Heritage Takes Over Policies From Troubled Sawgrass Mutual

Nov. 08--One of the state's largest property insurers, Heritage Property & Casualty, has revealed that it took over 17,500 policies as part of a state-supervised "wind down" of troubled Sawgrass Mutual Insurance Co.

The company also declared $1.4 million in operating profit for the third quarter, which it called "a remarkable achievement, especially in light of the significant industry losses related to Hurricane Irma."

In its third quarter earnings report released last week, Heritage disclosed that it entered an agreement to assume Sawgrass policies worth about $30 million in total annual premiums, effective Sept. 1.

Heritage said it believes the acquisition will increase the company's operating income and make its book of business more attractive to reinsurers, which is insurance that insurers buy to protect their profitability and ensure they have enough capital to cover catastrophe-driven claims.

Formed in 2009, Sunrise-based Sawgrass had 19,031 policies statewide, including 2,366 in the tri-county region, as of June 30. Heritage had 229,470 statewide and 72,134 in the region.

Letters were sent to Sawgrass policyholders on Sept. 1 stating their policies had been taken over by Heritage for the duration of their original policy terms at no additional charge. When their original Sawgrass policies expire, Heritage will offer the Sawgrass policyholders new Heritage policies, the letters state.

Sawgrass customers who did not want to remain with Heritage had 45 days to opt out, according to a Sept. 1 consent order from the state Office of Insurance Regulation authorizing terms of the transfer. Heritage's CEO Bruce Lucas did not respond to a question Tuesday asking how many Sawgrass customers opted out.

Sawgrass agreed in late August to a state-supervised "orderly wind-down" of its operations that was revealed to the public after financial strength ratings agency Demotech Inc. downgraded the company's stability rating from A, Exceptional to L, Licensed. Demotech said Sawgrass submitted a second-quarter financial statement and revised year-end 2016 statement that no longer supported its A financial stability rating.

The downgrade essentially put Sawgrass out of business and could have triggered demands by mortgage holders that policies be force-placed by companies with exceptional ratings, said Jay Neal, president of the insurance industry watchdog group Florida Association for Insurance Reform. Neal said the downgrade, if left unaddressed, could have also voided the company's reinsurance contracts and forced policyholders to seek recoupment for hurricane losses from the Florida Insurance Guaranty Association, a safety net created by the state to pay claims of insolvent companies.

The wind-down agreement signed by Insurance Commissioner David Altmaier and Sawgrass CEO Dan O'Neal said it resulted from the state's review of Sawgrass' "financial condition."

Financial statements provided to the Sun Sentinel by the state showed that Sawgrass revised its reported 2016 year-end surplus from $20.3 million to $13.8 million. That surplus declined further to $10.2 million in the company's second-quarter financial report.

Additional issues stemmed from a lawsuit between a large holder of one of the company's equity notes and Sawgrass' management team "that could not be resolved," Neal said.

The state's plan called for Sawgrass to protect its assets and transfer its policies to another insurer. Sawgrass "received and evaluated various proposals" and determined Heritage offered "the most viable plan best suited to protect Sawgrass' policyholders," the Sept. 1 consent order said.

Sawgrass agreed to transfer to Heritage all payments it was holding for the remaining policy terms, as well as funds in reserve for future losses, lawsuits and claims-handling expenses.

Heritage agreed to assume responsibility for all Sawgrass policy claims incurred prior to Sept. 1.

Asked by email about the agreement, Heritage CEO Bruce Lucas said Heritage's acquisition saved policyholders who "were on the verge of having no coverage for Hurricane Irma" which made landfall in Florida on Sept. 9.

"People could have lost their homes with limited ability to recover from [the Florida Insurance Guaranty Association]," Lucas said. Agents were facing potential [errors and omissions] claims if their clients had an unreimbursed loss. Somebody had to step up and help 19,000 families and numerous agents."

Heritage, he said, "did the right thing and protected families in need as Hurricane Irma was approaching."

Neal called the merger "a good fit," adding he wouldn't be surprised to see other small Florida-based insurers acquired by larger, healthier companies such as Heritage.

[email protected], 954-356-4071, twitter: twitter.com/ronhurtibise

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