Workers’ Comp Carrier Guarantee Insurance Declared Insolvent by Florida Regulators

Florida insurance regulators have placed workers’ compensation carrier Guarantee Insurance Co. in receivership.

According to documents from the Florida Office of Insurance Regulation (OIR), the company was materially under-reserved at year end 2016 and consented to being placed in receivership on Nov 13, 2017.

Guarantee Insurance Co. (GIC) provides workers’ compensation insurance in more than 31 states and D.C. and is based in Fort Lauderdale, Fla.

In a letter to the Florida Department of Financial Services (DFS) Division of Rehabilitation and Liquidation, Florida Insurance Commissioner David Altmaier said the company’s assets were insufficient to pay its outstanding obligations by $236,775, as of June 30, 2017. OIR placed the company under administrative supervision on Aug. 18, 2017, and told Insurance Journal last month it maintained on-site staff to “monitor operations during this time.”

The appointed actuary working with GIC submitted a revised actuarial opinion to OIR in November, stating the company was materially under-reserved at year end 2016.

Altmaier’s letter to DFS dated Nov. 17 states the company’s insolvency “renders its further transaction of insurance hazardous … .”

OIR also claims in its letter that GIC knowingly filed a false financial statement with regulators when it reported collateral for unauthorized reinsurance as a liability for funds held by GIC under reinsurance treaties in the amount of $144.6 million as of Dec. 31, 2016. The letter states that GIC “booked and availed itself of reinsurance credit at a time that it knew that it did not have sufficient cash and invested assets to cover this liability.”

According to the letter, the company has systematically transferred funds in the amount of at least $15.7 million between 2016 and June 2017 to GIC owner Steve Mariano. OIR said the diverted funds could have otherwise been used by GIC to increase its surplus and be available for the payment of policyholder claims.

“These transfers were made with no documented business purpose and no discernable benefit to GIC and [OIR] has deemed them detrimental to GIC,” the letter states.

OIR added that it has identified other transactions involving parties with “known association to Mr. Mariano that have been harmful to GIC.”

Mariano is also the majority owner of Patriot National, a national provider of technology and outsourcing products for insurance companies also headquartered in Fort Lauderdale, Fla. It owns various insurance-related enterprises, including Patriot Risk Services, Patriot Captive Management and Patriot Underwriters, Inc. – a national insurance program administrator. Patriot National is also an affiliate of workers’ compensation carrier Ashmere Insurance.

According to GIC’s June 30 quarterly statement included in OIR’s receivership filing, GIC owns 2.8 million shares of Patriot National with an approximate investment of 10.56 percent of Patriot National’s total outstanding shares, valued at $6 million.

Patriot National has had a tumultuous year as well. Mariano stepped down as its president, CEO and chairman of the board in July. The board said Mariano would still serve in a consulting role and work with its special committee of independent directors to explore and review strategic alternatives for Patriot National, which it announced it was exploring earlier this year.

At the end of 2016, a Delaware court issued a temporary restraining order against Patriot National after a class action stockholder lawsuit was filed by Hudson Bay, one of its largest shareholders. Before that, Patriot National’s board rejected a $475 million buyout offer from Ebix Inc.

In September of this year, Patriot National was notified by the New York Stock Exchange that it was not in compliance with the NYSE’s continued listing standards and was subject to suspension and delisting procedures. In October, the company received an extension for continued listing and trading of its common stock and has until March 15, 2018, to file its annual report for 2016 and the first six months of 2017.

Patriot National announced Nov. 17 it would lay off 250 employees because of its “deteroriating financial condition” in a forbearance agreement filed with the SEC.

Representatives of Patriot National did not respond to Insurance Journal’s requests for comment on GIC.

Karen Kees, OIR deputy director of Communications, said

OIR has been working with DFS, other state insurance departments and state guaranty funds on the GIC transition.

“The primary goal of this multi-agency collaboration is to ensure the continued payment of claims to injured workers,” Kees said in a statement to Insurance Journal.