Sunday, May 26, 2024

Failed insurance execs are taking new jobs. Florida says it’s illegal.

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TALLAHASSEE — When Orlando-based St. Johns Insurance Co. went insolvent in 2022, it spelled the end of one of Florida’s largest insurers.

Its 147,000 policyholders found a landing spot when they were moved to Slide Insurance Co., a Tampa startup.

Three of St. Johns’ top executives found a landing spot, too — at Slide. State regulators say that was illegal.

Florida law forbids officers and directors of insolvent insurers from taking on equivalent roles at other companies without first proving they weren’t responsible for the prior failure.

The law, on the books since 2002, is well-known in the industry. Some insiders call it the “no-fly list.”

But the wave of recent insurance company insolvencies — which has contributed to Floridians’ turmoil and sky-high premiums — is testing the law like never before.

State regulators have found at least 19 executives in top-level jobs at other companies, in violation of Florida law.

“As we began investigating, we found more and more,” Office of Insurance Regulation Commissioner Mike Yaworsky said. “We’re serious about enforcing the law.”

Florida Office of Insurance Regulation Commissioner Mike Yaworsky [ courtesy Florida’s Office of Insurance Regulation ]

In the last eight months, his office has sent letters to six companies about 19 executives, warning they are violating the law. The recipients include a former CEO, three former chief financial officers and a general counsel.

The letters threaten to revoke the companies’ ability to write insurance in Florida if the executives don’t step down, an action regulators don’t appear to have ever taken against an insurer. If they did, it could further destabilize a market that has had nine Florida-based homeowners insurers go insolvent since 2019. The state has charged assessments on all Florida policyholders to help pay open claims from the failed insurers.

“I think many Floridians would be disturbed to know that people in charge of companies that went under would be in charge of their insurer,” said Kevin McCarty, who was insurance commissioner from 2003 to 2016.

Some of the executives say they weren’t responsible for the failures at their previous companies. Regulators have received 22 requests for waivers and have only made two decisions.

Sen. Blaise Ingoglia, R-Spring Hill, said he supported Yaworsky’s efforts to enforce the law. During the most recent legislative session, Ingoglia sponsored similar legislation making it harder for officers of failed banks to get rehired.

“In my opinion, (the insurers) are absolutely skirting not only the spirit, but the letter, of the law,” Ingoglia said. “And I think it’s time to tighten up that law.”

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CEOs, CFOs find new jobs

The state law applies to officers and directors who worked for a company within two years of it going insolvent. Those people can’t be officers or directors for another company unless they demonstrate that their “personal actions or omissions were not a significant contributing cause to the insolvency.”

How the person is supposed to prove they weren’t responsible is not defined in the law.

But to state regulators, who have broad authority over insurers, the law is clear: An executive first must make that case before working for another company.

That has not been happening, Yaworsky said.

Monarch Insurance Co., based in Tallahassee, hired Justin Edenfield to be its CEO despite the fact he was the chief financial officer at Southern Fidelity Insurance Co., which went insolvent in 2022. The company had about 78,000 policies and 1,000 open claims in Florida.

Monarch still lists him as its CEO, although the Office of Insurance Regulation wrote to the company on March 15 telling them he couldn’t work as an officer or director with the company. Edenfield declined to comment.

Slide Insurance Co., based in Tampa, hired three executives from St. Johns Insurance Co., which went insolvent in 2022. St. Johns’ CFO, Jesse Schalk, was hired as Slide’s CFO. Jonathan Mertz, who was chief operating officer at St. Johns, is now Slide’s senior vice president of operations. And St. Johns’ chief claims officer, Andrew Lambert, was hired as Slide’s senior vice president of claims.

Bruce Lucas is the founder of Slide, a Tampa insurance startup that has raised $100 million in early funding.
Bruce Lucas is the founder of Slide, a Tampa insurance startup that has raised $100 million in early funding. [ Slide ]

On March 12, state regulators told Slide the three executives needed to step down from their positions. Schalk and Mertz are still listed on the company’s website. Slide did not respond to calls and emails requesting comment. Because Slide and most other Florida insurers are private companies, the executives’ salaries are not readily available.

The state sent another warning letter to Security First Insurance Co., based in Ormond Beach. It hired Scot Moore, the former chief financial officer for Louisiana-based Lighthouse Property Insurance, which went insolvent in 2022 with more than 27,000 Florida policyholders.

Company CEO and chairperson Locke Burt said Moore is not an officer with Security First — he’s employed by a sister company as chief accounting officer, reporting to the chief financial officer.

“We are not violating the law,” Burt said.

Burt is more familiar with the law than most. He was a state senator in 2002 when it was passed. State regulators originally wanted a lifetime ban on officers and directors, but Burt said he thought it would be unfair to people who did nothing wrong. As chairperson of the Judiciary Committee, he refused to hear the bill until it was changed to allow executives to show they weren’t primarily responsible for an insolvency.

