Saturday, December 16, 2017
Business

Despite no hurricanes, many 'takeout' insurers fail

TALLAHASSEE — Despite Florida having no major hurricanes in the past seven years, one-third of the insurance companies that have taken over policies previously held by Citizens Property Insurance Corp. have gone belly up — and cost taxpayers $400 million.

As Citizens intensifies its efforts to turn over policies to smaller insurers — what industry officials call "takeout" policies — there is a growing fear that the young, untested companies will not be able to withstand the hurricane season, which began Saturday.

In the past year, more than 300,000 homeowners have been shifted from state-run Citizens into private companies, and 60,000 more must decide whether to leave Citizens and sign up with a new insurer within the next month. While the takeout firms have all been vetted by the state's Office of Insurance Regulation, some resemble OIR-approved companies that ultimately failed after assuming Citizens policies: They are young, growing rapidly and reliant on government incentives to sustain their operations.

"The evaluation and approval process has gotten much better," said Florida Insurance Consumer Advocate Robin Westcott, who oversaw several insolvencies as an OIR official. "But there are still vulnerabilities and we will still have companies that will make bad decisions and may take on losses that far exceed their expectations."

Citizens has pushed aggressively to downsize, commissioning a "depopulation committee" to figure out creative ways to encourage private insurers to take over up to half of its 1.3 million policies.

Last month, the Citizens board agreed to pay a 9-month-old St. Petersburg company $52 million to take over 60,000 policies. State leaders blasted the rapidly approved deal with Heritage Property and Casualty Insurance as "tone deaf" and "corporate welfare" for a politically connected startup.

Citizens president Barry Gilway has defended the deal, calling the company, Heritage, "one of the most well-capitalized" firms in Florida. Citizens' chief financial officer acknowledged that Heritage would not be strong enough to take over 60,000 policies this year without the $52 million financial incentive.

Heritage contributed $110,000 to Gov. Rick Scott's re-election campaign in March, as it began negotiating the unique deal with Citizens. Scott's office said the governor did not influence Citizens to act on behalf of his political contributor.

Homeowners began receiving letters from Heritage last week and have 30 days to opt out before they are automatically shifted out of Citizens.

Scott and business leaders have pushed for Citizens to downsize, claiming that the state-run company is carrying too much risk. If Citizens, which currently has a record amount of cash on hand, were to run out of money, consumers could be forced to pay "assessments" to cover a shortfall. After seven years without a hurricane, it would take a storm larger than Hurricane Andrew to trigger assessments.

But several undercapitalized private insurers have become insolvent without a hurricane, costing taxpayers millions of dollars in "assessments" levied by the Florida Insurance Guaranty Association. FIGA charges insurance companies extra fees to cover the cost of insolvencies, and those costs get passed on to homeowners.

OIR officials, who were not available for comment, have defended their vetting process, even though six of 18 companies approved for takeouts between 2007 and 2011 have failed. Seven nontakeout companies licensed by OIR also failed during that hurricane-free period.

"Florida's insurers must meet rigorous evaluations by the OIR to maintain all appropriate solvency standards," Insurance Commissioner Kevin McCarty wrote in a February opinion piece in the Sarasota Herald Tribune.

McCarty said that while the private insurers often have low reserves, most have purchased backup insurance, or "reinsurance," to cover a major storm like Hurricane Andrew. He acknowledged that some insolvencies are inevitable, given the difficulties of the Florida marketplace.

Sam Miller, executive vice president of the Florida Insurance Council, said insurers also benefit from the Florida Hurricane Catastrophe Fund, the state-run reinsurer that is well-capitalized this year.

"You always have some companies that a major event will take them under, but most companies are strong," he said.

With major insurers like State Farm reducing their rolls in recent years, Citizens has relied on smaller, Florida-based firms for its downsizing effort. Despite large financial bonuses to incentivize the private companies, results have been mixed.

Of the 761,000 policies that were transferred out of Citizens between 2007 and 2011, nearly 40 percent have returned, as insurers went under or turned off customers by hiking rates. Many of the companies that accepted, then returned Citizens policies received more than $150 million in bonuses and loans from the state-run company or taxpayers.

In most cases, the bonuses were not returned.

Citizens, sitting on a massive $6.4 billion cash surplus, has since doubled-down on its practice of giving financial incentives to takeout companies.

The $52 million deal with Heritage, and a previous $63 million deal with Coral Gables-based Weston Insurance helped Citizens shed tens of thousands of policies and billions of dollars in exposure.

