McCarty and Sink Still Pen Pals

Florida CFO Alex Sink and Insurance Commissioner Kevin McCarty continue their letter writing campaigns to one another on the subject of property insurance. On April 23, Sink sent a written request to McCarty asking for further explanations regarding his actions toward certain property insurers and some recent Orders from the Office of Insurance Regulation (OIR). Sink noted that her request was in part prompted by the “recent insolvency of Northern Capital, (and) the unsound financial condition of Magnolia Insurance Co….” In addition to demanding answers on insurer solvency questions, Sink requested “detailed written responses” regarding what she termed a “strategic change” in reinsurance requirements by the OIR. In his seven-page response dated April 29, McCarty called his actions necessary to “support and promote the private insurance marketplace in Florida while protecting policyholders.” He defended an April 12 OIR Informational Memorandum that eliminated requirements for property insurers to purchase a specific level of catastrophe insurance (except those insurers in the Capital Incentive Build-Up Program). While he conceded that his office has traditionally used the 1-in-100 year mega-storm scenario as one of the stress tests in its reinsurance requirements, he wrote Sink that although this stress test has become an industry standard, it also gives international reinsurers an advantage in the negotiation process. Eliminating the test, he noted, is in keeping with the OIR’s philosophy of protecting the consumer. McCarty also defended his actions regarding Magnolia and Northern Capital. Sink and others have called into question his perceived leniency in allowing teetering insurers to renew or write new property insurance policies. In a carefully worded paragraph, McCarty said he allowed Northern Capital to renew policies because to do otherwise would have caused “uncontrolled deterioration of the book of business” and jeopardized the potential purchase of the insurer by another company. The Miami-based insurer is now set to be liquidated; all policies will be cancelled as of midnight May 30. Magnolia was ordered into receivership on April 30; its estimated 30,000 policies will be cancelled as of midnight May 30. With his long-time ally Gov. Charlie Crist moving out of the governor’s mansion to either Washington or back home to St. Petersburg, McCarty is coming under increased scrutiny by Florida officials and lawmakers. If CFO Sink wins her run for governor, McCarty will most certainly be out of a job.