Allianz Vows to Fight Florida Regulators’ Charges in Magnolia Case

By | April 25, 2013

Allianz Risk Transfer (ART NY) has vowed to strongly repudiate charges levied by Florida regulators that it contributed to the collapse of a domestic property insurer by seizing management control and saddling it with millions in fees.

The Florida Department of Financial Services last month filed a complaint with the Second Judicial Circuit Court outlining the alleged scheme and demanding that ART NY return over $20 million in Magnolia Insurance Co. assets.

Magnolia was formed in 2008 and provided coverage to some 100,000 homeowners it primarily assumed from Citizens Property Insurance Corporation. Regulators seized control of the insurer in April 2010 when it became clear it could no longer meet its obligations.

Magnolia’s involvement with ART NY began in February 2008 when the two companies entered into a credit agreement whereby ART loaned Magnolia’s parent company $20 million for a fee of $3.8 million.

That agreement was soon followed by a number of other agreements including the joint ownership of a management company that handled all policy and claims services. Magnolia also purchased an asset protection policy to protect ART’s interests in the agency.

ART also provided reinsurance and reinsurance consulting services to Magnolia.

Regulators charged that those agreements effectively let ART take control on Magnolia and ensured that in the event the insurer failed, ART’s investment would be protected.

But Allianz officials are saying that the regulators’ charges are far from accurate.

Hugo Kidston, head of communications for Allianz Global Corporate, said the insurer would contest the allegations, which he said misconstrued ART’s involvement with Magnolia.

“These allegations are totally unfounded and have no basis and we are prepared to robustly defend our reputation,” said Kidston.

Kidston said that regulators were fully informed about ART’s various agreements with Magnolia. He took exception with a number of allegations including that ART took over control of the Magnolia with the goal of funneling out fees regardless of its impact on Magnolia’s ability to operate.

“There is no cloak and dagger here,” Kidston said. “ART and Magnolia were at arms’ length and at no time did ART exercise management control.”

Kidston also said that contrary to regulators’ charges that ART suffered no losses due to Magnolia’s collapse, ART actually lost $7 million. He also said the failure of Magnolia had more to do with Florida’s problematic property market than any involvement with ART.

“The deal didn’t work out,” said Kidston. “We didn’t like it, but we accept it. It is the business we are in.”

Allianz has until May 24 to formally respond to the lawsuit by regulators. In January, regulators offered to settle the suit for $12 million, which ART rejected.

Topics Florida Allianz

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