New Jersey Department
|For Immediate Release: January 23, 2004||
For Further Information:: Mary Cozzolino - (609) 292-5064
State Moves to Protect Policyholders; Files to Liquidate Insurer
TRENTON - The Department of Banking and Insurance filed papers in Superior Court yesterday to protect policyholders and consumers by seeking a liquidation order that would shut down a financially troubled auto insurance company. The liquidation will allow the Department of Banking and Insurance to preserve the monies of the estate for policyholders so their claims can be paid.
Security Indemnity Insurance Company, the subject of the Department's action, is a New Jersey domestic insurer. As such, New Jersey determines if a company is solvent and can meet its commitments to policyholders. Currently, the company is $6.9 million in the red and therefore insolvent. Upon a declaration of insolvency, the Property Liability Insurance Guaranty Association (PLIGA), which is the state safety net, will pay the covered claims of Security Indemnity policyholders and claimants. At that time, the Department will provide information directly to the affected policyholders.
"Policyholders have the right to expect the protection and benefits they paid for," Banking and Insurance Commissioner Holly C. Bakke said. "One of this Department's most important functions is the protection of the public, policyholders and creditors by assuring that their insurance company or state bank is financially sound and to take immediate action when they are not."
According to the court papers filed yesterday by the Office
of the Attorney General, "Security (Indemnity) is insolvent and Security
is in such a condition that further transaction of business will be hazardous
to policyholders, creditors, and the public." The papers also state that
"in light of the magnitude of Security's insolvency, further attempts to
rehabilitate Security will be useless and substantially increase the risk to
Gov. James E. McGreevey signed auto insurance reform legislation in June 2003 aimed at increasing competition, protecting consumers and changing the regulatory system to ensure a healthier marketplace. Commissioner Bakke, however, noted that those changes could not help all of the companies that were financially impaired as a result of decades of over-regulation and poor business decisions.
"Security Indemnity is a casualty of bad business decisions made in the context of a dysfunctional auto insurance marketplace," Commissioner Bakke said. "Decades of over-regulation make it difficult for small and medium sized companies to compete and prosper."
Yesterday's action was the latest in a series of regulatory
steps. In June 2003, the state Superior Court in Mercer County issued an order
placing Security Indemnity in rehabilitation and under the direct
supervision of the Department of Banking and Insurance. The order came two months after Security Indemnity filed a 2002 annual statement in which it listed its available surplus as $710,710, down from $6 million. To be considered healthy under New Jersey law, Security Indemnity is required by the Department to have $8 million in surplus. The company's deteriorating financial condition has also been recognized by the insurance rating agencies. A.M. Best downgraded the company from a B+ rating to an E rating in just three years, and Weiss Ratings Inc. currently gives Security Indemnity an F rating.
Security Indemnity wrote primarily commercial and private passenger auto business at the time of the rehabilitation order. In February 2003, under an order of consensual administrative supervision, Security Indemnity was prevented from writing new business, with the expectation that its financial condition would improve. In June 2003, the Department ordered the company to stop renewing existing customers. Since then, the Deputy Rehabilitator has been attempting to fix what was financially wrong with the company through direct investment or the sale of company assets. These efforts were not successful, prompting the Department's current action to preserve the assets of the estate for the benefit of policyholders. Due to the Department's oversight, the number of insured policies shrunk. Currently Security is responsible for 6,532 policies.
"The Department will continue to utilize all of the regulatory tools we have to protect policyholders by monitoring the financial health of the companies that insure them. This action is a testament to the Department's commitment to policyholders," Bakke said.
The Department has several regulatory tools it employs to improve and monitor the financial condition of domestic companies and protect consumers and creditors. These tools include: ensuring rate adequacy, regular financial examinations, market conduct exams, market stabilization and rehabilitation orders and ultimately insolvency.
In addition to New Jersey, Security Indemnity writes business in New York, Pennsylvania, Connecticut, Florida, Maryland, Minnesota and Missouri.