4 Florida companies to pay $1.6 million in fines to get out of optional reinsurance coverage
Sep 27, 2012
The following article was published in The Florida Current on September 27, 2012:
By Gray Rohrer
Four private companies that missed the deadline to opt out of Florida’s optional reinsurance coverage will be able to pay $1.6 million in fines to avoid making payments on the coverage that would have cost as much as $4 million for one of the companies.
Homeowners Choice Property and Casualty Insurance Co. and American Coastal Insurance Co. will pay $500,000 each in fines and have already completed their settlement agreements with the Florida Hurricane Catastrophe Fund, or Cat Fund, and the State Board of Administration, the board that oversees the fund.
Settlement agreements for American Integrity Insurance Group and Cypress Property and Casualty Insurance Co. are pending while insurance regulators certify the companies would have sufficient private reinsurance without the state-backed reinsurance. Under the agreements, American Integrity would pay a fine of $335,000 and Cypress would pay a fine of about $280,000.
The companies signed up for Temporary Increase in Coverage Limit – optional reinsurance offered by the Cat Fund – in February. The deadline to opt out of the TICL coverage was June 1, but none of the companies did so.
But some of the companies think the situation was handled poorly by Cat Fund chief operating officer Jack Nicholson.
Nicholson did not like the TICL coverage and pointed to reports from May and October showing the Cat Fund had a shortfall, and couldn’t cover the $17 billion mandatory coverage, much less the $317 million in TICL coverage. Then insurance rating agencies announced they would not give credit to companies for TICL coverage, prompting them to seek private reinsurance coverage.
“Both (SBA executive director) Ash Williams and Jack Nicholson’s actions were unconscionable. They levied excessive penalties on insurance companies who replaced their TICL layers of reinsurance with ‘A’-rated reinsurers in the private market rather than the companies asking their policyholders to risk either delayed payments or no payments for their legitimate catastrophic hurricane claims because of the Cat Fund’s publicly announced inability to fund this coverage,” Cypress CEO Gary Harger said.
But Dennis Mackee, spokesman for the SBA, says the companies bear the responsibility for not meeting the deadline to opt out, not the Cat Fund.
“The situation was created by the companies’ actions or inactions when they allowed the second deadline to pass which initiated coverage. In fact, this inaction provided them TICL coverage during this hurricane season. We acted prudently, deliberatively, and fairly with those involved to solve it in the best interest of the policyholders, the fund, and the citizens of Florida,” Mackee wrote in an email.
Despite his antipathy for TICL, Nicholson did not want to grant a waiver to the companies, suggesting it would set a bad precedent for companies by providing an incentive to sign up for coverage and then get out of it halfway through hurricane season. The settlements could provide a precedent nonetheless, albeit with some penalty in the form of fines.
“The more concerning precedent would have been no penalty for non-compliance, which could put the fund in an unmanageable situation in future years,” Mackee said.
Still, other industry watchers don’t understand why companies would be fined for getting replacement coverage in the private reinsurance market since TICL couldn’t be covered.
“These companies go do what Jack wants them to do at additional expense . . . and they get penalized for it,” said Jay Neal, executive director of Florida Association for Insurance Reform. “This is all mysterious to me. I find it absolutely bewildering.”
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