State’s brief financial autopsy of Broward insurer prompts more questions than answers
After Sawgrass Mutual Insurance Co. went under in 2018, Florida regulators were supposed to do a financial autopsy to determine what had gone wrong.
But they didn’t hire forensic accountants to dig into Sawgrass Mutual’s finances, as they had in previous insolvency cases.
And while they ultimately blamed the company’s demise on “mismanagement,” their final report offered few details and little analysis. Unlike some previous reports that ran the length of novels, this one spanned four pages.
“This isn’t an autopsy,” said former state Sen. Jeff Brandes, R-St. Petersburg, who criticized state regulators for moving too slowly on cases last year. “This is just a death certificate.”
A spokesperson for state Chief Financial Officer Jimmy Patronis, one of two officials regulating insurance in Florida, said the report was brief and no forensic accountants were needed because Sawgrass Mutual in 2018 “had no policyholders and very few claims remaining.”
READ MORE: Homeowners insurance in Florida is a precarious mess that was years in the making
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Observers and lawmakers called the sparse report troubling, particularly amid a continuing wave of insolvencies that has contributed to Floridians’ skyrocketing homeowners insurance premiums, the highest in the nation. Sawgrass was the first of 10 homeowners insurance companies to go out of business in the last five years.
Past insolvency reports have repeatedly uncovered insurance executives reaping big paydays as their companies failed.
Sawgrass’ report sheds no light on what state regulators could have done to prevent Sawgrass Mutual’s failure or future insolvencies, said Doug Quinn, executive director of the American Policyholder Association, an insurance watchdog organization.
“How were they allowed to screw up? Did they get special considerations? Nobody wanted to embarrass them?” Quinn said. “And how were there no consequences?”
Between 2013 and 2015, the company gave $52,500 to state lawmakers and political committees, nearly all to Republicans. They did not give to Patronis, who was a state representative at the time.
State Rep. Hillary Cassel, D-Dania Beach, a former lawyer for insurance companies who now represents policyholders, said the report fits a broader pattern by regulators and lawmakers in Tallahassee.
“It’s just indicative of an unwillingness to uncover the truth behind what’s happening with these companies, what caused their insolvency, so we can provide real solutions to the insurance property crisis,” Cassel said.
A Herald/Times review of court records and interviews with industry and former company officials shows a more complex case than what state regulators depicted. While Sawgrass Mutual struggled to attract customers, it may have been doomed by one of its primary investors.
Sawgrass had notable leaders
Sawgrass Mutual seemed destined for success.
When it started selling homeowners insurance policies in 2009, the small Davie-based company had a unique business model, and its leaders had prestigious backgrounds and credentials.
At the time, there had been well-publicized cases of insurance executives accused of extracting millions of dollars from their companies and leaving their organizations short-changed as Florida recovered from a series of storms that hit in 2004 and 2005.
“There was always a lot of concern about insurance companies making a lot of money, and profits don’t accrue to the benefit of the policyholders,” Jay Newman, chairman of the company’s board during its first several years, told the Herald/Times.
Sawgrass’ founders saw an opportunity. Instead of a company owned by, and beholden to, shareholders, they took a more unusual route: a mutual company, owned by policyholders.
“We thought it would be attractive to policyholders,” Newman said. “But it turned out, that didn’t happen the way we had envisioned.”
In its nine years of existence, the company had prominent leaders. Newman was a former executive director of state-run Citizens Property Insurance and Virginia’s former insurance commissioner. Its chief executive for a time was Guy Marvin, the former leader of the Florida Insurance Council, which lobbies lawmakers on behalf of the industry. Its board also included Randy Dumm, then a risk-management professor at Florida State University who now leads the University of South Florida’s School of Risk Management and Insurance. (Marvin and Dumm did not respond to requests for comment.)
Still, the insurer struggled to attract customers, Newman said. It hit other roadblocks, including being overly concentrated in Central Florida. Paul Simeone, the company’s last chief financial officer, told regulators under oath that it saw “crazy claims activity focused on imaginary hailstorms” in that part of the state between 2012 and 2014.
Patronis, Republican lawmakers and insurance companies have blamed excessive litigation and fraud for driving up insurance rates. Curbing lawsuits has been the state’s primary response to the insurance crisis.
The company found ways to remedy the problems. It reduced its policies in Central Florida, boosted its reserves and changed how it handled claims. It replaced its claims manager and adopted a strategy of closing or settling claims, instead of fighting them.
“We tried to adjust them as quickly as possible, make sure if something went into litigation, we handled it quickly,” Simeone testified. “It was like a total change of philosophy had occurred.”
The shift worked, he said. The company’s frequency of losses “decreased substantially,” he testified.
Although the company’s business was small, it was a valuable business, Sawgrass’ final CEO, Dan O’Neal, said in a deposition last year. It had about 20,000 policies in 2017.
“I thought we were turning it around,” O’Neal told lawyers. “We took all the necessary steps in underwriting to make it a more profitable book.”
Simeone couldn’t be reached for comment, and O’Neal did not respond to requests for comment.
The more dramatic shock to the company came around 2015 and 2016, when it became embroiled in a bitter dispute with the company Sawgrass hired to manage and sell its policies, according to Simeone. That company’s new owners threatened to sell information on Sawgrass’ customers to competitors, which led to a lengthy lawsuit.
“It was very contentious,” Simeone said in the deposition. “And I think ultimately led to the company dying.”
Report blames ‘mismanagement’
None of that history or testimony is mentioned in the Department of Financial Services report produced by Patronis’ office.
The report, which was quietly posted online this spring, focuses only on the company’s final months.
By 2017, Sawgrass was looking to unload its business, and in August of that year, the Office of Insurance Regulation encouraged it to transfer policies, outstanding claims and most employees to Tampa-based Heritage Property and Casualty.
The move effectively ended Sawgrass as an insurance company. In 2018, state regulators took over what was left of Sawgrass — after discovering that its debts were about $3.6 million more than its assets. The company had also failed to fully report how many lawsuits it was fighting.
The state’s report concluded that the company’s failure appeared to stem from “mismanagement and lack of funds.” The report gives no examples of “mismanagement” prior to the company transferring its policies to Heritage.
Quinn, of the American Policyholder Association, noted that records show state insurance regulators had not done a financial examination of Sawgrass since 2011. State law requires regulators to examine companies at least every five years.
On average, the state’s insolvency reports are more than 120 pages long. The only two reports produced since Patronis took office in 2018 were both four pages.
State law requires Patronis’ office to produce reports on every insurance company that goes insolvent. These reports must include “a statement of the business practices of such insurer which led to such insolvency.” Until the Herald/Times wrote about the reports last year, top lawmakers and the state’s insurance consumer advocate, who works for Patronis, didn’t know they existed.
The reports are usually released years after a company goes insolvent because regulators need to wait until the insolvency cases play out in court. To speed up the process, lawmakers last year required Patronis’ department to produce interim reports within four months of a company failure, but those reports have yielded little insight into what happened.
The reports, Brandes said, are essential for lawmakers and the public to learn not just why companies failed, but what mistakes state regulators made along the way.
“It appears nobody wants to point a finger,” Brandes said.
