State regulators have stepped in to take over South Florida's second-largest insurer, crippled by huge losses from the eight hurricanes of the last two years.

BY BEATRICE E. GARCIA
Miami Herald

In a major escalation of Florida's insurance crisis, state regulators have begun taking over South Florida's second-largest insurer of homes, condos and apartments.

Regulators expect to start liquidating Atlantic Preferred, Florida Preferred and Southern Family -- the three troubled companies operated by the Poe Financial Group of Tampa -- by June 1, just as hurricane season gets under way.

This is the largest insurer insolvency the state has had to oversee.

For policyholders, this means they need to hunt for another insurance company to cover their homes.

If homeowners can't find another insurer by June 30, their policies will likely be moved to the state-run insurance pool -- Citizens Property Insurance. Premiums initially will remain the same but will grow at renewal time, because by law, Citizens' rates must be higher than other insurers.

Poe Financial's three companies insure 206,000 homes from Monroe to Palm Beach counties, second only to Citizens with 427,000 policies in the region. Statewide, Poe has 316,000 policies.

Regulators are working with various private insurers to take over blocks of policies from the Poe companies.
''Our priority now is to get any outstanding hurricane claims paid as quickly as possible,'' said Tom Gallagher, Florida's chief financial officer.

Overwhelmed by more than $2 billion in losses and more than 125,000 claims from the hurricanes of the past two years, the Poe companies had already started dropping policies and stopped writing new policies. More than 3,500 consumer complaints from South Florida were filed with the state since Hurricane Wilma.

Tuesday's events were little consolation for policyholders like Elinor Kraft. Her North Lauderdale home was wrecked by Hurricane Wilma, and Atlantic Preferred has paid her very little to cover the damage.

An initial adjuster deemed her home a total loss. She is covered for $200,000 in damage. But a second adjuster reviewed the claim and came back with an offer of just $5,000.

''I think they were dragging their feet because they didn't want to pay out'' on claims, said Kraft. ``I'm very disappointed. It's just a mess.''

If the three insurers are indeed liquidated, the Florida Insurance Guaranty Association will step in to cover claims for up to $300,000 each, said Bob Lotane, a spokesman for the Department of Financial Services. FIGA is funded by property insurers.

'The governor and the Legislature need to wake up and realize this [insurance crisis] will affect consumers' ability to buy and sell homes and live in this state,'' said State Sen. Ron Klein, D-Boca Raton, who has introduced several bills this session to reform insurance laws.

State intervention in the Poe companies began officially Tuesday as regulators took over Southern Family, an insurer of mainly condo associations and apartment buildings. But regulators had stepped in more than a month ago to aggressively monitor all three companies' financial conditions and operations.

According to a letter sent Tuesday by Insurance Commissioner Kevin McCarty to Gallagher, Southern Family has essentially been insolvent since Dec. 31. The company has been unable to secure new operating capital.
During this time, regulators have been working with FIGA adjusters, reviewing claims before they're paid.
Poe's other two companies were barely meeting the state's minimum capital requirements.

State regulators will run Southern Family for the next five weeks, trying to determine how much money the insurer has to pay claims.

Atlantic Preferred has agreed to state control by May 1.

A third insurer, Florida Preferred, has a little more than a month to line up reinsurance, which is insurance for insurance companies. If it can't, regulators will begin to liquidate Florida Preferred on June 1.

Signs of Poe's troubles appeared early last year when Atlantic Preferred and Southern Family were downgraded by A.M. Best. The insurance rating agency feared the companies might not survive financially if hit by another active storm season.

Poe Financial was started in 1996 by William Poe Sr., the former mayor of Tampa. Southern Family got its start shortly afterward, taking policies out of the old Joint Underwriting Association, Citizens' predecessor.

Atlantic Preferred, acquired in 2001, was the most active insurer taking policies out of Citizens' pool.

Between 2003 and 2005, Atlantic Preferred took 114,169 policies from Citizens, including 14,002 windstorm policies that are the riskiest because they cover homes and condos in coastal areas.

Now many of these policies will return to Citizens.

But because the company is strapped for cash, Atlantic Preferred will now collect its escrowed $31 million takeout bonus -- money that was promised after three years for assuming policies from the insurance pool -- so it can pay claims.

''That is only the tip of the iceberg. Many other companies are in trouble. The whole system is a vicious cycle,'' said Pablo Conde, president of A&A Underwriting, a Miami insurance agency.

``Citizens pays other companies to take out policies. Then they go under and FIGA takes over, policies are canceled and picked up by Citizens again at a higher rate.''