St. Paul Travelers Agrees to Fund Winding Down of Maryland Urban Insurer American Skyline

By | March 22, 2005

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 should eliminate the need to activate the state’s guaranty fund, which is funded by assessments on insurance companies, to pay outstanding claims, according to Karen Barrow of the Maryland Insurance Administration.

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

Last November 30, Maryland Insurance Commissioner Alfred W. Redmer, Jr. Redmer, citing the insurer’s operating losses of more than $27 million through mid-2004, ordered American Skyline to stop writing new and renewal business. Redmer said at the time that the company was losing money because of operating costs, not because of poor underwriting.

American Skyline reported a net loss in 2001 of $4.9 million; $8.8 million in 2002; and about $4.6 million for the first half of last year.

Since the run-off order by Redmer last fall, the company has reduced staff and service while continuing to look for possible investors to save it from liquidation. The company specializes in auto, homeowners, tenants and small business policies.

Citing American Skyline’s continued losses and its lack of additional backers, St. Paul Travelers, an 85 percent owner, said last year it would no longer support it. However, this month, after negotiations with Redmer’s office, St. Paul said it would give American Skyline one last cash infusion to help it wind down its operations. St. Paul will pay $2.5 million for estimated operating expenses through May 31, 2005 and another amount up to $3 million to cover later expenses. The agreement anticipates all obligations will be taken care of as of mid-year in 2006.

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, which St. Paul now owns.

CEO Hines stressed from the beginning that the company believed it had the business model that could turn a profit on urban business. “We want to go wherever the money’s green,” Hines said when the company opened its doors.

That 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.

“This is a company whose strategy is the only way to make money in the urban market–starting from scratch, from an underwriting perspective, on a clean piece of paper,” said a member of American Skyline’s board at the time.

CEO Hines could not be reached for comment.

Callers to American Skyline headquarters in downtown Baltimore are now greeted with a recording explaining that the insurer is “unable to offer the same level of service” because it has had to stop writing business and reduce its staff under the consent order.

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