Majestic Enters Conservatorship to Transfer Assets to AmTrust

By order of the San Francisco Superior Court Majestic Insurance Company has been placed into conservation. The action was sought by Majestic as part of a plan to separate the company from its troubled parent, Majestic Capital, Ltd. The rehabilitation plan calls for Majestic’s insurance liabilities and certain assets to be transferred to AmTrust North America, Inc. who which will assume responsibility for the administration and payment of all policyholder claims under Majestic’s policies.

“This is not an ordinary conservation,” said John Hernandez, Senior Vice President, Marketing and Product Development at Majestic. “This is not like what we saw in the 90’s  when 28 companies became insolvent.  Instead this is a white knight transaction that protects our brokers’ clients and actually enhances the strength of the company.” 

Hernandez, who has been working on the transaction for weeks, likened the experience to a caterpillar soon to become a butterfly.  “AmTrust has a much higher financial rating and will provide much greater financial security for our brokers’ clients and their workers,” said Hernandez who added the transition should be seemless and no employees are expected to lose their jobs. 

The new company will also offer Majestic’s brokers an inside track into what Hernandez hopes will be a multi-line company that will be able to serve smaller clients (under $50,000 in premium) with familiar underwriting staff. He also expects the company to add brokers as they expand.  A profile of the ideal Majestic broker can be found on their website.

The conservation and rehabilitation plan was supported by the Department of Insurance who issued a press release today outlining the plan. The plan can be found HERE on Majestic's website. 

“The Conservation will not cause any disruption or delay in the delivery of workers' compensation benefits to injured workers covered under Majestic policies. During conservation, the injured workers covered by Majestic policies will continue to receive benefit payments, and medical providers who care for those injured workers will continue to be paid,” said Insurance Commissioner Dave Jones in a statement issued today.

“My first duty is to protect policyholders and the injured workers they insure,” said Commissioner Jones. “For some time, my Department has been concerned with Majestic’s financial condition, and has been carefully monitoring the company to determine if an intervention is warranted to make certain that Majestic can continue to honor its claim commitments. This conservation will ensure that Majestic’s financial obligations will continue to be met.”

In December 2009, the New York Workers' Compensation Board filed a lawsuit seeking in excess of $400 million in damages from Majestic, its parent, Majestic Capital, Ltd, and several of the key officers of the organizations individually. As a result of this action, AM Best reduced the rating of Majestic Insurance Company, which in turn, decreased premiums written and increased expenses and losses.

In December 2009, the New York Workers' Compensation Board filed a lawsuit seeking in excess of $400 million in damages from Majestic, its parent, Majestic Capital, Ltd, and several of the key officers of the organizations individually. As a result of this action, AM Best reduced the rating of Majestic Insurance Company, which in turn, decreased premiums written and increased expenses and losses.

Majestic is licensed to write property & casualty insurance in 17 states, but is domiciled in California and subject to oversight, regulation and conservation by the California Department of Insurance. The company is a specialty provider of workers' compensation insurance products. The company's workers' compensation insurance coverage is offered to employers in California, New York, New Jersey, Arizona, Nevada, and other states.

California Insurance Code Section 1011, authorizes the Commissioner, as Conservator, to conduct Majestic’s business to ensure the ongoing protection of Majestic’s policyholders, creditors and the public interest. The Commissioner has simultaneously filed a Plan of Rehabilitation for Majestic that is based on agreements with AmTrust in which Majestic will transfer all insurance liabilities and certain Majestic assets to AmTrust and its insurance company affiliates. The key components of the agreement include a Loss Portfolio Transfer Reinsurance Agreement, Sales of Renewal Rights, and an Asset Purchase Transaction. AmTrust will also perform all of the administrative services necessary for the prompt and efficient adjustment and payment of all pending and future claims that arise under Majestic’s insurance policies.

The Superior Court has set a hearing date of June 2, 2011, on the Commissioner’s motion to approve the Rehabilitation Plan. Any party wishing to formally support, comment on or object to the motion may file papers with the Court by May 16, 2011.

At the end of December 2010, Majestic reported capital and surplus of approximately $58 million. However, upon completion of the Commissioner’s financial examination of Majestic for the period ending December 31, 2010, the department determined that Majestic’s loss and loss adjustment expense reserves were deficient by approximately $40.9 million, and that its premium reserves were also deficient in the amount of $5.5 million, for a total reserve deficiency of more than $46 million. After increasing the company’s reserves to appropriate levels, the company’s surplus has dropped to just $11.5 million, an amount that is too low to permit the company to continue operations outside the protection of a formal conservation.

During 2010 the Company wrote direct premiums of approximately $69 million (75.5% of total direct premiums) in California, $9.6 million (10.5% of total direct premiums) in New Jersey, and $9.4 million (10.3% of total direct premiums) in New York, its second and third largest markets, respectively.

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