A risk-retention group formed to help meet unmet demand for affordable liability insurance among small independent trucking companies and owner-operators is under administrative supervision after generating premium volume that vastly exceeded its business plan due to allegedly improper actions by its former managing general agent.
American Transportation Group Insurance Risk Retention Group Inc. ranked among the most rapidly expanding U.S. property and casualty insurers in 2019, with what the company characterized in its annual statement as "extreme growth" in membership. It initially chalked up the expansion in gross premiums written of 307.1% during the year to "a lack of viable insurance alternatives in the marketplace." But a recent complaint filed in a New Hanover County, N.C., court against MVT Insurance Services Inc. alleged that the Cupertino, Calif.-based MGA sought to "sell as many ... policies as possible, without much regard for proper underwriting and risk analysis."
The suit claims that MVT priced policies on "feel" as its underwriting was "essentially nonexistent." It also alleges that American Transportation's reinsurer terminated its relationship after conducting an audit of the company's practices.
It is unclear whether MVT has responded to the complaint; efforts to locate company officials for comment were unsuccessful.
Not only did American Transportation blow past the less than $4 million in gross premiums written that it had projected for 2019 in a business plan approved by the North Carolina Department of Insurance, but it also required the contribution of a surplus note by the MGA to regain compliance with a regulatory edict to maintain a ratio of net premiums written to surplus of 2-to-1.
American Transportation and the North Carolina regulator entered a voluntary settlement in September 2019 that required the company to maintain that ratio on a rolling-12-months basis by Sept. 30, 2019, according to the regulator's narrative of events. The company obtained a two-month extension to source the additional surplus note. When it failed to comply by the new deadline, the regulator requested that the company discontinue writing new and renewal business.
By the end of January, American Transportation received approval to write renewal business over a two-month period while it worked to resolve outstanding items under the 2019 settlement. The company hit a key milestone in February when its rolling-12-month premiums-to-surplus ratio fell below 2-to-1.
Not long thereafter, however, company officials informed the regulator that an internal review had found that $4 million of the $4.9 million in surplus notes contributed by MVT were allegedly invalid. Rather than funds contributed by the MGA, American Transportation alleged that they amounted to premiums paid to MVT for policies written on the company's paper. The North Carolina Department of Insurance said it received an attestation of the invalid nature of the surplus notes from the MGA's president.
American Transportation in its annual statement said its surplus plunged to $6.7 million as of Dec. 31, 2019, from $10.3 million a quarter earlier. The company produced net premiums written of just under $26 million in 2019, so it was again out of compliance with the North Carolina-mandated premiums-to-surplus ratio.
The situation took another turn at the end of March, as the regulator alleged it received information that MVT's president, Nirmal Kaur, had attempted to remove $1 million from the insurer's bank account. The company further accused Andy Singh of attempting to engage captive management services and negotiate reinsurance on American Transportation's behalf without authority. The insurer alleged in its suit that American Transportation was Singh's "brainchild" and that he effectively served as the "man behind the curtain" at the insurer.
Upon receiving notice of those allegations, the North Carolina regulator acted in April to place the company into administrative supervision. It alleged, among other things, that Singh had "exerted undue influence" over American Transportation given his lack of an officer's or director's role.
The American Transportation board, which by then had been reconstituted to include three new independent directors, had terminated the insurer's officers and the MGA agreement with MVT. It also appointed Michael Hunter, an independent consultant who helped form the internal determination that the surplus notes were invalid, as the company's new president.
The administrative supervision, among various restrictions and limitations, assigns sole signatory authority on the insurer's bank accounts to its independent officers and directors. It gives American Transportation until July 1 to prepare a revised business plan and to adhere to a 2-to-1 premiums-to-surplus ratio.
In the interim, American Transportation filed its March 31 quarterly statement, in which it warned that there is "substantial doubt" about its ability to continue as a going concern in large measure due to uncertainty over the receipt of more than $6 million in premium balances due from MVT. Uncollected premiums and agents' balances in the course of collection constituted $8.6 million of the company's $30.4 million in net admitted assets as of March 31, and its surplus had slipped to less than $5.8 million.
The insurer also said it had filed the complaint against MVT and certain of its representatives. The suit seeks damages in an unspecified sum that American Transportation alleges to amount to "millions of dollars in wrongfully diverted and converted funds."