New York regulators reached settlements Thursday with QBE requiring $10 million in civil penalties and revised practices for insuring troubled mortgage loans.
The Department of Financial Services said the agreements also call for restitution to homeowners erroneously charged for or driven into default by force-placed insurance. Those policies are obtained by lenders when homeowners fail to maintain coverage required by the mortgage, often because they are in financial trouble.
It followed a similar settlement last month by Assurant Inc. The two companies are responsible for at least 90 percent of that coverage in New York, and the settlements should result in far lower premiums, according to the department. Its investigation found higher premiums charged to homeowners for lesser protection, finding some were two to 10 times more expensive than voluntary insurance policies.
"We now need to ensure that the entire industry in New York - 100 percent of it - is subject to our reforms," department Superintendent Benjamin Lawsky said. He recently sent letters to insurance commissioners in other states urging they take similar steps.
The DFS alleged that the companies violated state insurance law. The settlements don't admit wrongdoing.
"QBE denies that its practices were illegal," said Andrew Sandler, attorney for the Sydney, Australia-based company. "QBE resolved the case solely to put it behind it and to avoid additional cost and the continued diversion of management time and attention to this matter."
In 2011, QBE acquired the force-placed insurance business of Balboa Insurance Co., a subsidiary of Bank of America. Balboa provided that coverage on mortgages serviced by the bank and by fallen mortgage giant Countrywide Financial Corp., which the bank acquired in 2008. Thursday's settlements specified a $4 million penalty for QBE and $6 million that QBE will pay for Balboa's practices.
"Banks were looking for high prices and high premiums. And they were happy to pay them," Lawsky said, addressing an economic conference later Thursday in Manhattan. "Why? Because a good portion of the premiums were being funneled back to the banks in the form of commissions."
"All of this, mind you, at the expense of homeowners and investors, who ultimately got stuck with the bill," he said.
The settlement requires QBE to file a premium rate in New York with a permissible loss ratio of 62 percent, reflecting the portion of premiums paid in claims, with annual reporting and rates refiled every three years. If its actual loss ratio drops below 40 percent in the preceding year, it must refile to raise it.
It prohibits the company from paying commissions back to mortgage banks, servicers or affiliates for policies. It requires refunds through a third-party administrator for homeowners with force-placed policies since 2008 who defaulted on mortgages because of them or who were erroneously charged wrong rates or for policies when their own were still in force.