Frontier Pacific Conserved Due to Findings of Insolvency

By | September 24, 2001

The struggles continue for Frontier Insurance Company Inc., which reached an agreement in August with the New York State Insurance Department to enter into voluntary rehabilitation.

Its wholly owned subsidiary, San Diego-based Frontier Pacific Insurance Company (Frontier Pacific), was conserved Sept. 7 in a move by California Insurance Commissioner Harry W. Low. The ruling came as a result of the company being found insolvent.

Further expanding its geography, the stock of Frontier Insurance Company is owned by Frontier Insurance Group Inc., a Delaware-based insurance holding company.

In making its decision, Low and the California Department of Insurance used a recent financial study of Frontier Pacific to obtain a conservation order from the Superior Court of San Diego. Upon review of the study, it was determined that the company was insolvent by around $5.3 million. It turns out the company is due significant amounts from its insolvent parent company, Frontier Insurance Company.

The Conservation and Liquidation Office (CLO) will handle the conserved company and the offices of Frontier Pacific will stay open during normal business hours. New and renewal business handlings were already voluntarily suspended recently. All workers’ compensation claims will be paid.

Harry Levine, chief executive officer for the CLO, noted that, “The New York Department of Insurance got an order of rehabilitation with a finding of insolvency, and by our accounting, that put the reinsurance that is owed from Frontier to Frontier Pacific as not-admitted.

“Based on that alone, the company was insolvent under our guidelines. We got our order a week ago Friday [Sept. 7] and now we’ve basically taken control of the Los Angeles (mostly surety claims) and San Diego (nonstandard auto program) operation. Now, we’ll have to take a look at the company if it can be rehabilitated, and whether we can ever expect the reinsurance that is owed by Frontier to be paid. If it’s not, we’ll see if anything other than liquidation is a possibility.”

Following the announcement of the company’s insolvency, on Sept. 10, Standard & Poor’s assigned its “R” financial strength rating to Frontier Pacific.

While handling most of its business in California, Frontier Pacific did conduct business in other states. The company wrote private passenger auto liability, auto physical damage, licensing, surety, and bail bonds.

Frontier Pacific, which was established by The Rhulen Agency in 1977 as a specialty carrier that offers national programs on an admitted basis in all 50 states, also wrote some workers’ compensation policies.

President and CEO Harry Rhulen took over the company from his late father, Walter, who passed away in January 1998. Harry Rhulen continues to oversee the operations of the entire Frontier Group, supervising Frontier’s Executive Management Group, who, in turn, supervises Frontier’s senior management team. In addition to sitting on Frontier’s Board of Directors, he is also a director of the American Insurance Association and a board member of the Council of Insurance Company Executives, United General Title, and G&L Internet Bank.

Levine said while there is no timeline yet in place, normally the steps of conservation are done pretty quickly.

“The New York Liquidation Bureau says they plan to rehabilitate the parent company. If they can do that, and the receivable on the insurance becomes collectible, then obviously we wouldn’t need to liquidate. We have to see what New York will do.

“We’ll be sure in the meantime that all workers’ comp claims are paid. As far as other claims go, we’ve got the authority under our order to operate as much of the business as we see appropriate. Fortunately for us, they didn’t have a lot of workers’ comp here, so that is fairly manageable for us.”

Topics California New York Workers' Compensation

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Insurance Journal West September 24, 2001
September 24, 2001
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2001 Program Directory, Vol. I