Hawaii-established hurricane insurer Zephyr Insurance Co. Inc. has been sold by the Canadian insurer that bought it in 2005.

Kingsway Financial Services Inc. said yesterday it had sold Zephyr to an acquisition company led by Florida-based Ocean Harbor Holding Inc. and Honolulu-based MP Holdings LLC.

The Canadian CBC news service reported that Kingsway had “;dumped”; Zephyr for $36 million. It had purchased the then-5-year-old hurricane insurer for $25 million in 2005.

The transaction has not yet been finalized and calls to Zephyr were not returned, but Hawaii's largest hurricane insurer with 70,000 policyholders will retain all 17 employees, a spokesman said.

State Insurance Commissioner J.P. Schmidt noted some positives about the deal.

A unit of Ocean Harbor Holding, Ocean Harbor Casualty Insurance, has operations in Florida, New York and Philadelphia and, in addition to auto and homeowners insurance, has “;provided wind coverage in Florida, so they have some background and experience in that area,”; he said.

“;Also, from my perspective, it is a good thing that we have some local investors as part of the ownership group, so they have familiarity with doing business in Hawaii, familiarity with the Hawaii market and also have concerns for their clients here in this market,”; Schmidt said, speaking of MP Holdings.

MP Holdings is led by Ian MacNaughton and Jeff Arce, both senior executives at the MacNaughton Group. Neither could be reached.

That the MacNaughton Group is involved in real estate development does not necessarily pose a conflict of interest, Schmidt said.

Companies must submit insurance rates for his approval and, by law, rates cannot be inadequate, excessive or unduly discriminatory, “;not just in the constitutionally discussed categories, but it goes beyond that to what is the basis for charging one group more or less than another,”; he said.

Companies must prove that rates are based on “;risk, not business connections, political connections or things of that nature,”; Schmidt said.

There are aspects of the Zephyr purchase “;that we think are good things, but we are going to look at it very closely before giving any kind of approval (on the new ownership).”;

The state insurance office is likely to issue a decision in the next month, Schmidt said.