Storm Losses Lead Florida Regulators to Take Over American Superior

State regulators have placed American Superior Insurance Co. into receivership because it was overwhelmed by homeowners claims. The small company, with offices in Plantation, Fla., has about 60,000 policyholders. The state will take over its operations and said all claims will be paid.

American Superior voluntarily consented to go into receivership after “unprecedented storm losses” on about 7,000 storm-related claims in 53 Florida counties, the Florida Department of Financial Services said.

The state will serve as receiver, taking over American Superior’s operations and processing claims. The company’s premium volume was $34 million last year, less than 1 percent of the state’s home insurance market.

“The company did not have enough workers and technology to process the claims, said Nina Banister, a spokeswoman for the Florida Department of Financial Services. “The company has cash to pay claims, but it is unclear whether the company could handle a large number of additional claims.

“At least 741 of the company’s claims are in Volusia and Flagler counties,” Banister said. “They have a lot of cash on hand to pay claims. Whether they have enough to pay all the claims they are facing, we’ll see.”

The state has hired more claims adjusters to handle the company’s increased work load from Hurricanes Charley, Frances, Ivan and Jeanne. The company won’t write any new business during rehabilitation, but it will renew existing policies, officials said. No policyholders will be canceled.

Liquidation a possiblity

If state supervision doesn’t resolve the company’s financial problems, it could be liquidated. If American Superior went out of business, unpaid claims would be covered by the Florida Insurance Guaranty Association.

“Our No. 1 priority will be to take care of policyholders with storm claims,” said Tom Gallagher, Florida’s chief financial officer, who oversees the department and is a key player on insurance issues.

Watching Citizens bottom line

Perhaps the most wide-ranging increases would come if the state-backed Citizens Property Insurance Corp. faces a deficit. Citizens sells policies in high-risk areas, such as coastal areas, that private insurers won’t cover.

If Citizens has a deficit, it likely would have to borrow money that would be paid back through charges on policyholders throughout the state — whether they have Citizens policies or not.

Spokeswoman Susanne Murphy said Citizens has estimated claims of $1.8 billion, which is more than its reserves. But she said Citizens likely will not know until December whether it needs to borrow the extra money.
Private insurers and utility companies, meanwhile, would have to obtain the approval of state regulators before they could raise rates.

Rate hikes must be justifiable

Insurers would not be able to seek increases to make up losses from this year’s hurricanes. Instead, they would have to justify rate hikes by using computer models to show how they could face losses in the future.

That is where the unexpected damage this year in areas such as Central Florida could be important. If insurance companies view those areas as increasingly risky, it could lead to attempts to raise rates.

After Hurricane Andrew in 1992, 12 homeowners insurance companies went out of business and a total of 22 companies, including automobile insurers, were put under state management.