Cabinet on March 23.

Southern Oak has until March 30 to submit its corrective action plan. According to the order, the OIR believes the insurer has a MGA agreement that is "unfair and unreasonable" to policyholders. About 45% of Southern Oak's total exposures lie in the counties of Miami-Dade, Broward and Palm Beach, which leads to higher reinsurance costs. The company's reinsurance retention levels are not up to par either, according to the OIR. Retention was about $3 million for catastrophic loss and $1 million for non-catastrophes. Southern Oak reported surplus of $15 million in 2009.

Attempts to reach Southern Oak President Tony Loughman were not immediately successful.

In the meantime in Tallahassee, the Florida Senate's Banking and Insurance Committee passed SB 2044, a property insurance package that addresses some of the issues said to be giving the state's insurers problems. SB 2044 proposes the surplus requirements for insurers be raised to $15 million from $5 million. The measure also includes replacement cost adjustments and a plan that could allow insurers to apply for an increase in base rates if mitigation discounts result in a loss of revenue. An expedited way to recoup reinsurance costs is also within the bill (BestWire, March 8, 2010).

William Stander, regional manager for the Property Casualty Insurers Association of America, said the bill will likely change many times before the legislative session ends April 30 but the association "continues to work to make sure any legislative measure continues to address the return of some kind of rating freedom and controls costs." The bill is meant to be a balance between measured progress for the industry and consumer protection so as to avoid a veto from Gov. Charlie Crist.

Southern Oak does not current have a Best's Financial Strength Rating.

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