Both Heritage and Weston have been operating for less than a year, with business plans that rely solely on siphoning policies from Citizens. Weston has a B-rating from A.M. Best, the leading insurance rating firm, while Heritage is unrated. Another rating company, Demotech, gave Heritage an A-rating.

In the past, companies with Demotech ratings and takeout-focused business plans have gone under.

Take Magnolia Insurance Co., which also was A-rated by Demotech, until it wasn't.

Despite having heavy debt and no physical office, the Miami-based company received its property insurance license in 2008. It took over 116,000 Citizens policies that year, but was struggling so much by 2010 that it had to be taken over by the state.

Taxpayers ultimately had to pay more than $20 million to cover Magnolia's insolvency, and many of the policyholders returned to Citizens.

The state is now suing global financial services company Allianz to recoup some of that money, saying it gutted Magnolia with "exorbitant" fees to a web of affiliates. Allianz has denied the allegations.

Comments
Fueled by indulgence and machismo, restaurants are a hotbed for sexual harassment

Fueled by indulgence and machismo, restaurants are a hotbed for sexual harassment

When Brenda Terry was 16 and living in St. Louis, she was a hostess and food runner at a sports bar where female employees wore cute, little cheerleading skirts. One night, she said, a patron grabbed her crotch. She ran to her management team and the...
Published: 12/15/17
Pigs can be therapy animals too. So can horses and rats and cats and llamas and … (w/video)

Pigs can be therapy animals too. So can horses and rats and cats and llamas and … (w/video)

Shrieks of laughter echoed off the walls of the hospital as Thunder the mini pig flopped onto his side and the children huddled around him, scratching his pink, hairy belly. He and his wet-nosed partner, Bolt, drew patients in wheelchairs and bandage...
Published: 12/15/17
Vology landlord challenges property tax assessment

Vology landlord challenges property tax assessment

LARGO — Eight months after paying $10.15 million for the office building that houses IT services company Vology, a New York company is suing the Pinellas County Property Appraiser and Florida Department of Revenue contending its $5.5 million tax asse...
Published: 12/15/17
Taxpayer subsidies of Tampa golf courses are on the rise as struggles continue

Taxpayer subsidies of Tampa golf courses are on the rise as struggles continue

TAMPA — For the half of the year that Harry Nichols lives in Oldsmar, he plays 18 holes several times a month at Rocky Point Golf Course. On a good day, Nichols said he shoots close to par on the Dana Shores course. And if he’s really lucky, it’ll on...
Published: 12/15/17
Florida’s $1.1 billion Hardest Hit Fund winding down after some hard knocks

Florida’s $1.1 billion Hardest Hit Fund winding down after some hard knocks

In 2010, Florida was in the throes of an unprecedented housing crisis. One in every eight homes was in some stage of foreclosure. Today, the foreclosure rate is one in every 83. Because of that enormous drop, Florida’s Hardest Hit Fund will s...
Published: 12/15/17
Report: Rich will get still richer unless policies change

Report: Rich will get still richer unless policies change

By ELAINE KURTENBACHTOKYO — Global inequality has stabilized at high levels in recent years, a report said Friday, despite gains among the poor in China and much milder disparities in incomes and wealth in Western Europe. The World Inequality Report ...
Published: 12/15/17
How the Disney/Fox deal will shake up Hollywood

How the Disney/Fox deal will shake up Hollywood

Associated Press NEW YORK — After years of tremors, the earthquake that had long been predicted finally shook Hollywood. Disney’s deal to purchase most of 21st Century Fox ends the era of the "Big Six" major movie studios, toppling one ...
Published: 12/15/17
St. Petersburg’s Museum of the American Arts and Crafts Movement set to be complete in 2019

St. Petersburg’s Museum of the American Arts and Crafts Movement set to be complete in 2019

ST. PETERSBURG — The Museum of the American Arts and Crafts Movement, under construction since 2015, is scheduled to be complete by the summer of 2019.The five-story, 137,100-square-foot building will house businessman and collector Rudy Ciccarello’s...
Published: 12/15/17
Obamacare enrollment ends today, but some can get an extension

Obamacare enrollment ends today, but some can get an extension

Today is the day that open enrollment for the Affordable Care Act will close for most people. But those affected by the slew of hurricanes that pummelled Florida, Texas, Puerto Rico and other states earlier this year can take advantage of a two-week ...
Published: 12/15/17
Pack your bags: 107.3M Americans to set holiday traveling record

Pack your bags: 107.3M Americans to set holiday traveling record

A record-breaking number of Americans are expected to travel this holiday season.The American Automobile Association projects that 107.3 million Americans will pack their bags and travel more than 50 miles by planes, trains, automobiles and other mod...
Published: 12/14/17