Florida insurance regulators have placed workers compensation carrier Guarantee Insurance Co. in receivership due to inadequate reserves.

According to documents from the Florida Office of Insurance Regulation (OIR), the company was materially underreserved at year-end 2016 and consented to being placed in receivership on Nov. 13, 2017.

Guarantee Insurance (GIC) provides workers compensation insurance in more than 31 states and D.C. and is based in Fort Lauderdale, Fla.

In a letter to the Florida Department of Financial Services (DFS), Division of Rehabilitation and Liquidation, Florida Insurance Commissioner David Altmaier stated the company’s assets were insufficient to pay all of its outstanding obligations by $236,775 as of June 30, 2017.

OIR placed the company under administrative supervision on Aug. 18 and told Carrier Management’s sister publication Insurance Journal on Monday it maintained on-site staff at the company to “monitor operations during this time.”

The appointed actuary working with GIC submitted a revised actuarial opinion to OIR in early November stating the company was materially underreserved at year-end 2016.

Altmaier’s letter dated Nov. 17 states the company’s insolvency “renders its further transaction of insurance hazardous to its policyholders, subscribers, claimants, creditors and the citizens of the state of Florida.”

OIR also claims in its letter that Guarantee Insurance knowingly filed a false financial statement with regulators when it reported collateral for unauthorized reinsurance as a liability for funds it held under reinsurance treaties in the amount of $144.6 million as of Dec. 31, 2016. The letter states that Guarantee Insurance “booked and availed itself of reinsurance credit at a time that it knew that it did not have sufficient cash and invested assets to cover this liability.”

According to the letter, the company has systematically transferred funds in the amount of at least $15.7 million between 2016 and June 2017 to GIC owner Steve Mariano. OIR said the diverted funds could have otherwise been used by Guarantee Insurance to increase its surplus and be available for the payment of policyholder claims.

“These transfers were made with no documented business purpose and no discernable benefit to GIC, and [OIR] has deemed them detrimental to GIC,” the letter states.

OIR added that it has identified other transactions involving parties with “known association to Mr. Mariano that have been harmful to GIC.”

Mariano is also the majority owner of Patriot National, a national provider of technology and outsourcing products for insurance companies also headquartered in Fort Lauderdale. It owns various insurance-related enterprises, including Patriot Risk Consultants, Patriot Risk Services, Patriot Captive Management and national insurance program administrator Patriot Underwriters Inc. Patriot National is also an affiliate of workers comp carrier Ashmere Insurance Co.

According to Guarantee Insurance’s June 30 quarterly statement included in OIR’s receivership filing, GIC owns 2.8 million shares of Patriot National with an approximate investment of 10.56 percent of Patriot National’s total outstanding shares, valued at $6 million.

Patriot National has had a tumultuous year as well. Mariano stepped down as its president, CEO and chairman of the board in July. The board executed a separation agreement with him at that time and said as the founder and majority shareholder, Mariano would still serve in a “consulting role where he will assist the company as reasonably requested.”

The company said that Mariano would work with its special committee of independent directors to explore and review strategic alternatives for Patriot National, which it announced it was exploring earlier this year.

Law360 reported in August that Mariano had been sued by a former Patriot National director, president and CEO and current shareholder, Henry Wasik, who claimed the company hadn’t held an annual meeting in over a year in violation of Delaware law and its bylaws that require one within 13 months of the prior meeting.

At the end of 2016, a Delaware court issued a temporary restraining order against Patriot National after a class action stockholder lawsuit was filed by Hudson Bay, one of its largest shareholders. Shortly before that, Patriot National’s board of directors rejected a $475 million buyout offer from Ebix Inc.

In September of this year, Patriot National was notified by the New York Stock Exchange that it was not in compliance with the NYSE’s continued listing standards and was subject to suspension and delisting procedures. According to NYSE, it was out of compliance because its average global market capitalization of its common stock was less than $50 million over a 30-day trading period while its last reported stockholders’ equity was less than $50 million. In October, the company received an extension for continued listing and trading of its common stock by NYSE and has until March 15, 2018 to file its annual report for 2016 and the first six months of 2017.

Representatives of Patriot National did not respond to Insurance Journal’s requests for comment.

OIR did not respond to a question about whether Guarantee Insurance’s insolvency will also affect Patriot National’s operations in the state.

“[OIR] has been working collaboratively with DFS, other state insurance departments and state guaranty funds this week to make the [GIC] transition as smooth as possible. The primary goal of this multi-agency collaboration is to ensure the continued payment of claims to injured workers,” said Karen Kees, OIR deputy director of communications, in an email to Insurance Journal on Monday.

*This article first ran in Insurance Journal, our sister publication.

Contributor

Amy O' Connor, Wells Publishing

O'Connor is associate editor of MyNewMarkets.com.