After struggling since the onset of the last financial crisis, BancInsure, an Oklahoma City-based company that insures banks and other financial institutions, has changed hands, and its former parent company has filed for bankruptcy.
Oklahoma City-based BMSI Holdings Inc. filed for Chapter 7 bankruptcy on Monday, reporting $59.7 million in liabilities against roughly $7,800 in assets.
The holding company sold BancInsure, its primary remaining asset, for $1 to New York-based financial services company Foster Jennings Inc. in February.
BancInsure is under orders from the Oklahoma Insurance Department to strengthen its financial position or risk being placed in receivership, Insurance Department spokesman Kelly Collins said. The Insurance rating agency A.M. Best Co. had downgraded BancInsure's credit multiple times since 2009 due to weak capitalization, before it stopped rating the company last year.
Foster Jennings recently made a new monetary investment in BancInsure that the Insurance Department is in the process of reviewing, Collins said. The amount of the investment was not immediately available from the Insurance Department because the agency was still evaluating its value on Tuesday, Collins said.
A call to Foster Jennings was not returned Tuesday.
“If the company's hazardous financial condition is not fully resolved, OID is prepared to take any and all appropriate action, up to and including appointment of a receiver,” Insurance Department spokesman Collins said.
About the companies
BancInsure provides fidelity bonds and officers' liability insurance to community banks and other financial institutions across the U.S. The company had about $73 million in assets at the end of 2012 and reported losses of $42 million for the year, according to its most recent financial statement on file with state regulators.
The company was founded in Oklahoma in 1985 to help community banks in the state maintain insurance coverage in the wake of the Penn Square Bank failure, which set off a chain reaction of other bank failures in the state, said Roger Beverage, chairman and CEO of the Oklahoma Bankers Association.
“Because banks were failing at a very high rate here, Oklahoma was not a very attractive place for an insurance company to do business at the time,” Beverage said.
BancInsure was chartered by the Oklahoma Bankers Association and five other state bankers associations. Eventually, 15 state bankers associations held equal ownership interest. The Oklahoma Bankers Association maintained an ownership interest in the company until 2003, when it sold its interest to a group of investors led by the late Rod Frates, an Oklahoma City businessman.
The company had struggled in recent years after the onset of the financial crisis in 2008, Beverage said.
“We could see that it kind of snowballed,” Beverage said. “Their credit was downgraded, and that put more pressure on them to raise more capital; they had some losses, and it was a pretty rapid decline.”
The liabilities of BMSI, BancInsure's former parent company, included a $49 million damage claim dating to 2009 from the Dallas-based company Breckenridge Enterprises Inc., according to the company's bankruptcy filing. The nature of the claim was not immediately clear, and a call to Breckenridge's corporate offices was not returned Tuesday.
The company's liabilities also included about $14.3 million in trust preferred securities and former BancInsure CEO Rodney Sargent's unpaid $300,000 bonus from 2010, according to court documents.
Calls to BancInsure's Oklahoma City office and BMSI's attorney were not returned Tuesday.