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State takes over troubled insurer

Southern Family Insurance Co., part of private insurer Poe Financial Group, loses control of day-to-day operations.

By TOM ZUCCO
Published April 26, 2006

Six weeks before the start of the start of the 2006 hurricane season, one of three financially troubled property insurance companies owned by Poe Financial Group was ordered into state-supervised rehabilitation late Tuesday by a Leon County Circuit judge.

The remaining two Poe Group companies face a similar fate in the coming weeks, leaving the Tampa-based insurer scrambling to stay afloat and likely infusing thousands of homeowners' policies into the state-run insurer of last resort.

Poe, the third-largest private homeowners' insurance company in the state, effectively loses control over day-to-day operations of any unit under rehabilitation.

Judge Thomas Bateman appointed the Department of Financial Services as receiver for Poe's Southern Family Insurance Co. As receiver, the department takes over Southern Family's business and marshals the company's recources to pay outstanding claims.

A second Poe insurer, Atlantic Preferred Insurance Co., is expected to be ordered into rehabilitation Monday due to its failure to meet the capital and surplus requirements under Florida law.

Chief Financial Officer Tom Gallagher and Insurance Commissioner Kevin McCarty recommended that both Southern Family and Atlantic Preferred be put into liquidation on or about June 1. If both companies consent, their operations will be liquidated without a hearing.

The third Poe insurer, Florida Preferred Insurance Co., is expected to be forced into rehabilitation June 1.

According to the Florida Office of Insurance Regulation, if the company is unable to obtain reinsurance, it should also be placed into liquidation.

Even if the companies are liquidated, policyholder claims will be covered by a state fund and the state will place Poe customers with another insurer, regulators said.

Tuesday's decision will affect a relatively small number of Tampa Bay homeowners - about 5,300. Of Poe Financial's nearly 283,000 policyholders, many of them condo owners, about 85 percent are in southeast or southwest Florida. The remainder are spread throughout Hillsborough, Pinellas, Pasco, Hernando and Manatee counties.

But the purge of policyholders from the Poe Financial Group could affect every homeowner in Florida because state officials expect the majority of Poe policyholders to end up with Citizens Property Insurance Corp., the state-run insurer of last resort that is $1.7-billion in the red from the 2005 hurricane season.

By law, Citizens' deficit must be made up by an assessment on all Florida homeowner policies, regardless of the carrier.

Poe has been in trouble since at least last fall. According to the company's 2005 financial statement, Poe's three insurance companies paid out $2-billion in hurricane claims in 2004-2005, which led to a combined loss of more than $300-million.

In March, the company revealed that Southern Family and Atlantic Preferred would stop writing new policies and it began cancelling existing policies. Florida Preferred continued to renew its policies, but stopped writing new business.

Meanwhile, complaints against the companies have soared. Since Hurricane Wilma, the Department of Financial Services has received more than 3,800 complaints against Poe, many of them from people who said their policies were dropped before their homes were repaired.

Officials from the Florida Deparment of Financial Services have been talking weekly via conference call with the Poe companies since January. DFS officals also checked with consumers to make sure Poe companies were keeping their promises.

Officials from Poe Financial did not return calls for comment Tuesday, but on the company's Web site, Poe officials posted a note to policyholders dated April 3 explaining that more than 125,000 claims had been filed from the 2004-2005 hurricane seasons and that the company was announcing "some necessary underwriting action regarding its homeowner business." That action, the note said, "will not affect our response to policyholders that have current or future claims with us."

Last spring, Poe Financial, which includes Florida Preferred Property Insurance Co., Atlantic Preferred Insurance Co. and Southern Family Insurance Co., was in a much different position. In January 2005, the company assumed nearly 4,500 property and casualty policies from Citizens. In March of last year, it assumed 5,200 more.

Poe Financial would have been eligible for a $3-million bonus if it had held the policies for three years

But two hurricanes changed everything.

"It's strictly an issue of storm losses," Bill Poe Jr., vice chairman for Poe Financial, said last month. "It just took our capital."

Poe said Hurricane Wilma, which caused more than $6-billion in insured property damage in Florida last year, was the major factor.

"But people don't remember Hurricane Katrina hit us first and hit us pretty good, too," Poe added. "Wilma and Katrina together really put us over the edge."

Poe's father, Bill Poe Sr., mayor of Tampa from 1974-79, founded and owns the insurance company bearing his name. The younger Poe said if the needed capital was raised, the company would take a look at re-entering the market.

Poe Financial becomes the second major insurer to fall victim to the eight hurricanes that hit Florida in the last two years. American Superior, based in Plantation, went into receivership after the 2004 storms. Its 60,000 policyholders, mostly in the Panhandle, represented about 1 percent of the market, and most were able to find insurance through another private insurer.

That's not likely this time.

"One of our tasks is to try to locate private companies and we have talked to a couple," said Department of Financial Services spokeswoman Tami Torres.

"We will recommend they seek private coverage, but we still anticipate the majority will end up in Citizens."

Torres said Gallagher is petitioning the court to insure policyholders can transition into Citizens, and mortgages should not be jeoapardized.

"The No. 1 message is that we don't want people to panic because this company is going into rehabilitation," Torres said. "There is a backup safety net in the Florida Insurance Guaranty Association fund. When a company goes under, those claims get paid, no matter what. It's to help transition those company's policyholders into Citizens so there's no disruption in coverage this season."

Tom Zucco can be reached at zucco@sptimes.com or 727 893-8247.

Southern Family: about 43,000 policyholders

Atlantic Preferred: about 140,000 policyholders

Florida Preferred: about 100,000 policyholders

TUESDAY: Southern Family was placed into state-supervised rehabilitation. Policyholders are encouraged to seek alternate coverage.

MONDAY: Atlantic Preferred to be placed into rehabilitation. Policyholders are encouraged to seek alternate coverage.

JUNE 1: If unable to obtain reinsurance, Florida Preferred will be placed into liquidation. Also, Southern Family and Atlantic Preferred expected to be placed into liquidation.

ON OR ABOUT JUNE 30: Remaining policyholders with Southern Family, Atlantic Preferred and potentially Florida Preferred will be automatically covered by Citizens Property Insurance Corporation. The state promises no disruption in coverage, change in level of coverage or premium increase.

[Last modified April 26, 2006, 10:37:29]