May 1, 2002 – Royal & SunAlliance Insurance, the territory's second-largest carrier of residential property insurance, will stop writing insurance in the Virgin Islands effective Dec. 31, the company's local attorney, Henry Smock, confirmed Wednesday.
Lt. Gov. Gerard Luz James II, who by virtue of his office is the territory's insurance commissioner, said on Wednesday that he received the letter from the Puerto Rico-based company on Tuesday.
In a letter to both the lieutenant governor and Gov. Charles W. Turnbull, Royal & SunAlliance said they would surrender their license at the end of the year. Royal merged with SunAlliance to form Royal & SunAlliance in the mid 1990s. Royal has been writing insurance in the territory for more than 20 years.
Smock said the company would provide an explanation of why it is pulling out of the V.I. market in a couple of days. A call to Jose Velez, the company's assistant vice president, in Puerto Rico was referred to the St. Thomas-based Smock.
The letter Royal & SunAlliance sent to James states that the decision to leave came "after a conscientious evaluation of our business history and results in your jurisdiction."
The company will "continue to serve and assume our legal responsibilities on insurance contracts issued on or before Dec. 31, 2002," the letter said. In other words, if you have a policy written in March of this year, it will be in effect until next March.
James charged that the company is leaving because of his refusal to grant what he said would have amounted to a rate increase. Royal & SunAlliance had asked that it be allowed to increase deductibles and reduce or eliminate discounts for hazard mitigation devices such as hurricane shutters, he said.
According to documents provided by the Insurance and Banking Division, when the government told Royal & SunAlliance that it needed to pay about $3,000 for a rate review by an actuary to see if the rate increase was justified, the company refused.
However, in a hearing held in January it was revealed the Insurance Division had ordered a study done - by Anthony Grippa of Preferred Insurance Capital Consultants - that the insurance companies in fact did pay for. But the report was inconclusive due to insufficient data. Under questioning at that hearing, Grippa admitted he had never put in writing exactly what data he expected the companies to provide. It was also revealed that although the companies writing property insurance in the Virgin Islands had repeatedly asked for a copy of the report they had paid for, they never saw it until the hearing on Jan. 30.
Maryleen Thomas, who heads the Insurance and Banking Division within the Lieutenant Governor's Office, said no one from the companies had "formally" requested the report from her. She said someone from one of the attorney's offices had approached her on the pretext of being a private citizen who wanted to see the report.
(See "Communication but no conclusions at hearing".)
The Insurance and Banking Division considered the Royal & SunAlliance request anyway, James said, but ultimately refused it. Then, he said, the insurance company went ahead nonetheless and stopped giving discounts for hazard mitigation measures. "They have done some serious things to consumers," the lieutenant governor charged Wednesday.
Also, he said, when the company was ordered to make refunds to the customers, it failed to do so.
Last Aug. 10, James issued a formal order to all property insurers operating in the territory to stop eliminating hazard mitigation discounts. At that point, Royal & SunAlliance officials said they would pull out of the territory by last Sept. 1. They subsequently changed their mind and agreed not to issue non-renewal notices to customers.
After an informal meeting on Sept. 18, 2001, with the Insurance and Banking Division, Royal & SunAlliance asked for another rate increase. Company officials agreed to pay for an actuarial study but said they would pull out of the territory if they were not allowed a rate increase.
Last Dec. 19, after two other property insurance companies threatened to leave the territory, James issued a moratorium retroactive to Dec. 1 on non-renewals, in effect ordering all of the companies to continue renewing policies. The moratorium was scheduled to end June 3. (See "Lt. Gov.: Insurance firms can't cancel policies".)
On April 10, Royal & SunAlliance withdrew its request for a rate increase, and James agreed verbally to vacate the moratorium and the Aug. 10, 2001, order after the company agreed to continue renewing policies. He has not signed a written order to that effect. "Little did I know they were planning to pull out. They suckered us in," the lieutenant governor said.
James said the company wants him to vacate the orders so it can apply to write insurance in other jurisdictions with a clean slate.
The clash with Royal & SunAlliance is the latest chapter in James's long-running feud with insurance companies. When he refused to let Royal & SunAlliance raise rates, he did the same with a Lloyd's of London local "facility" that includes the St. Thomas-based Theodore Tunick & Co.
Thomas said the request for a rate increase was denied and matters with Lloyd's have been resolved.
The imminent pullout of Royal & SunAlliance leaves a big hole to fill, according to Steve Martin, vice president at Tunick, which writes Royal & SunAlliance policies. "It's very difficult to attract companies to come to the Virgin Islands," he added.
Royal & SunAlliance writes more than 11 percent of the property insurance in the Virgin Islands. NEMWIL and Lloyd's underwriters are the territoryi's other two largest property insurers, with 7.67 percent and 49.53 percent, respectively, according to an affidavit signed by Thomas in January. The figures reflect Fiscal Year 2000.
Martin said the insurance industry has a lot of negative feelings about the territory. While declining "to get into it," he said that reinsurance, the aftermath of the Sept. 11 terrorist attacks and local regulatory problems contribute to the negative image.
Martin predicted that the pullout will be particularly difficult for AARP, because Royal & SunAlliance has sold property insurance at a discount to the organization's Virgin Islands members.
James, however, said there were problems with the company's AARP policies. He said that Royal & SunAlliance took the $50 million in capacity it used for the AARP policies and used it for high-yield, forced-place policies on mortgages written by Banco Popular. Policies of this type are property insurance policies for people who have difficulty getting insurance.
Since then, James said, Royal & SunAlliance has started writing the AARP policies again.
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