Md. Winds Down Urban Insurer American Skyline with St. Paul’s Help

Having decided last year to end its support after four years and $30 million, The St. Paul Travelers Cos. has now agreed to funnel funds one last time into a Maryland insurer it helped start as a model to serve urban markets.

St. Paul will pay $5.5 million to cover claims and expenses of American Skyline Insurance Co., the Baltimore insurer it helped found four years ago but which is now failing and under state order to wind down its operations.

The $5.5 million deal reverses a decision made by St. Paul last year to pull the plug on ASIC. St. Paul, an 85 percent owner, cited ASIC’s continued losses and its lack of additional backers.

The deal is also unusual in that it is an attempt to avoid triggering the state’s guaranty fund, which is funded by assessments on insurance companies, to pay claims.

“The approach that we have taken with ASIC is somewhat different than the way in which a regulator generally is required to handle an insurance company that is in financial distress,” acknowledged Maryland Insurance Commissioner Alfred Redmer Jr. “In this case, we did not want to have to place ASIC in receivership, liquidate it and leave consumers to resolve their claims and coverage issues with the Property and Casualty Guarantee Fund.”

St. Paul agreed to contribute the funds “to help smooth the transition” and to “help avert adverse consequences for Skyline policyholders,” the insurer’s Jennifer Wislocki told Insurance Journal.

Redmer credited St. Paul’s ties to Baltimore which were reinforced through its purchase of the Baltimore-based insurer USF&G and its willingness to practice “good corporate citizenship.”

St. Paul Travelers has agreed to invest $5.5 million to fund claim payments and operations during the run-off period, in accordance with a budget that has been reviewed and approved by Redmer. The first $2.5 million will cover operating expenses and claim payments for the next 90 days and the additional $3 million will be held in a special reserve for expenses and claim payments going forward. ASIC will submit monthly reports to Redmer. The transfer of monies from the special reserve account to ASIC will require the approval of Redmer.

In November of 2004, ASIC entered into a consent order with the insurance department to try to control losses of $5 to $10 million per year for the last few years. At that point, ASIC stopped renewing policies and stopped taking on new business, terminated its contracts with agents, while continuing its search for a buyer or investor that would commit to funding continued operations. Redmer said at the time that the company was losing money because of operating costs, not because of poor underwriting.

“We were hopeful originally, and remain so today, that an investor will be found to purchase this company and continue its operations,” Redmer said.

“Unfortunately, the company’s financial position deteriorated to the point where we would have been forced to shut down the company completely.”

Since the run-off order by Redmer last fall, the company, which sold auto, homeowners, tenants and small business policies, has reduced staff while continuing to look for possible investors.

The agreement that Redmer negotiated with St. Paul requires that by March 31, 2006, American Skyline come up with a plan to “insure, reinsure or terminate” any remaining liability under all insurance policies it has issued by June 30, 2006. Redmer retains the authority to start court proceedings including liquidation if the agreement is not enough to protect policyholders.

American Skyline was created to be a “city-focused” insurer. Many of its executives, including Earnest Hines, chief executive officer and president, had roots in Baltimore at USF&G. Its business model called for targeting cities that were underserved, undergoing urban renewal, and where excess and surplus lines carriers wrote 20 percent to 40 percent of the personal lines market. It employed credit scoring in its underwriting and pricing and used local agents and cutting-edge technology to sell and process.

Topics Carriers Maryland