Calif. Insurance Department Places Majestic Insurance Co. Into Conservation

Jones says that under the filed rehabilitation plan, insurance liabilities and certain assets will be transferred to AmTrust North America, Inc., which will assume responsibility for the administration and payment of all policyholder claims under Majestic's policies.

"The conservation will not cause any disruption or delay in the delivery of workers' compensation benefits to injured workers covered under Majestic policies," the insurance department says in a statement. "During conservation, the injured workers covered by Majestic policies will continue to receive benefit payments, and medical providers who care for those injured workers will continue to be paid."

Jones says, "For some time, my department has been concerned with Majestic's financial condition, and has been carefully monitoring the company to determine if an intervention is warranted to make certain that Majestic can continue to honor its claim commitments. This conservation will ensure that Majestic's financial obligations will continue to be met."

The department notes that, in December 2009, the New York Workers' Compensation Board filed a lawsuit seeking in excess of $400 million in damages from Majestic, its parent, Majestic Capital, Ltd, and several of the key officers of the organizations individually. "As a result of this action, A.M. Best reduced the rating of Majestic Insurance Company, which in turn, decreased premiums written and increased expenses and losses," the department says.

At the end of 2010, Majestic reported capital and surplus of approximately $58 million. But the department says that its examination determined that Majestic's loss and loss adjustment expense reserves were deficient by approximately $40.9 million, and that its premium reserves were also deficient in the amount of $5.5 million, for a total reserve deficiency of more than $46 million. "After increasing the company's reserves to appropriate levels, the company's surplus has dropped to just $11.5 million, an amount that is too low to permit the company to continue operations outside the protection of a formal conservation," the statement says.

A hearing on the rehabilitation plan is set for June 2.

Last month, Hamilton, Bermuda-based Majestic Capital, Ltd., parent company of Majestic Insurance Company, said a previously announced merger with Bayside Capital Partners was terminated, with Bayside citing "material deterioration in Majestic Capital's capital surplus, an inability to secure regulatory approval for the merger, and a failure to satisfy the closing condition with respect to termination of Majestic Capital's lease for office space in Poughkeepsie, N.Y. on terms acceptable to Bayside."

In that same announcement, the company said Majestic Insurance Company had entered into a non-binding letter of intent with AmTrust where Majestic would sell its renewal rights and AmTrust would assume Majestic's loss reserves and in-force insurance business through a loss portfolio transfer.

Later that month, A.M. Best lowered Majestic Insurance Company's financial strength rating to B from B-plus-plus, citing the terminated merger between Majestic Capital and Bayside, along with "continued deterioration in [Majestic's] overall earnings and the material deterioration in the company's surplus."

Majestic Capital had indicated earlier that if A.M. Best took ratings action, the company and its subsidiaries would likely seek bankruptcy protection under U.S. and Bermuda laws.