Commercial Auto Insurer First Keystone Found Insolvent

The South Carolina Department of Insurance last week declared an insurer that specialized in providing commercial auto insurance to be insolvent and the insurer is now being liquidated.

The First Keystone Risk Retention Group Inc. wrote taxis and other commercial vehicles. Officials said that 80 percent of its business was in Pennsylvania and New Jersey, with 20 percent in Virginia and Maryland.

It was also licensed to do business in Delaware, Virginia, North Carolina, Georgia and Massachusetts.

The liquidation order was signed on Oct. 21 by Judge L. Casey Manning of the Fifth Judicial Circuit Court in Richland County.

Special Liquidator Michael FitzGibbons of FitzGibbons and Co. in Scottsdale, Ariz., who was appointed by South Carolina Insurance Commissioner Ray Farmer, said the insurer’s demise came from writing high policy limits.

“The whole book of business from 2010 and prior did them in,” said FitzGibbons. “In 2011 the company started writing minimum limits according to the insurance laws per state.”

FitzGibbons said that First Keystone had $7 million in annual premium in 2013, a figure it was on pace to meet this year.

FitzGibbons said the insurer currently has about 800 open claims.

The plan is to stop accepting further claims in February next year.

All of Keystone’s policies have been cancelled.

The Philadelphia Parking Authority reported that out of the 1,600 taxis operating in the city, 466 had to secure coverage through a new insurer or stop doing business.

The Pennsylvania Public Utility Commission also informed 66 cab companies they had to secure replacement coverage or stop doing businesses. The order applies to six companies doing business in Harrisburg.

FitzGibbons said most all of those companies have already found coverage elsewhere.

“That book of business is gone, it just evaporated,” said FitzGibbons.

First Keystone, which is based in Philadelphia, was granted a license by South Carolina in September 2003 on the condition it maintain $2.4 million in capital and surplus.

First Keystone’s total capital and surplus is now estimated to be roughly negative $3 million, officials said.

In 2011, First Keystone hired the insurance actuarial consulting firm Towers Watson to review its financial status including its annual losses and loss adjustment expenses.

Towers Watson, after reviewing First Keystone’s loss data as of June 30, 2014, in September called for a substantial adjustment in First Keystone’s reserves. Based on a review of the insurer’s losses and loss adjustment expenses, Towers Watson called for an upward adjustment of about $2 million.

While First Keystone had reported losses and loss adjustment expenses of $6.7 million, the Towers Watson estimate increased that amount to nearly $9 million. That left the insurer with just $195,645 in adjusted capital and surplus, well below the $2.4 million required by South Carolina.

The company’s officers and directors denied wrongdoing and did not fight the liquidation order.