Majestic Capital unit placed into conservation and rehabilitation

By Caroline Salls

Pittsburgh, April 25 - Majestic Capital, Ltd.'s principal subsidiary Majestic Insurance Co. has been placed into conservation and rehabilitation proceedings by the California Department of Insurance Commissioner, according to an 8-K filed with the Securities and Exchange Commission.

The company said the commissioner simultaneously filed a motion for approval of a proposed rehabilitation plan designed to protect Majestic Insurance's policyholders and claimants from loss connected with the conservation.

Under the rehabilitation plan, Majestic Insurance's insurance liabilities and some assets will be transferred to AmTrust North America, Inc., which will assume responsibility for the administration and payment of all policyholder claims under Majestic Insurance's policies.

The plan also includes a loss portfolio transfer reinsurance agreement, sales of renewal rights and an asset purchase transaction.

AmTrust will also perform all administrative services needed for the adjustment and payment of all pending and future claims that arise under Majestic Insurance's policies.

According to the 8-K, the conservation will not cause any disruption or delay in the delivery of workers' compensation benefits to injured workers covered under Majestic Insurance policies. During conservation, the injured workers will continue to receive benefit payments, and medical providers who care for those injured workers will continue to be paid.

"My first duty is to protect policyholders and the injured workers they insure," commissioner Dave Jones said in a news release.

"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."

According to the release, the New York Workers' Compensation Board filed a lawsuit in December 2009 seeking more than $400 million in damages from Majestic, its parent Majestic Capital and several of the key officers of the organizations.

As a result of this action, AM Best reduced the rating of Majestic Insurance, which in turn decreased premiums written and increased expenses and losses.

The commission said Majestic is licensed to write property & casualty insurance in 17 states but is based in California and subject to oversight, regulation and conservation by the California Department of Insurance.

The San Francisco Superior Court has set a June 2 hearing on approval of the rehabilitation plan.

Reserve deficiencies

At the end of December, Majestic reported capital and surplus of about $58 million, the commission's release said.

However, upon completion of the commissioner's financial examination of Majestic for the period ended Dec. 31, the department determined that Majestic's loss and loss adjustment expense reserves were deficient by $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, which the commission said is too low to permit the company to continue operations outside the protection of a formal conservation.

Majestic Capital is a Bermuda-based specialty provider of workers' compensation insurance.

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