Sawgrass Mutual Insurance opened its doors for business in 2009 at its home office in Sunrise, Florida, where it would provide property insurance plans for its residential policyholders. It was a mutual insurance company meaning that it was co-owned by the entirety of its policyholders. Therefore, whenever a profit was made, it would be held within the company or given to the policyholders through a distributed dividend or a reduction in their future premiums.

They did not make it the entire decade before they were forced to close their doors, but no one knows the whole story as to what caused their demise. There are a few spoilers but no actual hard-hitting facts. One thing is for sure, within one day of the twenty-fifth anniversary of Hurricane Andrew and with less than a month until Hurricane Irma’s presence would be felt, Sawgrass was put on administrative supervision for 120 days to ‘wind down’ their operations. They would continue to be given increments of 120 days until everything was complete in the winding down process, including finding another insurer to take over the policies. The word ‘review by (the office) of the financial condition’ of the company shows that grounds exist for this administrative supervision not only to protect the assets of Sawgrass but also to protect the interests of the policyholders.

The day before that, Demotech had done their rating of them. Demotech is a financial analysis firm that rates insurance companies based on their economic viability. Sawgrass Mutual Insurance had submitted a report that indicated preparedness for reinsurance. They then submitted paperwork with differing information, which Demotech cited as “their surplus and other financial metrics” no longer supported the previous rating that they had been given, which had been an A-exceptional. They were now being downgraded to an L which merely stood for licensed but not qualified for a higher grade. There were indications that they had gone from a 20.3 surplus in the original report down to 13.8 but fell even further to 10.2 in the second quarter financial report.

Getting a devastating reduction in grade from Demotech has repercussions severe enough that a business would likely not survive. Any policyholder whose home mortgage has been guaranteed by a federally-backed lender, e.g., Fannie Mae or Freddie Mac, must be insured by carriers with exceptional ratings from a reputable analyst such as Demotech. They are the company that does most of the analysis for Florida. Having their insurer downgraded could force policyholders to be placed elsewhere with an insurer with acceptable ratings.

There are also many reinsurance contracts with clauses within them that will term coverage with a carrier if they lose their rating. With all of the natural disasters that can occur in Florida, not having reinsurance is death to your business. However, the policyholders have a bit of a reprieve because if they suffer a loss in a storm and the reinsurance has been revoked due to this clause, the claims would then have to be covered directly by Florida’s Insurance Guaranty Association. The state designed this type of safety net to handle allegations of insolvent carriers.

An added issue also stemmed from a lawsuit between Sawgrass and a large holder of one of the company’s equity notes. Sawgrass management team conceded that it ‘could not be resolved.’

By September 1, 2017, Sawgrass Mutual Insurance had canceled all of the insurance policies that they had issued. One of Florida’s most prominent property carriers, Heritage Property and Casualty, revealed that it took over upwards of 17,000 policies as part of the state-supervised wind down with Sawgrass. There were letters sent to the Sawgrass policyholders explaining that their policies were being taken over by Heritage at no extra fees for the remaining duration of their policy terms. After expiration, they could continue with Heritage if they chose or move on with another carrier. Those who did not want to stay with Heritage had a forty-five-day opt-out period.

Sawgrass had taken time and effort in analyzing and evaluating the various proposals that came in for the chance to take their business. They chose Heritage because they felt they would be the company best suited to protect and offer the best plan to the policyholders. Only eight days later, these policyholders would have been devastated by Hurricane Irma with no coverage if they had been stuck with Sawgrass Mutual Insurance.

Effective October 1, 2018, Sawgrass was ordered into receivership to liquidate per the Second Judicial Circuit Court of Leon County in Florida. They had no active policies at liquidation. The Department of Financial Services serves as the ‘receiver’ of any carrier placed in the receivership within Florida. The Division of Rehabilitation and Liquidation will oversee the plans and coordinate and direct the receivership process for the department.

WHAT DOES A RECEIVER DO

• Classify and take possession of all of the assets of the insurer’s assets, including admitting them, under the court’s order.
• Hire representatives and train/compensate them.
• Help with the transition for policyholders to the other insurance carrier.
• Do evaluations to try to determine the cause of the insolvency.
• Act as a collector for outstanding monies due to the insurer.
• Try to prosecute as much as possible to recover any monies that may be due to the insurer for the sake of the policyholders and other creditors.
• Sell the assets of the insurer, both real and personal property.
• Take an evaluation of gains and pay with any available assets.

This is absolutely a devastating, humiliating, and humbling process for a company to go through. Sawgrass Mutual Insurance struggled with its business towards the end. Hopefully, the founders learned some valuable tools to pick themselves up, dust themselves off and try again. Failure is not a bad thing. It just presents a new opportunity. Be sure to look at the other partners listed here. Just because Sawgrass isn’t in business doesn’t mean that it’s not possible to find a great company here.