New Jersey’s Department of Banking and Insurance filed papers in Superior Court last Thursday to protect policyholders and consumers by seeking a liquidation order that would shut down a reportedly financially troubled auto insurance company. The liquidation will allow the Department of Banking and Insurance to preserve the monies of the estate for policyholders so their claims can be paid.
Security Indemnity Insurance Company, the subject of the Department’s action, is a New Jersey domestic insurer. As such, New Jersey determines if a company is solvent and can meet its commitments to policyholders. Currently, the company is reportedly $6.9 million in the red and therefore insolvent.
Upon a declaration of insolvency, the Property Liability Insurance Guaranty Association (PLIGA), which is the state safety net, will pay the covered claims of Security Indemnity policyholders and claimants. At that time, the Department will provide information directly to the affected policyholders.
According to the court papers filed by the Office of the Attorney General, “Security (Indemnity) is insolvent and Security is in such a condition that further transaction of business will be hazardous to policyholders, creditors, and the public.” The papers also state that “in light of the magnitude of Security’s insolvency, further attempts to rehabilitate Security will be useless and substantially increase the risk to policyholders.”
“Security Indemnity is a casualty of bad business decisions made in the context of a dysfunctional auto insurance marketplace,” New Jersey Banking and Insurance Commissioner Holly Bakke said. “Decades of over-regulation make it difficult for small and medium sized companies to compete and prosper.”
Yesterday’s action was the latest in a series of regulatory steps. In June 2003, the state Superior Court in Mercer County issued an order placing Security Indemnity in rehabilitation and under the direct
supervision of the Department of Banking and Insurance. The order came two months after Security Indemnity filed a 2002 annual statement in which it listed its available surplus as $710,710, down from $6 million.
To be considered healthy under New Jersey law, Security Indemnity is required by the Department to have $8 million in surplus. The company’s deteriorating financial condition has also been recognized by the insurance rating agencies. A.M. Best downgraded the company from a B+ rating to an E rating in just three years, and Weiss Ratings Inc. currently gives Security Indemnity an F rating.
Security Indemnity wrote primarily commercial and private passenger auto business at the time of the rehabilitation order. In February 2003, under an order of consensual administrative supervision, Security Indemnity was prevented from writing new business, with the expectation that its financial condition would improve. In June 2003, the Department ordered the company to stop renewing existing customers.
Since then, the Deputy Rehabilitator has been attempting to fix what was financially wrong with the company through direct investment or the sale of company assets. These efforts were reportedly not successful, prompting the Department’s current action to preserve the assets of the estate for the benefit of policyholders. Due to the Department’s oversight, the number of insured policies shrunk. Currently, Security is responsible for 6,532 policies.
In addition to New Jersey, Security Indemnity writes business in New York, Pennsylvania, Connecticut, Florida, Maryland, Minnesota and Missouri.
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