Dongbu Insurance Company, Ltd., touted by Gov. Linda Lingle for bailing out Hawai’i homeowners by offering hard to find hurricane insurance, might not have the financial resources to cover storm damage losses to the large condominiums it is now seeking to sign up as clients, according to a recent complaint filed with the state insurance commissioner.

Both Dongbu’s general manager in Hawai’i, Hoe Min Rim, and insurance commissioner J.P. Schmidt, said Hawai’i residents have nothing to fear because of the financial strength of the local firm’s parent company in Korea.

Dongbu is the first ‘alien insurer’ licensed to do business in Hawai’i under a 2004 law that was proposed and pushed forward by the governor. That law eased the way for foreign insurance carriers to use the Islands as a ‘port of entry’ into the broader U.S. market. Dongbu established its U.S. branch in Hawai’i in 2005 and started offering insurance to the public last year.

But the Korean insurer’s decision to offer hurricane and other coverage to condominium associations as well as individual homeowners has drawn unusually strong criticism from a local insurance executive who says Dongbu has misrepresented the financial strength of its local business and does not appear to have the resources on hand to cover claims for property damage to one or more large buildings from a major storm.

Sue Savio, president of Insurance Associates, said the recent close encounter with Hurricane Flossie underscored the issue. She acknowledged that the complaint about Dongbu was filed by an agent in her firm with the company’s knowledge and support.

‘Our concern is that while the parent company is very financially strong and an ‘A’ rated carrier, the way the Hawai’i’s laws work, only the surplus the company has in Hawai’i is attachable’ if the local business folds, Savio said. ‘So if you have them insuring a $40 or $50 million project, all owners would have to go after is their local surplus, which was just $5.5 million at the end of 2006.’

The complaint has already resulted in Dongbu’s agreement to change its advertising by at least temporarily dropping references to the strong financial rating of its parent company in Korea, according to insurance commissioner Schmidt.

A.M. Best assigns ratings to all insurance companies, which are then relied on as indicators of an insurers’ financial strength and safety. Certain clients, including some condominium associations and banks, are required to use only highly rated insurers. Dongbu’s local branch itself is currently unrated by A.M. Best, although it recently received a BBB+ rating from another agency, Standard & Poors.

The situation could create problems for condominium buyers if mortgage lenders shy away from financing deals in buildings insured by the unrated carrier. The state had 1,546 registered condominium associations as of June 30, 2006, representing 142,171 individual apartments, according to the latest State Data Book.

Schmidt said discussions with Dongbu and with insurance rating agency A.M. Best are continuing, but said he does not see any major issues remaining. Dongbu meets the requirements of state law and its entry into the local market has been a benefit to the people of Hawai’i, Schmidt said.

‘When they agree to do business here, the parent company accepts responsibility for any liabilities of the branch,’ Schmidt said.

But critics aren’t convinced.

In recent months, Savio has been warning condominium clients that funds held in Hawai’i by Dongbu are insufficient to cover major storm losses.

‘Small fire, single family residence, no problem,’ Savio said. ‘Big hurricane, big condo, big problem.’

Savio points to Dongbu’s latest quarterly report, which discloses a ’surplus’ in Hawai’i of only $5.8 million as of June 30, less than the replacement value of a single condominium building. Dongbu reported having no stocks, bonds or other investments in the state.

Schmidt declined to disclose documents related to the case, including the complaint, supporting documents, and results of his investigation of the issues, citing a state law allowing such records to remain secret ’so long as the commissioner deems prudent.’

For more reports from Ian Lind, visit [www.iLind.net].

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