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Largest private insurer in Florida fined $1.3 million for long list of violations, abuses

The state’s largest private property insurance company has been violating state law, mistreating customers and shifting profits to affiliates for years, according to an order released Thursday by the Office of Insurance Regulation.

Universal Property and Casualty Insurance Company has been fined $1.3 million for a laundry list of violations ranging from mismanaging its money to wrongfully denying insurance claims to failing to maintain appropriate records. Many of the violations are repeat offenses for the company, since regulators flagged the much of the misconduct in 2005.

The fine, if it holds, would be one of the largest ever levied against a property insurer.

Fort Lauderdale-based Universal has more than 542,000 policyholders, and is 15 times as large as it was in 2004. During that rapid growth span, regulators say, it built up a habit of breaking insurance rules and using questionable financial practices. Universal officials did not respond to requests for comment Thursday.

The company was blasted last year by the Insurance Consumer Advocate, Robin Westcott, for it’s practice of “post claim underwriting.” After homeowners filed insurance claims, the company scrutinizes the initial policyholder application, to see if any mistakes had been made. If the homeowner failed to report a credit issue on the initial application, Universal denies the claim and cancels the policy.

“This practice is reprehensible and should cease immediately,” said Westcott last month, urging the Office of Insurance Regulation to investigate.

OIR found that Universal was indeed cancelling policies after policyholders made claims, leaving homeowners who thought they had insurance with huge repair bills and no coverage.

"For far too long, this company unjustly denied claims and forced consumers into financially devastating situations," said Chief Financial Officer Jeff Atwater, in a statement.

The company also made several other violations, cited in the 19-page OIR order (which is subject to challenge by Universal before it becomes final). They include:

--          Canceling policies without justification (a “repeat violation” from a 2005 order)

--          Requiring homeowners to produce multiple “notarized proof of loss” documents after making a claim.

--          Not keeping a copy of consumer complaints, as required by regulators and Florida statutes

--          Several money-management issues, some of which are detailed below.

According to regulators, Universal’s business plan included paying out lots of money in fees to affiliated companies. Those affiliates amassed large profits, while Universal ended up with losses.

“The occurrence of losses at (Universal) and profits in the affiliates raises concern as to the fairness and reasonableness of intercompany arrangements in times of declining market conditions,” the order states.

For example, Universal paid more than $86 million in fees to affiliates in 2010. One of those affiliates made $44 million in profit while Universal lost money in 2009.

The company also paid a reinsurer more than $18 million for backup insurance, but guaranteed that the unregulated company would receive a 25 percent profit. The arrangement, flagged by regulators, has since been terminated.

Partly as a result of large fees to affiliates, Universal’s loss ratio was incredibly high compared to other insurers.

“Industry loss adjusting expenses over gross losses paid for 2010 claims ranged from 1 percent to 8 percent, whereas (Universal’s) direct loss adjusting expenses over gross losses paid was 39 percent,” the report states.

The company’s CEO, Bradley Meier, also had sole discretion over a highly active investment portfolio, which made an average of 23 trades per day, racking up at least $2.3 million in fees and commissions in the 18 months leading up to June 30, 2011. Half of the stock trades were in mining and precious metals companies.

Meier was the only official involved in more than 5,700 trades, which did not yield favorable results to the company relative to the broader market, regulators found.

The company actually lost money on investments in the first six months of 2011, while the rest of the industry saw investment gains during a healthy period for the stock market. OIR said the trading activity violated state law.

Meier resigned from Universal earlier this year, though he remains a paid advisor for the company. He sold more than 1.5 million shares of company stock last year, yielding about $5 million.

Universal and its affiliates have 99 bank accounts and several check numbers were missing from the check sequence reviewed by regulators. The company said the checks had jammed in the printer or were printed incorrectly and discarded.

Meier has an address located in the exclusive wealthy community of Golden Beach in South Florida and has been listed among the highest paid CEOs in South Florida in recent years. His compensation package from Universal was about $4 million in 2011, according to Forbes.