Florida Domestic Insurer Sawgrass Mutual to ‘Wind Down’ Operations

Just after being downgraded by ratings agency Demotech, Florida-based insurer Sawgrass Mutual Insurance Company revealed it was placed under administrative supervision by the Florida Office of Insurance Regulation.

According to an Aug. 22, 2017, amended consent order for administrative supervision, Sawgrass notified OIR of a plan for “orderly wind-down of the company’s operations” on Aug. 18, through a confidential consent order. The amended consent order said that plan was no longer feasible and the order should be made public “for the orderly transition of Sawgrass’s business.”

Under Florida Law, administrative supervision is confidential unless otherwise specified, with OIR having the authority to open proceedings or hearings or make public the information.

The amended order states “that it is in the best interest of policyholders and the public to make this Consent Order public…” The order was signed by Sawgrass CEO Daniel O’Neal.

In a statement, OIR said, “Under an Order of Administrative Supervision, the Office is working with Sawgrass Mutual Insurance Company and interested parties to develop a wind-down plan for the company, which includes the orderly transition of policies from Sawgrass to another insurer. Coverage for current Sawgrass policyholders remains in force until a plan is implemented.”

OIR said current policyholders can explore their options through the Florida Market Assistance Plan or via its online homeowners rate comparison tool.

Sawgrass first became licensed in Florida in 2009 and currently has about 20,000 policies throughout the state with $35 million in premium written in the first quarter of 2017. The mutual insurer wrote voluntary homeowners through a network of independent agents. It bound just 222 new policies in Q1 of 2017, and had more than $39 million in exposure for policies in force that exclude wind coverage, according to OIR’s Quarterly Supplemental Report – Market Share Report system.

Sawgrass notified its agencies of the administrative supervision in an Aug. 22 email that was obtained by Insurance Journal. The email said the move is necessary “to allow Sawgrass and interested parties to develop a run-off plan for the company which includes the orderly transition of policies from Sawgrass to another insurer.”

The email further stated the plan could include the cancellation of all Sawgrass policies with at least 45 days’ notice and a guaranteed offer of coverage for those policies from another licensed insurer.

It appears Sawgrass’s problems began to brew after its second quarter earnings report, based on a downgrade in its Financial Stability Rating (FSR) of A (Exceptional) to L (Licensed) from ratings agency Demotech on Aug. 21. Demotech released a statement saying the action was necessary despite a number of potential transactions in negotiation by the company.

“The company filed its initial year-end 2016 financial statement, reporting surplus in excess of $20 million, in a timely manner,” said Joseph Petrelli, Demotech president. “The company secured an effective reinsurance program prior to storm season. The focus of the company was to identify suitors and negotiate a transaction that was favorable to their policyholders rather than write additional new business.”

Demotech added that Sawgrass missed the deadline to report to Demotech the results of an independent audit. Its second quarter 2017 financial statement, presented to Demotech on Aug. 16, as well as a revised year-end 2016 financial statement, “present surplus and other financial metrics at levels that no longer support the current FSR.”

Last year, Sawgrass sued a competitor, Endurance Specialty Insurance, over accusations the company was stealing its trade secrets. But it was unclear if its financial situation was related to the suit.

Sawgrass said in an email to Insurance Journal it could not comment on the matter due to the lawsuit.