Guarantee Insurance of Fort Lauderdale reorganizing under state supervision

Aug. 29--Florida insurance regulators have ordered another Broward County insurer, Guarantee Insurance Co., to stop writing new business after discovering financial weaknesses.

The Fort Lauderdale-based workers compensation provider has been placed under administrative supervision by the Florida Office of Insurance Regulation, according to an Aug. 18 consent order released by the state office.

State insurance regulators did not provide further documentation about "identified weaknesses" mentioned in the order, or "outstanding findings" the company has been ordered to correct in a re-audit of its 2016 year-end financial statement.

But a report in SNL.com, a subscription-only website published by S&P Global Insight, said the state order came two weeks after an independent financial audit conducted by BDO USA LLP expressed "substantial doubt" about Guarantee's ability to continue as a going concern.

The audit found that Guarantee "overstated" its level of capitalization in its 2016 financial statements, SNL.com reported.

Guarantee disagrees with the auditor's statement that its surplus was overstated, said Gex "Jay" Richardson, Patriot National general counsel. "That's why [Guarantee] voluntarily agreed with the state supervision, [saying], 'You can come in and see what's going on and we'll re-audit. That will be a more accurate reflection of the financials.'"

The order was executed just four days before Sunrise-based Sawgrass Mutual Insurance agreed -- following the state's review of its financial condition -- to "wind down" its insurance operations and transfer its policies to another insurer.

By contrast, Guarantee agreed to the administrative supervision "to implement a plan of reorganization for Guarantee and its affiliates, including Patriot National," a state spokeswoman said in an email.

Patriot National is a Fort Lauderdale-based provider of services to the insurance industry, including software, specialty underwriting, outsourcing and claims administration. It was founded in 2013 by Guarantee's founder, Steven Mariano.

Patriot National Insurance Group/PR NewsFoto

Steven M. Mariano is founder and majority shareholder of both Guarantee Insurance Co. and Patriot National. Guarantee is Patriot National's largest customer, according to corporate filings.

Steven M. Mariano is founder and majority shareholder of both Guarantee Insurance Co. and Patriot National. Guarantee is Patriot National's largest customer, according to corporate filings. (Patriot National Insurance Group/PR NewsFoto)

Mariano remains the largest shareholder of both companies but holds no executive position in either, Richardson said. Patriot National is not subject to the reorganization agreement but is working with Guarantee and the state because Guarantee is Patriot National's largest customer, Richardson said.

In March, Patriot National's stock declined 25 percent after investors learned Patriot agreed to provide $30 million in capital to Guarantee in exchange for Guarantee extending its services contract with Patriot by at least 10 years. A filing with the Securities and Exchange Commission revealed that Guarantee accounted for $107.8 million, or 59 percent, of Patriot's total fee income for the first nine months of 2016.

The consent order requires Guarantee to submit its reorganization plan by Sept. 1 demonstrating it can operate with "sufficient reserves ... to pay all policyholder claims and provide for the payment of liabilities as they come due."

Under terms of the supervision, Guarantee must "cease writing any new business, and shall provide notice to its appointed agents that no new business may be written."

The consent order states that Guarantee's reorganization plan may include "both significant restructuring of [its] business as well as the infusion of capital." In an Aug. 18 story, SNL.com cited a BDO USA LLP report that Patriot National plans a "replenishment" of Guarantee's policyholder surplus for a second time in six months.

Richardson said he could not comment on that statement.

Failure to comply with any provision of the order could result in the Department of Financial Service's appointment, and ultimately, the department could decide whether to place the company in rehabilitation or liquidation, the order states.

rhurtibise@sun-sentinel.com, 954-356-4071, twitter: twitter.com/ronhurtibise

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