Calif. Places Majestic Insurance into Conservatorship

Workers’ compensation insurer Majestic Insurance Co. has been placed into conservation by order of the San Francisco Superior Court.

California Insurance Commissioner Dave Jones has simultaneously filed a motion seeking approval for a proposed rehabilitation plan designed to protect Majestic’s policyholders and claimants from loss due to Majestic’s conservation.

Under the rehabilitation plan, Majestic’s insurance liabilities and certain assets will be transferred to AmTrust North America Inc., which will assume responsibility for the administration and payment of all policyholder claims under Majestic’s policies.

“For some time, my department has been concerned with Majestic’s financial condition, and has been carefully monitoring the company to determine if an intervention is warranted to make certain that Majestic can continue to honor its claim commitments. This conservation will ensure that Majestic’s financial obligations will continue to be met,” Jones said.

In December 2009, the New York Workers’ Compensation Board filed a lawsuit seeking in excess of $400 million in damages from Majestic, its parent, Majestic Capital Ltd, and several of the key officers of the organizations individually. As a result of this action, A.M. Best reduced the rating of Majestic Insurance Co., which in turn, decreased premiums written and increased expenses and losses.

Majestic is licensed to write property and casualty insurance in 17 states, but is domiciled in California and subject to oversight, regulation and conservation by the California Department of Insurance. The company is a specialty provider of workers’ compensation insurance products. The company’s workers’ compensation insurance coverage is offered to employers in California, New York, New Jersey, Arizona, Nevada, and other states.

The plan of rehabilitation for Majestic is based on agreements with AmTrust in which Majestic will transfer all insurance liabilities and certain Majestic assets to AmTrust and its insurance company affiliates. The key components of the agreement include a loss portfolio transfer reinsurance agreement, sales of renewal rights, and an asset purchase transaction. AmTrust will also perform all of the administrative services necessary for the adjustment and payment of all pending and future claims that arise under Majestic’s insurance policies.

The Superior Court has set a hearing date of June 2, 2011, on the commissioner’s motion to approve the rehabilitation plan. Any party wishing to formally support, comment on or object to the motion may file papers with the Court by May 16, 2011.

At the end of December 2010, Majestic reported capital and surplus of approximately $58 million. However, for the period ending Dec. 31, 2010, the state insurance department determined that Majestic’s loss and loss adjustment expense reserves were deficient by approximately $40.9 million, and that its premium reserves were also deficient in the amount of $5.5 million, for a total reserve deficiency of more than $46 million. After increasing the company’s reserves to appropriate levels, the company’s surplus has dropped to just $11.5 million, an amount that is too low to permit the company to continue operations outside the protection of a formal conservation.

During 2010, the company wrote direct premiums of approximately $69 million (75.5 percent of total direct premiums) in California, $9.6 million (10.5 percent of total direct premiums) in New Jersey, and $9.4 million (10.3 percent of total direct premiums) in New York, its second and third largest markets, respectively.

The conservation will not cause any disruption or delay in the delivery of benefits to injured workers covered under Majestic policies, the California Department of Insurance said. During conservation, the injured workers covered by Majestic policies will continue to receive benefit payments, and medical providers that care for those injured workers will continue to be paid.

Majestic’s management did not oppose the conservation and is cooperating with the commissioner’s staff as it works to stabilize the company until the rehabilitation plan can be considered by the court and, if approved, implemented through AmTrust. The Conservation & Liquidation Office will oversee the administration and payment of claims during conservation, and is developing a transition plan to move all policies and claims to AmTrust when the plan is approved.

Persons with policies or claims with Majestic are being referred to the company’s Web site at www.majesticinsurance.com or to phone 800-216-7770. Frequently asked questions about the conservation of Majestic Insurance Co. can be found at www.caclo.org.

In March, the company terminated its merger agreement with Bayside Capital.

Topics California New York Claims Workers' Compensation