Olympus Insurance Cleared by Florida Regulators

Home and condominium insurer Olympus Insurance Co., which in April came under scrutiny by Florida insurance regulators, has convinced the regulators that its financial contracts, accounting methods, reinsurance program and claims-paying ability are satisfactory.

The state Office of Insurance Regulation has dropped all regulatory action against the Orlando-based company.

The settlement with OIR holds Olympus to limits on the commission it pays its managing general agent (MGA) and other expenses but does not require the insurer to seek additional capital, as OIR had wanted. It also upholds several accounting steps taken by Olympus that OIR had questioned.

Insurance Commissioner Kevin McCarty along with Olympus Insurance Co., its managing general agency, Olympus MGA Corp., and their parent, Gemini Financial Holdings, signed the settlement May 27.

In April, OIR ordered Olympus to make some changes, and to seek more capital from Gemini, threatening loss of its license if the company did not act.

In its April order, OIR alleged that Olympus had various “unfair and unreasonable” contracts that were not in the best interest of its policyholders. Olympus disputed each of the allegations, claiming OIR’s charges were based on “erroneous and unsupported assumptions on the part of OIR.”

OIR questioned the payments Olympus had made to its MGA and its overall expense ratio as too high, an issue OIR has also raised with other insurers. OIR had approved Olympus’ original 2007 MGA agreement that allowed for a 22 percent MGA commission and capped total expenses at 29 percent. But OIR claimed that Olympus was actually paying a 34 percent MGA commission, which OIR said “contributed to the insurance company consistently generating underwriting losses.”

By the time of OIR’s April order, Olympus had submitted a new MGA agreement with a 25 percent MGA commission and a cap on total expenses of 28 percent. Olympus maintains its expense ratio was higher than anticipated because its revenues did not meet expectations and not because it was paying its MGA more than it promised. The settlement with OIR calls for Olympus to abide by the 25 percent commission and 28 percent overall expenses cap. However, the settlement says that the OIR would consider amending these conditions in the future.

OIR also alleged that the insurer’s catastrophic reinsurance program for 2010 was inadequate and would render the company insolvent following a single storm. But Olympus said it had never supplied OIR with any information on its 2010 reinsurance program so “it was at a loss as to how OIR had arrived at such a conclusion.”

Olympus also said its surplus of more than $21 million was adequate to withstand a single big storm.

In the settlement, Olympus proposed a catastrophe reinsurance plan for 2010 with a net retention of $6 million with coverage up to the 1 in 92 year probable maximum loss (PML) without demand surge and the 1 in 70 year PML level with the demand surge variable. It also proposed the use of reinstatement premium protection to limit the next retention to $6 million on a second storm.

Olympus also noted that OIR announced in April 12, a few days after its order against Olympus, that it would not be requiring a specific level of reinsurance such as a 1 in 100 year MPL but would rather look at the entire spectrum of catastrophe risk for each insurer so that there is protection of surplus from multiple storms of smaller magnitude.

OIR had maintained that while Olympus projected a profit for 2010, its own analysis pointed to a $7 million loss, which would lower the insurer’s surplus to an unacceptable $14 million by year end. OIR said the company’s premiums were above those written when the insurer had $50 million in surplus and the company “cannot continue to support its current writings with diminished surplus and should significantly reduce premiums written.” OIR ordered Olympus to attempt to get more capital from Gemini.

Olympus said OIR’s projection of a $7 million loss failed to account for expense reimbursements it would be receiving from its MGA under the revised MGA commission contract.

Olympus also said its premiums were “well within” allowable statutory limits. By Florida law, an insurer is restricted to a gross written premium to surplus ratio of 10 to 1 and a net written premium to surplus ratio of 4 to 1. Olympus maintained that its ratios are 3.5 to 1 and 1 to 1 respectively and thus “nowhere near the limit allowed by statute.”

Finally, Olympus said its statutory surplus is well above the required minimum of $4 million and as such there is no need for it to acquire additional capital from Gemini. The settlement acknowledges that Olympus will not seek additional funds from Gemini.

OIR had also questioned whether a $3.1 million deferred tax asset would be realized but Olympus said that was speculation by OIR based on its belief that Olympus would incur a $7 million loss. According to the settlement, Olympus has satisfactorily addressed this deferred tax asset, which will be used as early as third quarter 2010.

OIR had also asked Olympus to independently verify that the company’s 80 percent quota share reinsurance agreement that boosted underwriting income and surplus by $18 million was an actual risk transfer. Olympus provided an independent opinion from Insurance Services Office supporting its position and is paying for an additional independent analysis under the settlement.

“This resolution demonstrates that Olympus Insurance Co. remains a healthy, viable player in the Florida homeowners insurance marketplace. We will continue to build our presence throughout the state by our unique, disciplined growth strategy,” William Lowry, president, said in a press release.

“We are not at all surprised at the outcome of this analysis. This experience has allowed us to demonstrate our financial stability, claims-paying ability, and to discuss with the OIR the critical changes we implemented in 2009 which allowed us to strengthen our company for the long term.”

OIR declined to comment.

Olympus was formed in 2007. It writes through more than 2,000 agents.