Regulators Cut Insurance Companies Some Slack

The Orlando-based Olympus Insurance is among the first to publicly take advantage of relaxed requirements for hurricane protection as Florida property insurers struggle to remain solvent even without a storm. First quarter financial reports filed with state regulators show 38 of 48 Florida-based property insurers reported losses on their insurance operations the first three months of 2010.

The arrangement with Olympus is part of a solvency settlement with the Florida Office of Insurance Regulation that includes new caps on payments to affiliates. In return, regulators drop their threat to suspend Olympus' license.

Instead, Olympus is protecting its 51,000 policyholders by buying reinsurance for three 80-year storms and will pick up the first $6 million in losses for each storm.

Until this spring, state regulators had required property insurers to be able to withstand two 100-year storms, standard still held by some financial rating firms.

"Although a repeat of 2005 is highly unlikely, every policyholder should know whether their carrier has this kind of ability to literally 'weather the storms' like Olympus," company president William Lowry told agents.

The new criteria, which has no set limits, has drawn fire from agents' associations that complain it is too subjective.

Supporters include former state Sen. Locke Burt, who is president of another Florida property insurer, Security First. He argues that Florida's insurance industry can expect federal aid in the face of a catastrophic 100-year storm, but not for multiple small storms.

"If there is a 100-year event, the rules will change. Obama will fly down in his 747 and $100 bills will fly," Burt said. "In smaller events, the rules will not change and there will be less sympathy in Washington. As a state and as company management, you need to think about that."

Regulators are also allowing 18 companies to return unwanted policies to the state-run Citizens Property Insurance.

Insurance Commissioner Kevin McCarty has said he expects as many as 30,000 policyholders to be returned to the state pool as their insurers take advantage of the relief.

Concern over Olympus' solvency was so severe that McCarty's office in early April publicly threatened to suspend the company's license. His office demanded Olympus reduce payments to its affiliates, shore up capital, and explain reinsurance transactions that the state said threatened the company's profitability.

A settlement agreement signed May 27 but not released by McCarty's office shows the agency agreed to drop its threat. In return, Olympus agreed to reduce payments to its affiliated management agency to 25 percent of premium and to cap underwriting expenses at 28 percent.

Regulators have agreed to give up their demand that Olympus seek additional funding from its owners, a Connecticut-based private equity firm. And a special reinsurance contract that Olympus used in 2009 to add $18 million to its revenue statements remains under review.

Lowry called the public scrutiny "regrettable" but productive.

"As a result, Olympus could demonstrate to the Office that it has a strong balance sheet, ample liquidity, sufficient high quality reinsurance, and that it has implemented changes over the course of 2009 to ensure its long term profitability," Lowry told agents.

The company has 8,100 policies in Sarasota and Manatee counties.

Supporters include former state Sen. Locke Burt, who is president of another Florida property insurer, Security First. He argues that Florida's insurance industry can expect federal aid in the face of a catastrophic 100-year storm, but not for multiple small storms.

"If there is a 100-year event, the rules will change. Obama will fly down in his 747 and $100 bills will fly," Burt said. "In smaller events, the rules will not change and there will be less sympathy in Washington. As a state and as company management, you need to think about that."

[Source: Sarasota Herald-Tribune]