Allianz Risk Transfer (ART NY) has vowed to fight charges levied by Florida regulators that it contributed to the collapse of a domestic property insurer by seizing management control and saddling it with millions of dollars in fees.

The Florida Department of Financial Services last month filed a complaint with the Second Judicial Circuit Court outlining the alleged scheme and demanding that ART NY return more than $20 million in Magnolia Insurance Co. assets.

Regulators seized control of Magnolia, a home insurer, in April 2010 when it became clear it could no longer meet its obligations.

Magnolia’s involvement with ART NY began in February 2008 when the two companies entered into a credit agreement whereby ART loaned Magnolia’s parent company $20 million for a fee of $3.8 million.

That agreement was followed by others including the joint ownership of a management company that handled all policy and claims services. Magnolia also purchased an asset protection policy to protect ART’s interests in the agency. ART also provided reinsurance and reinsurance consulting services to Magnolia.

Regulators charged that these agreements effectively let ART take control of Magnolia and ensured that ART’s investment would be protected if the insurer failed.

But, according to Hugo Kidston, head of communications for Allianz Global Corporate, the allegations misconstrue ART’s involvement with Magnolia. “These allegations are totally unfounded and have no basis and we are prepared to robustly defend our reputation,” said Kidston.

Kidston said that regulators were informed about ART’s various agreements with Magnolia. He took exception to the claim that ART took over control of Magnolia with the goal of getting fees regardless of Magnolia’s ability to operate.

“There is no cloak and dagger here,” Kidston said. “ART and Magnolia were at arms’ length and at no time did ART exercise management control.”

Kidston also said that contrary to regulators’ charges that ART suffered no losses due to Magnolia’s collapse, ART actually lost $7 million. He also said the failure of Magnolia had more to do with Florida’s problematic property market than any involvement with ART.

“The deal didn’t work out,” said Kidston. “We didn’t like it, but we accept it. It is the business we are in.”

Allianz has until May 24 to formally respond to the lawsuit by regulators. In January, ART rejected a $12 million settlement offer from regulators.