State seeks to sell or liquidate insurer HIG

Insurance Commissioner J.P. Schmidt said he is negotiating with four possible buyers

State Insurance Commissioner J.P. Schmidt has filed a court motion to liquidate property insurer Hawaiian Insurance & Guaranty Co. Ltd.

With this motion, filed Thursday in state Circuit Court, Schmidt seeks to take possession and control of HIG's assets for the protection of its policyholders, creditors and the public. A hearing on the request is scheduled for next Thursday.

The motion was expected, given that state regulators last month took over HIG -- the state's fourth-largest homeowners insurance company -- and were working to find a buyer for the firm and its sister insurance companies.

"This is the next step that we anticipated would be necessary to protect policyholders," Schmidt said. "We are continuing discussions with several parties who are interested in investing capital or purchasing HIG to put it back in a financially stable condition."

Schmidt said he is negotiating with four parties he declined to name who are interested in either purchasing the company or providing HIG with additional capital.

During liquidation, claims will be serviced and paid by the Hawaii Insurance Guaranty Association. Schmidt had no estimate for the total amount of claims.

HIG has approximately 24,000 policyholders in the state.

"We hope to have a solid proposal that will allow us to sell the company by the end of the month," he said.

If no buyer follows through, however, Schmidt said the state would move to liquidate and dissolve the company.

HIG was adversely affected when its parent company, Texas-based Vesta Fire Insurance Corp., defaulted on loan agreements last month. Vesta and its four subsidiary insurance companies were ordered into liquidation on Aug. 1.

But the troubles in Hawaii started as early as May, when several Hawaii banks sent letters to their HIG-insured mortgage holders, advising them to seek another insurer after HIG's bond rating was downgraded to a risky C+.

One of those banks, Bank of Hawaii, said it was adhering to investor guidelines set by Fannie Mae and Freddie Mac, which require a B rating or better, according to the bank's spokesman, Stafford Kiguchi.

Approximately half of the bank's customers, however, opted to stay with HIG until their renewal period.

Ernest Fukeda, president of HIG, remained optimistic.

"This liquidation was a move to further protect us from potential litigation that may arise from our parent company," he said. "There are some transitions involved, but we're moving forward. The light at the end of the tunnel is very bright."

He said a decision on the buyer would be made next week.

Policyholders, meanwhile, will receive written notice about the liquidation. Fukeda estimated HIG has lost about 17 percent of its customers.

Hawaii consumers have several other insurance choices besides HIG, due to several newcomers to the islands, including AAA Hawaii, better known for its travel and auto insurance services, a Korean company called Dongbu Insurance Co. Ltd., and International Catastrophe Insurance Managers LLC, which specializes in hurricane coverage.