While some executives have committed wrongdoing and should be banned, others were victims of circumstance, Burt said. Lighthouse, where Moore worked, was battered by hurricanes, which drove it out of business, Burt said.

Moore is asking the state for a waiver and will show he wasn’t responsible for the insolvency, Burt said.

Burt said he knew better than to appoint Moore as an officer. As for other companies, the restriction on executives isn’t a secret.

“They know,” Burt said.

“Management matters”

Most of the Office of Insurance Regulation’s warning letters went to American Coastal Insurance Co., where 11 people — from its CEO to board members and general counsel — were told they weren’t allowed to serve in those roles.

But the company is a unique case that doesn’t make it easy for the state to order everyone to step down.

American Coastal, which wrote commercial policies, was a sister company to United Property and Casualty, which wrote homeowners policies. Both were under the umbrella of United Insurance Holdings, a publicly traded company.

After years of losses, United Property and Casualty went insolvent in February last year, just months after Hurricane Ian struck. It had more than 53,000 policies in Florida. A Washington Post article last year wrote that the company had 22,000 open Ian claims when it went under, abandoning homeowners “in their time of greatest need.”

The Times/Herald reported last year that adjusters for the company claimed their assessments of homeowners’ damage were manipulated by their superiors to deliberately low-ball claims, a potential felony under state law.

After the company went insolvent, the parent company was renamed American Coastal Insurance Corp. Its CEO, Dan Peed, stayed on, as did most other executives.

American Coastal Insurance Corp. is one of the few insurers based in Florida that is publicly traded. Since 2022, its stock has gone up more than 3,100%. It now writes primarily commercial policies for condo associations, with about 4,200 policies in Florida, according to its annual report.

Peed earned $176,250 in stock and other awards for his role on the board last year, but declined a salary. Three other executives are set to earn base salaries of between $400,000 and $525,000 this year.

State law doesn’t address whether executives who were with two companies at the same time can remain after one fails. But state regulators say it’s illegal, and they’re now giving Peed and the other executives additional time to either step down or show they weren’t to blame for the insolvency.

Yaworsky said it would be reckless to policyholders to remove the entire leadership team in one swoop. American Coastal’s leadership has been “forthright and generally cooperative,” he emphasized, and it is promoting new executives.

State regulators have not completed financial autopsies on United Property and Casualty or the other companies that have gone insolvent in recent years. Past autopsies have usually blamed mismanagement or excessive profits for failures.

American Coastal said the company’s executives “were not the contributing cause” of United Property and Casualty’s insolvency.

A confluence of hurricanes and storms caused over $4 billion in losses and legal payouts between 2017 and 2022, company spokesperson Jenn Meale Poggie said in a statement. The company’s business was also concentrated in Southwest Florida, in the direct path of Hurricane Ian, she said.

“They did everything in their power to return United P&C to profitability,” Meale Poggie said.

Yaworsky agreed that storms and litigation have been the main reasons for recent insolvencies.

But most companies experienced those factors — and only a few of them went insolvent, he noted.

“Management definitely matters at the end of the day,” Yaworsky said.

“The middle finger”

To be reinstated by regulators, officers and directors are asked to submit a “detailed written statement” about the reasons for the insolvency, their duties at the company and why their actions weren’t a significant cause of the failure.

If executives disagree with the decision, they can go before an evidentiary hearing and make their case to regulators, who also control which companies get charters to offer insurance in the state.

Those hearings rarely happen — because most executives don’t have the chutzpah to ask, said McCarty, the former insurance commissioner.

The fact that so many insurers are hiring executives from failed companies without getting permission felt as if they were giving “the middle finger” to state regulators, McCarty said.

“That is such a blatant disregard for the regulatory framework,” he said.

Just two property insurance executives, both from the same company, have been reinstated recently.

Lewis Williams is one of them. Unlike other executives, he took a job with an out-of-state company because he knew he was ineligible to work as an officer or director in Florida.

He joined Tampa-based Avatar Property and Casualty Insurance as chief financial officer in August 2020, according to a four-page letter he sent to state regulators. Three months earlier, the state had already identified the company as being at risk and regulators placed it on a profit improvement plan.

The writing was already on the wall. Despite some improvements, it went insolvent in March 2022, with more than 32,000 policyholders and 2,000 open claims.

When the state took over the company, Williams said he worked to recover millions of dollars to pay off outstanding claims, and he worked with the owners to sell off other property.

In August last year, he asked state regulators for a hearing to be reinstated. He told the Times/Herald last week that he had consulted two lawyers, but had not received a decision or had a hearing scheduled.

On Tuesday, he received a letter from the state: “Your actions or omissions were not a significant cause of the insolvency.”

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