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NEW YORK-Home Holdings Inc. was able to make its $11.6 million interest payment to bond holders last month after a last-minute decision by its troubled subsidiary, The Home Insurance Co., to pay a dividend to the holding company.
The dividend is covered by a special reinsurance provision and will not affect the statutory surplus of The Home.
The late payment is one of a series of problems that has affected The Home since it went in to runoff in 1995. The controversial runoff deal allowed Zurich Insurance Group to take on the profitable business of The Home without assuming the liabilities of its unprofitable business.
Home Holdings was due to make the interest payment in June. Shortly before the due date, The Home announced it would take advantage of a 30-day grace period to defer the decision on whether to make the necessary dividend payment to the holding company (BI, June 23).
Under the structure of the companies, most of the former Home group's assets are held by The Home, which was the principal operating company of the group of insurers under Home Holdings. Any interest payments to the bond holders of Home Holdings have to be financed through dividend payments by The Home.
The issue was complicated further earlier this year when the New Hampshire Insurance Department placed The Home under formal regulatory supervision after the company published worse-than-expected financial results. Under the terms of the supervision, The Home cannot make any single non-claims payment in excess of $500,000 without approval from regulators (BI, March 10).
The Home's directors decided to miss the first payment deadline "to obtain additional information on how the company was developing financially," said Mark Davidowitz, assistant controller and investment relations manager at New York-based Risk Enterprise Management Inc., the Zurich-owned company running off The Home.
The payment is covered by a reinsurance program provided by Zurich that kicks in if The Home eventually runs out of assets to pay policyholder claims. Under the reinsurance contract, Zurich provides $290 million in reinsurance to cover interest payments in addition to a $1.3 billion reinsurance agreement to cover policyholder claims.
Regulators approved the dividend payment plan largely due to the specific reinsurance related to the payment, said David Nichols, the examiner appointed by the New Hampshire department to oversee the runoff of The Home.
A similar interest payment to bond holders is due Dec. 15.