An insurance empire that included two insurance carriers, two offshore reinsurers, several buildings and other insurers’ investments was built by a private equity firm in part on questionable assets and is now being dismantled, according to the Wall Street Journal.
And the collapse of the Southport Lane insurance empire is raising questions about regulation of the flow of new money into the insurance business.
In a March 20 article, “Young Financier’s Insurance Empire Collapses,” The Wall Street Journal exposed the dealings of Alexander Chatfield Burns, a 28-year-old who founded private equity firm Southport Lane Management LLC in 2010.
Despite having no insurance experience, Burns received state regulatory approvals to purchase insurance carriers including workers’ compensation writer Dallas National in Texas and personal lines writer Imperial Fire & Casualty in Louisiana. Dallas National (which Southport transferred to Delaware and renamed Freestone) is now in liquidation in Delaware; Imperial was seized and sold by Louisiana regulators.
According to the Wall Street Journal, losses from the insurers are at $250 million, with some insurers still holding “tens of millions of dollars in other questionable assets.”
Southport Lane also acquired Redwood Reinsurance, a Cayman Islands-based reinsurer. Last April it reported it was selling its reinsurance business, Southport Re, to Lennox Investments.
Filings in Delaware Chancery Court allege that Burns switched millions in stocks and bonds from the companies into a personal account and replaced those investments with non-publicly traded or valueless assets, including a Caravaggio painting of uncertain authenticity, according to reporters Mark Maremont and Leslie Scism.
The Wall Street Journal said Burns, through his lawyers, has denied any wrongdoing or breaking of any laws. He also says he never personally benefit financially from Southport’s transactions other than his regular compensation.
The main Journal article, “Young Financier’s Insurance Empire Collapses,” offers background on young Burns’ personal upbringing and affluent lifestyle, his financial dealings, fraud investigations into his businesses and his relations with politicians and regulators.
The Wall Street Journal reported that about a year ago Burns checked into a mental health unit at Bellevue Hospital in Manhattan and resigned from Southport Lane, and that he later moved to South Carolina.
A companion Journal article on March 23, “Regulators Missed Chance to Block Bad Deals,”raises questions about the performance of state regulators in the case and whether states are equipped to regulate the flow of hedge fund and private equity monies flowing into the insurance business.
The Journal quotes Louisiana Insurance Commissioner Jim Donelon as saying his agency “let it’s guard down” in 2013 in approving Southport’s purchase of Imperial, which his agency seized and sold a year later.
*This story originally ran in our sister publication Insurance Journal.