Florida Alleges Fraud by Allianz in Case of Failed Insurer

Florida regulators are alleging that insurer Allianz and its companies contributed to the collapse of a Florida domestic property insurer by taking out more than $20 million in assets and rendering it unable to meet its financial obligations.

The Florida Department of Financial Services filed a complaint with the Second Judicial Court of Leon County outlining the alleged scheme and demanding that Allianz Risk Transfer (ART NY) pay back to the state $23.9 million.

Some of the money would go toward paying the cost of the Florida Insurance Guaranty Association, which took over Magnolia Insurance Co. in 2010 and has paid $31 million in claims. Magnolia was a wholly-owned subsidiary of the Coconut Grove, Fla.-based insurer IRG Financial Group.

According to court documents, in February 2008 ART NY provided IRG with a $20 million loan. To secure that loan, IRG had to increase the loan by $3.8 million to pay fees to ART NY.

Magnolia also signed a managing agency agreement with IRG under which ART NY had the power to direct decisions and operations, officials said.

Three other agreements included one under which an Allianz unit provided reinsurance consulting services for a $12 million in fees. Also,

Magnolia agreed to pay $6 million to Poseidon Insurance Co. to protect ART NY’s financial interest in the agency.

In 2009, Magnolia entered into a reinsurance agreement that called for the company to cede 50 percent of its net liability to Allianz Risk Transfer AG- Bermuda Branch. The agreement stipulated that the reinsurer would be credited for its proportion of the original premiums received by Magnolia.

Regulators have charged that these agreements, and the installation of ART NY officers and staff in Magnolia, effectively let ART NY take over the company while ensuring it would be protected from any losses and would be “excessively compensated.”