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. Whenever there was a profit made, it would be held within the company or given to the policyholders by way of a distributed dividend or a reduction in their future premiums.
They did not make the full decade before they were forced to close their doors, but no one knows the entire story as to what really caused their demise. There are a few spoilers but no real 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 the duration of 120 days in order to ‘wind down’ their operations. They would continue to be given increments of 120 days at a time until everything was complete in the winding down process including finding another insurer to take over the policies. The word was ‘review by (the office) of the financial condition’ of the company shows that grounds exist for this administrative supervision for not only the purposes of protecting the assets of Sawgrass but also to protect the interests of the policyholders.
The day prior to that, Demotech had done their rating of them. Demotech is a financial analysis firm who rates insurance companies based on their financial viability. Sawgrass Mutual Insurance had submitted a report that indicated preparedness for reinsurance. They then submitted paperwork with differing information which Demotech cited “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 20.3 surplus in the original report down to 13.8 but then 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 else Freddie Mac, are required to be insured by carriers with exceptional ratings from a reputable analyst such as Demotech. They are the company who does most of the analyzing for Florida. Having their insurer downgraded could force policyholders to be placed elsewhere with an insurer with acceptable ratings.
There are also a lot of reinsurance contracts that have 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 the reinsurance is death to your business. 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. This is a type of a safety net that was designed by the state to handle claims of insolvent carriers.
There was also an added issue that 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 had been issued by them. One of Florida’s largest 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 would be able to continue with Heritage if they so chose or they could 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 that they would be the company best suited to protect and offer the best plan to the policyholders. It was only eight days later that these policyholders would have been devastated by Hurricane Irma with no coverage if they had been stuck with Sawgrass Mutual Insurance.
Effective on October 1, 2018, Sawgrass was ordered into receivership for the purpose of liquidating per the Second Judicial Circuit Court of Leon County in Florida. They had no active policies at liquidation. The Department of Financial Services is who serves as the ‘receiver’ of any carrier placed in the receivership within Florida. The Division of Rehabilitation and Liquidation will oversee the plans as well as 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 inclusive of any records and admit 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 litigate 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 their business towards the end. Hopefully, the founders learned some valuable tools in order to pick themselves up, dust themselves off and try it again. Failure is not a bad thing. It just presents a new opportunity. Be sure to look at 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.