Sawgrass Mutual Agrees To ‘Wind Down’ Insurance Operations

Aug. 25--Sunrise-based Sawgrass Mutual Insurance Co. is winding down its insurance operations and apparently headed out of business, according to a consent order made public this week by state insurance regulators.

The property and casualty company, created in 2007, had 20,091 policies statewide and 2,612 in the tricounty region at the end of the first quarter of 2017, according to data maintained by the state Office of Insurance Regulation.

Details remained sketchy on Thursday, as the company's CEO Dan O'Neal did not respond to an email request to discuss what prompted the state's action, which was made public a day after the ratings agency Demotech downgraded Sawgrass' Financial Stability Rating from A, Exceptional, to L, Licensed.

The consent order, signed by Insurance Commissioner David Altmaier, said it resulted from "review by [the office] of the financial condition" of the company.

"The Office has determined that grounds exist for Sawgrass to be placed in administrative supervision for the purpose of protecting the assets of Sawgrass and protecting the interests of its insureds during the implementation of an orderly wind-down of the company's operations," the order said.

Sawgrass "has been fully cooperative with the office and agrees to be placed under administrative supervision," the order said. The supervision will last 120 days, and may be extended in additional 120-day increments "for as long as is necessary for the company to implement and complete its wind-down plan."

A statement released by the Office of Insurance Regulation said the wind-down plan will include "the orderly transition of policies from Sawgrass to another insurer."

Meanwhile, "coverage for current Sawgrass policyholders remains in force until a plan is implemented," the statement said. It added that in the interim, Sawgrass policyholders may contact the Florida Market Assistance Plan or research other insurance companies through the Office's CHOICES homeowner rate comparison tool at its website, www.floir.com.

Through a spokeswoman, the state office declined late Thursday to provide further information about the financial conditions that led to the consent order.

In a news release announcing the ratings downgrade, Demotech said the company initially submitted a year-end financial statement that reported a surplus in excess of $20 million and secured an effective reinsurance program prior to the start of hurricane season. Reinsurance is insurance that insurance companies buy to guarantee they would have enough money to pay policyholders if a major hurricane strikes.

But on Aug. 16, the company submitted a second-quarter financial statement and a revised year-end 2016 financial statement that "present surplus and other financial metrics at levels that no longer support the [A Financial Stability Rating]."

In addition, the company missed a deadline for submitting an independent financial audit, Demotech said.

"At a certain point, you're only as good as your rating," said Jay Neal, president of the insurance industry watchdog group Florida Association for Insurance Reform. "If you've lost confidence in the management team or you don't think they're being forthcoming with information, you pull the rating."

Separate from the state's action, the ratings downgrade by Demotech effectively put the company out of business, Neal said.

That's because homes with mortgages guaranteed by federally backed Fannie Mae and Freddie Mac are required to be insured by companies with exceptional ratings from either Demotech, AM Best or Standards and Poors, Neal said. Currently, only Demotech rates most Florida-based carriers.

The downgrade could trigger mortgage lenders to demand policies be force-placed with insurers with acceptable ratings, Neal said.

Neal also said he was concerned that the ratings downgrade could void the company's reinsurance policies. Many reinsurance contracts, he said, contain clauses terminating the coverage if the company loses its rating. If Sawgrass' customers suffer losses in a storm and the company's reinsurer invokes such a clause, the claims would have to be covered by the Florida Insurance Guaranty Association, a safety net created by the state to handle claims of insolvent companies.

"My concern with this action: Is the reinsurance program still in place to protect policyholder as we approach peak hurricane season?" he said. "Regulators want to know. I for one want to know."

Neal said the state regulators should "consider the company liquidated, provide information to the industry about the policies, and open them up for a period of time for [other] companies to make bids."

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

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