First Nevada’s Hopes End in Liquidation

Reno-based First Nevada Insurance Co. sold its first insurance policy in December 1995. The company sold its last policy a little more than five years later.

Last month, Nevada 2nd Judicial District Court Judge Janet Berry, finding the company insolvent and unable to be rehabilitated, ordered First Nevada Insurance Co. into liquidation and appointed Nevada Insurance Commissioner Alice Molasky-Arman as permanent receiver of the carrier. Three weeks earlier, Molasky-Arman had obtained a court order placing the insurer into receivership.

In December, the Nevada Division of Insurance held an administrative hearing at which Molasky-Arman told First Nevada to infuse a minimum of $1 million in cash into the company within 45 days and additional funds within six months. First Nevada officials, as they had when the Insurance Division made similar demands previously, agreed to do so.

In February, division staff found that First Nevada was nowhere near the state’s minimum requirement of $1.5 million of capital and surplus. In fact, according to Betty Baker, legal counsel for the division, the company had no verifiable assets. At best, Baker said, First Nevada had $700,000 in assets; at worst, it had none. “That finding triggered the liquidation process,” Baker said.

When it was formed in February 1995, First Nevada had lofty goals. It would provide superior, reliable and efficient service to its policyholders and appointed independent agents. It would strive to live up to its name and become the first choice for those individuals seeking nonstandard auto coverage and those small to mid-sized businesses in search of commercial multi-peril policies. It would provide an insurance lifeline to those with bad driving records and businesses with poor loss histories.

So what happened to a company with such high hopes?

In fact, First Nevada never really emerged from the dark clouds hanging over it. When it was incorporated, the insurer received much of its capital and surplus from its sister company, Chicago-based Resure Inc., an ill-fated member of the ill-fated Illinois Insurance Exchange. First Nevada and Resure, which shared a president, Wolfgang Daniel, were both subsidiaries of Las Vegas-based holding company Talon Re Holdings Group.

While First Nevada spent most of 1995 preparing to write business—the company gained its license from the Nevada Division of Insurance in June of that year—Resure had written premium of about $13 million for the year. At the end of 1996, however, Resure stopped writing new business.

In late February 1997, Resure was declared insolvent by the Cook County (Ill.) Circuit Court. The Illinois Insurance Department had found that Resure’s policyholder surplus was impaired by more than $4.5 million. The capital and surplus contributed to First Nevada by Resure was returned, and First Nevada was put up for sale by Resure’s liquidator.

First Nevada spent the rest of 1997 in limbo as the liquidator of its sister company sought a buyer. Finally, in January 1998, First Nevada was sold to Ferdinand Fam, who along with other investors contributed $1.3 million in capital and surplus, according to A.M. Best Co. (Best categorized the company as NR-2, which means that it was not big enough or lacked the operating experience to merit a financial strength rating.)

Soon after Fam bought First Nevada, the Nevada Insurance Division conducted its triennial exam of the company. “We had some concerns with their reserves and called it to their attention,” Baker said.

In mid-2000, the division found that First Nevada’s capital and surplus had dropped below the $1.5-million statutory minimum. The company was asked to make a cash infusion, which it did, according to Baker. By December, First Nevada was about $1 million below the minimum standard. This time, the company was unable to infuse the cash needed to stay in business.

As part of the liquidation order, Fam agreed to pay nearly $300,000 to First Nevada’s estate. Fam, who was president, and Wolfgang Daniel, the vice president, resigned their posts in late February.

First Nevada, which was licensed only in its home state and had more than 40 appointed agents throughout Nevada, had approximately 1,200 commercial and 3,500 nonstandard auto policies in force at the time of liquidation, according to Molasky-Arman.

Based on the liquidation order, all those policies will be canceled by April 11 at 11:59 p.m., unless they expire first or the insured is able to obtain replacement coverage.

The Nevada Insurance Guaranty Association is responsible for paying most claims to a limit of $300,000, once the assets of the estate have been exhausted, according to the Insurance Division, which is currently gathering all the files from claims adjusters and forwarding them to the guaranty association.

“We are addressing this as quickly a possible, but this is a difficult task because many files are located outside the state of Nevada,” the division noted in a statement.

“We hope to have the files to the guaranty association within the next few weeks…In all likelihood, [the guaranty association] will first address claims where cars are in body shops.”

The liquidation order included a minimum stay of 90 days on all lawsuits pending against First Nevada and its policyholders, in order to allow the guaranty association to review the claims. The guaranty association will pay unearned premium to policyholders, less a $100 deductible.

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Topics Excess Surplus