Storm Losses Capsize Poe

“Ordered into receivership.” These words on an April 25 fax from a Tallahassee judge officially put the brakes on the history of a once-proud family-owned Florida insurance company.

The Florida Department of Financial Services (DFS) thus became the court-ordered receiver of the business of Poe Financial Group's Southern Family Insurance Co., Atlantic Preferred Insurance Co., and Florida Preferred Insurance Co. It began, through its Division of Rehabilitation and Liquidation, to follow a timetable of rehabilitation and liquidation that should be nearly complete as this magazine issue is delivered.

The plan appeared to hit a snag May 9 when CFO Tom Gallagher went back to court to petition for liquidation of all three companies, a step to which all three were refusing consent. Gallagher said in a release that the companies' refusal drains company resources that should be directed to pay outstanding claims.

“These insurance companies have not presented a viable plan to get back on their feet financially,” Gallagher said. “Our focus now needs to be getting outstanding hurricane claims paid as quickly as possible. Once the companies are in liquidation, the department can tap into guaranty funds so claims get paid immediately.”

While in receivership, the Division of Rehabilitation and Liquidation was taking on the work of paying the companies' claims, helping place policies with the few other available private companies, and transitioning remaining insureds into Citizens Property Insurance Corporation (Citizens).

As receiver in liquidation — if approved by the court — the department would take over the company's operations and liquidate its assets to pay outstanding claims. The Florida Insurance Guaranty Association (FIGA) is also activated to help pay claims. FIGA is funded by insurers with written premiums in the same lines of coverage.

Not a happy task at any level.

The Poe trio of companies was in financial trouble by the end of last year, as revealed in solvency reviews by the Office of Insurance Regulation (OIR) of their financial statements submitted in March. Southern Family stopped writing new and renewal business in March and entered state supervision, continuing to pay claims and to seek funding. It agreed to go into rehab in mid-April, then went into receivership April 26, followed by Atlantic Preferred on May 1. Florida Preferred had also agreed to enter receivership/rehab June 1 if it had not obtained reinsurance by then.

The OIR, via letter from Commissioner Kevin McCarty to Florida CFO Tom Gallagher, conveyed it was in the public's interest to make this information public and seek the court's order — “to make certain that policyholders have coverage upon the expiration of the reinsurance contracts so that they are fully protected during hurricane season.”

Gallagher notified agents with policyholders covered by Poe how the transition would play out. He urged them to try to find placement in the private market, but relieved them of having to personally notify each policyholder eventually going into Citizens, making the process automatic.

Take-Out Gamble Was About to Pay Off

Poe gambled on removing some 10,000 policies from Citizens just last year, and the great majority of its business was in high-risk South Florida along both coasts. A $3 million take-out bonus would have been due Poe if it had been able to hold the policies for three years.

Southern Family primarily wrote commercial residential and personal residential coverage, and covered approximately 43,000 policyholders. Atlantic Preferred and Florida Preferred together provided coverage to nearly 280,000 homeowners and condominium unit owners, mostly in South Florida.

With much of the business in condos and condo associations that incurred huge claims from the storms in 2004 and 2005, Hurricane Wilma likely dealt the most debilitating blow with its widespread damage. Swamped with claims, Poe faced rapidly rising numbers of claim complaints since Wilma — a factor that caught insurance officials' attention early on.

“It's strictly an issue of storm losses,” Bill Poe Jr., vice chairman for Poe Financial, was quoted in a St. Petersburg Times article as saying in mid-March when they stopped writing business. “It just took our capital.”

William F. Poe Sr., whose original company was Poe & Associates — said to be the largest independent insurance agency in Florida at its sale in 1994 and the 12th largest in the nation when it was merged as Poe & Brown in 1993 — served as mayor of Tampa for five years. The company is Tampa-based. In 1996, Poe Financial Group was formed, comprising Southern Family, Atlantic, and Florida Preferred Companies. Also in that year they were among the first to provide homeowners' coverage to Floridians who had resorted to Citizens following Hurricane Andrew.

Agents' Questions Only Partially Answered

Judge Janet Ferris' order got the receivership underway, but the practical application of her order left many agents with unanswered questions regarding policies, commissions, coverage, and more. Mark O'Connell, CEO of the Professional Insurance Agents of Florida, queried Tom Brinkley, DFS' receivership coordinator, and Ed Pasterick of the National Flood Insurance Plan regarding some of the confusion. PIA released the following Q&A to its members on May 5:

Q: If all three of the Poe companies go into liquidation, will there be any policy administrative functions still handled by Poe or by Poe staff under the supervision of Citizens?

A: At this time, we are not sure. The Receivers plan is being developed and must be approved by the court.

Q: With regards to new claims during the transition, what happens if there is a claim that exceeds the FIGA (Florida Insurance Guaranty Association) limit? (For example, a house burns down now and the claim exceeds FIGA's limits.)

A: If a loss occurs during the period in which FIGA is responsible for coverage (or if a pre-occurring loss remains unpaid at the time of liquidation), then it will be subject to FIGA's statutory cap and applicable deductible.

Q: What is going to happen with policies in which Poe has already sent out non-renewals notices? Is that on hold, or will those policies have to be processed directly through Citizens?

A: Policyholders should pay premiums as normal in order to continue their insurance coverage. Policyholders who have received renewal notices for renewal periods beginning prior to July 1, 2006, should also pay premiums to continue their coverage after the renewal date, unless they obtain coverage elsewhere.

Under the receivership plan, if approved by the court, the policies that are still in force with Southern Family on June 30 will be transitioned to Citizens Property Insurance Corporation automatically by court order until the normal expiration of the policy (unless it is cancelled earlier by the policyholder or for non-payment of premium).

Citizens is aware that policyholders whose policies have normal expiration dates in July will have limited time in which to receive any offers of renewed coverage from Citizens and is currently working on a method for notifying these policyholders of their future coverage options.

Q: Poe wrote many condo-unit owner policies that are in the wind pool, but they included wind coverage on the HO6 policies. Citizens doesn't do this, so what will happen to these policies?

A: Our understanding is that Citizens will provide the coverage as it existed under the Poe policy until the expiration of that policy term.

Q: Agents are going to want to know what is happening with their commissions. If the policies are not cancelled, then will the commissions be paid and, if so, at what rate? Poe has several different commission plans. Will Poe's commission agreement stand, or will agents revert to the Citizens schedule?

A: At this time, we do not know the answer to these questions.

Q: What happens to the flood policies that Southern Family wrote?

A: Ed Pasterick of the National Flood Insurance Program said that they are in the process of discussing ideas with state officials. The policies will be moved to another company or brought into the NFIP directly. [The answer to this was expected as this issue was being produced.]