Insurance reform group wants SEC probe of short pitch ahead of slump

An insurance reform group is asking the Securities andExchange Commission to investigate a hedge fund manager’s November “short pitch,” which immediately preceded a 31 percent decline in the stock price of a Fort Lauderdalebased insurance company.

Anthony Bozza, founder of Lakewood Capital, made false, incomplete or misleading statements about Universal Insurance Holdings in a Nov. 17 presentation at the Robin Hood Investors Conference in New York, charges a letter signed by Jay Neal, president and CEO of the Florida Association for Insurance Reform.

Bozza’s statements spread quickly among investors later in the day. One financial website, businessinsider. called the presentation “an epic takedown” and reported that another hedge fund manager told attendees “it was the best short pitch he had seen in his 25-year career in the hedge fund space.”

In its letter dated Wednesday, Neal recounted details of Bozza’s talk as reported by two of the presentation’s attendees. “If their notes are accurate, Mr. Bozza’s presentation on the financial ability of UVE to pay claims from a catastrophic event and handling of claims contained numerous assertions that were misleading, contained material omissions of facts or were false,” Neal wrote.

“I just saw it as an attack on Florida’s insurance market, and on its consumers, and I thought a response was in order,” Neal said in an interview Wednesday. “It’spretty clear tomeitwas adeliberate manipulationof Universal’s stock price. Who benefited, directly or

indirectly, I don’t know. That’s for the SEC to find out.”

Efforts by the Sun Sentinel to reach Bozza and Universal Chief Operating Officer Stephen Donaghy were unsuccessful on Wednesday.

In a short pitch, a manager makes a case for why he believes a company’s stock will decrease in value. In a short sale, a trader sells stock he doesn’t own but has borrowed in the belief the price will decline later. After it declines, the trader buys the stock at the lower price and pays it back, pocketing the difference between the original and lowered price.

Universal’s stock had been trading on the New York Stock Exchange at more than $20 a share throughout 2015. On Nov. 16, its price closed at $29.87. After Bozza’s presentation on Nov. 17, the price closed at $20.69. Although the price had recovered to $24.23 on Dec. 29, it hasn’t closed over $20 since March 8. On Tuesday, the stock closed at $17.84.

FAIR’s letter states that Bozza’s presentation led listeners to conclude that Universal did not have the financial ability to pay claims resulting from all risks, especially catastrophic risks, and did not treat their policyholders in good faith by providing adequate coverage and paying claims when due — two issues in which FAIR has “a substantial interest.”

Statements by Bozza cited in FAIR’s letter included:

Ratings firm Demotech, which gave Universal an “A” rating, is a “joke of a firm.” “Demotech, which just celebrated its 30th anniversary, is most certainly no joke,” Neal wrote. “They rate over 420 insurance companies nationally” and require that rated companies be able to pay claims after three major storms in a single season.

Universal was among “small, thinly capitalized Florida insurers” that grew through the transfer of policies from state-run Citizens Property Insurance Corp. “In fact, [Universal] has not assumed any Citizens policies since a small transaction in the 1990s,” Neal wrote.

Universal’s claims operation is “shoddy” and the company denies claims “at every opportunity.” Neal called the statements “an alarming accusation to levy against the largest private property insurance company in Florida.” He noted that FAIR was “very critical” of some Universal claims practices in the past — in particular, reports of the company denying claims after finding inaccurate information in policyholders’ original applications. But the Florida Office of Insurance Regulation levied a record fine against Universal in October 2013 and “by every indication, the company ceased this practice in 2013,” FAIR’s letter states.

Universal’s complaint ratio is 55 percent higher than its peers’. Neal wrote that complaints against Universal filed with the state Department of Financial Services “improved significantly” beginning in 2014 and ranked above average in the first three quarters of 2015. “There is no [measurement] that supports Bozza’s statement,” Neal wrote.

Neal’s letter concludes that “Bozza’s reckless presentation was intended to manipulate the stock price of a publicly traded company.

“His actions threaten both Florida insurance consumers and market stability and must be sanctioned. … This was more than an assault on a single company. This was an unjustified attack on the welfare of Florida insurance consumers. He must be held to account.”

FAIR’s letter was addressed to Mary Jo White, chair of the SEC, and copied to the agency’s Miami region office, plus all of Florida’s congressmen and senators, Florida Gov. Rick Scott, Insurance Commissioner Kevin McCarty and chairs of several state regulatory committees.

Reached by email on Wednesday, SEC spokeswoman Erin Stattel said the agency declined comment.