Florida Retail Federation Self-Insurers Fund Presents Reorganization Plan

 

On June 21, 2010, the Florida Office of Insurance Regulation (“OIR”) held a public hearing relating to the proposed reorganization of the Florida Retail Federation Self-Insurers Fund (“Fund”). 

Presented at the hearing, the Plan of Reorganization (“Plan”) would initially convert the Fund into an assessable mutual insurer, which would be known as the RetailFirst Assessable Mutual Insurance Company, followed immediately by the conversion of that entity into a nonassessable mutual insurer, RetailFirst Mutual Insurance Company. 

RetailFirst Mutual Insurance Company would be reorganized  from a mutual insurer into a stock insurance company to be named RetailFirst Insurance Company.  Simultaneously, a mutual insurance holding company to be named RetailFirst Mutual Holdings, Inc. would be put in place.

For review, the pre-conversion and proposed post-conversion reorganization information is attached.

OIR officials at the hearing included Jeffery Rainey, Libby Thomson, Ernie Domindon, Bob Prentiss, Stacey Wilhite, Mary Mostler and Robin Westcott.  Testifying on behalf of the Plan were Fund Board members and Counsel, as well as Summit Consulting, Inc. and Raymond James representatives. 

Thomas Petcoff, Trustee of the Fund and Director of BusinessFirst Insurance Company (“BusinessFirst”), presented the Plan as unanimously approved by the Fund Board.  He noted that the Plan is in the best interests of the Fund members and is intended to eliminate contingent assessment liability, while providing for flexibility, such as greater access to capital.  

The Fund has seen a decline in its membership base of over 20 percent in the last five years, which is primarily due to its assessment liability.  The proposed Plan was chosen following the consideration of seven alternatives, among which included inaction, selling BusinessFirst to a third party, combining the funds, and others.

Following Mr. Petcoff’s presentation, OIR officials asked a series of questions centered on ensuring that the Plan adequately protects its member policyholders and does not place them in a worse position than the status quo.  In response to the questions, the following information was offered by the Plan representatives:

• The mutual holding company structure poses less risk to members than the current situation.
• Albeit limited, the exposure to excess profit taxes is an issue to consider
• There is unwillingness to offer umbrella coverage with self-insurance funds.
• The current financial situation of the Fund in regard to surplus is as strong as it has ever been,which is why the timing for the conversion is excellent.
• Under the new structure, Fund members will continue to receive dividends, assuming there are adequate Fund profits.
• According to a Raymond James analysis, Fund member rights are undiminished.
• The post-conversion financial condition of the new entities is expected to be excellent.

Member input was solicited about the reorganization, but not in a formal manner.  Agents unanimously support the Plan.

Mr. Petcoff reviewed the history of the Fund and its relationship to the Florida Retail Federation, which had formed a self-insurance fund as a mechanism to grow membership.  This was widely successful for many years, however, that membership has deteriorated during the last four or five years.

The Fund’s dividend structure will not change.  At this time, there is no plan to provide stockholder dividends, but the flexibility to do so if necessary is desired.

The steps of conversion include a series of simultaneous transactions. 

OIR officials continued to express their concerns with member benefits diminishing, such as dividend payouts. Many of the OIR’s concerns appeared to be addressed to the responses of the company presenters, who expressed their commitment to work with OIR staff to ensure proxy statements accurately reflect transactions to policyholders.

Summit Consulting, Inc. will continue to provide services with the same fees and underwriting guidelines.  Summit, a wholly-owned subsidiary of Liberty Mutual currently charges a fixed percentage fee of 14.5 percent of earned premium. Summit representatives noted they are making a very small profit for the services, which were not identified. 

While RetailFirst Insurance Company will focus on Florida retail business, BusinessFirst will focus on smaller accounts with licenses in Florida, Tennessee and Kentucky.  There are no immediate plans for RetailFirst to operate outside of Florida.   Currently, only association members may purchase from the Fund.  However, this will change post-conversion.  Coverage and rates are not expected to change.

The surplus of the current self-insurance fund is $123 million.  Existing dividends will survive the conversion.

Following the OIR questions, there was no other public testimony or comments and the hearing was adjourned.

 

Should you have any comments or questions, please contact Colodny Fass.

 

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