Nov. 18--Directors of Fort Lauderdale-based Guarantee Insurance Co. have agreed to place the company into state receivership after the company's financial statement was revised, turning a previously reported $42.2 million surplus into a $236,775 deficit.
Florida Insurance Commissioner David Altmaier on Friday asked Chief Financial Officer Jimmy Patronis to initiate delinquency proceedings against the workers compensation insurance provider.
After a financial audit found the company overstated its level of capitalization in 2016, the Office of Insurance Regulation in August entered into a consent order with Guarantee barring it from writing new business while implementing a plan of reorganization.
According to a spokeswoman for the Office of Insurance Regulation, the reorganization plan was to have included Guarantee's affiliates, including Patriot National, an insurance industry services provider that counts Guarantee as its largest client.
Both companies are controlled by Steve Mariano, which Altmaier's letter identified as recipient of $15.7 million in transfers from Guarantee in 2016 and the first half of 2017 "with no documented business purpose and no discernible benefit to [Guarantee], adding the "Office has deemed them detrimental" to Guarantee.
"While Mr. Mariano benefited individually from these transactions by receiving cash from GIC, this indebtedness diverted funds that otherwise could be used to increase the surplus of GIC and otherwise be available for the payment of policyholder claims."
By transferring the funds to Mariano, Guarantee violated state law prohibiting "direct or indirect notes or other evidence of indebtedness of any director, officer, or controlling stockholder of the insurer, except as to [authorized] policy loans," Altmaier's letter states.
"Further, the Office has identified other transactions involving parties with known association to Mr. Mariano that have been harmful to GIC," the letter states.
Guarantee's attorney, Fred Karlinsky of the law firm Greenberg Traurig, declined comment through a law firm spokeswoman.
A Nov. 13 affidavit by Virginia A. Christy, the insurance regulation office's Director of Property & Casualty Financial Oversight, said Guarantee's second quarter 2017 financial statement showed a surplus of $42.2 million. On Nov. 2, Guarantee's appointed actuary notified regulators he was "amending his original Statement of Actuarial Opinion" to show the company actually was $236,775 in debt, "rendering it insolvent."
In addition, Altmaier's letter said Guarantee violated state law by availing itself of reinsurance credit "at a time that it knew that it did not have sufficient cash and invested assets to cover this liability."
The letter said Guarantee's board of directors met on Dec. 13 and agreed to a Consent to Order of Rehabilitation or Liquidation.
Mariano served as Guarantee's CEO, director and chairman through 2015 but was not listed as an officer of the company in its 2016 annual report filed with the state Division of Corporations.
In July 2017, he stepped down as Patriot CEO but retains majority ownership of both companies, said Gex "Jay" Richardson, Patriot's general counsel and executive vice president of administration.
Richardson said in August that Patriot was working with the state on Guarantee's reorganization and Friday said Patriot provided the company with a $22 million surplus note. In March, Patriot provided Guarantee $30 million, prompting a 25 percent decline in Patriot National's stock price.
Guarantee wrote about $280 million in worker's compensation premiums in 2016, Richardson said.
Impacts on Patriot of the receivership and order to "rehabilitate or liquidate" Guarantee remain to be seen and depend on whether Guarantee will emerge continuing as a customer of Patriot, Richardson said.
Richardson said Patriot would not be put out of business if forced to cut all ties with Guarantee. "We've been working to diversify," he said. "We do business with a number of other carriers."
In a statement, Ashley Carr, spokeswoman for CFO Patronis, said the Department of Financial Services is still reviewing the information. Before the company can be placed into receivership, "a petition to the court must be made and the court must then issue an order.
"We understand the impact to consumers that the receivership process can have, and we will do everything in our power to protect consumers from detrimental impacts that may be caused by this situation," Carr said.
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