Miami-based Northern Capital Insurance Co. amended or re-filed its statutory statements several times in 2009, making revisions that had negative effects on its statutory surplus.
Northern Capital Insurance was incorporated in 2004 and started business in 2006, according to regulatory filings. In November 2008, it was approved to remove up to 20,000 policies from state-run Citizens Property Insurance Corp. Rating agency Demotech Inc. recently pulled its rating on Northern Capital Insurance, citing a missed deadline for a capital infusion.
The biggest change in the company’s re-filed statements came when it amended its year-end 2008 statement, swinging to a net loss of $64,929 from previously reported net income of about $2.2 million. According to an independent auditor’s report, the swing was driven by an increase in incurred-but-not-reported losses of about $3.3 million, partially offset by an income tax provision.
The change also affected the company’s surplus, the document shows, resulting in surplus as regards policyholders of $15.4 million instead of $18.3 million as initially reported.
The amended filing references a June 9, 2009, letter from Robin Westcott, director of P&C financial oversight for the Florida Office of Insurance Regulation. The office would not provide SNL with a copy of the letter and said it could not answer questions about the company, citing a statute related to examination and investigation reports.
SNL’s efforts to reach management at Northern Capital Insurance for comment were unsuccessful.
Later in 2009, Northern Capital Insurance re-filed its second-quarter statement, also apparently at regulators’ request. It moved about $1.1 million from admitted assets to nonadmitted assets in its “Receivables from parent, subsidiaries and affiliates” line, reducing its surplus to $14.7 million from $15.8 million as initially reported.
In its third-quarter filing, the company disclosed that it had experienced unfavorable prior-years reserve development of about $1.4 million from Dec. 31, 2008, to Sept. 30, 2009. As the company had reported favorable prior-year development of $164,000 as of June 30, it apparently experienced about $1.5 million of unfavorable development in the third quarter.
Many factors are combining to create a tough market for Florida homeowners underwriters in general, even though the state has not had a recent hurricane catastrophe, said Lisa Miller, a Florida consultant, lobbyist and former deputy insurance commissioner. Companies have seen an increase in claims in the economic downturn, she said. Fraudulent sinkhole claims, wind mitigation credits and other lingering issues have contributed to the difficult environment. “It’s uncharted territory. No one knows how to reserve appropriately,” Miller said.
Regulators are also studying companies more intently, she said. “The intensity of regulation right now is unbelievable — rightfully so,” she said.
Recently, Florida regulators have taken various actions against relatively young homeowners insurers including American Keystone Insurance Co., Coral Insurance Co. and Magnolia Insurance Co.
On Feb. 18, Demotech Inc. withdrew its financial stability rating of “A, Exceptional,” on Northern Capital Insurance, saying the company had failed to meet a deadline for a capital infusion and revised business plan.
Barry Koestler, Demotech’s chief ratings officer, told SNL that without a capital infusion the company didn’t qualify for an A rating. “And at which point, a lot of times a rating of less than A doesn’t necessarily help the company,” Koestler said, adding the firm “didn’t see any need to really investigate where they would fall after that in terms of whether it’s an S [Substantial] or an M [Moderate] or whatever.”
Koestler said Demotech also has not yet seen Northern Capital Insurance’s year-end 2009 statement. “So we’re not certain as to where they stand,” he said. Demotech started talking with Northern Capital when the company was considering consolidating two operations. “We were looking at both entities, and what the combined entity would be like,” he said. “But we basically had told them … they needed a capital infusion and they agreed to it. The deadline came, and they didn’t have it in, so we withdrew the rating.”
Koestler said the company had told Demotech it merged Northern Capital Select Insurance Co., formerly Landmark One Insurance Co., into Northern Capital Insurance at year-end 2009. According to its third-quarter 2009 filing, Northern Capital Select had surplus as regards policyholders of $4.3 million as of Sept. 30, 2009, down from $8.4 million for the year ended Dec. 31, 2008, reflecting a year-to-date net loss of $3.5 million and net underwriting loss of $5.7 million.
In August 2009, Northern Capital Insurance Group announced plans for a $12.0 million capital raise in a brief news release.
“I guess we’ll all know a little more when we get the year-end [2009 statement] and see what it looks like, and see if there’s any sort of capital infusion on the horizon,” Koestler said. “Because I know management indicated to us they were still trying to do that, obviously.”
Miller said she thinks Northern Capital Insurance’s policyholders “will have a soft landing.”
“Northern Capital’s leadership team is very earnest … they will work night and day to make sure that everybody’s OK,” she said.
Northern Capital Insurance Co. is a unit of Northern Capital Inc.