State Insurance Commissioner John Oxendine, front-runner in the Republican race for governor, blocked the sale of a bank this week to an insurance company under investigation for funneling $120,000 to his campaign.
Spokesman Glenn Allen said the commissioner’s staff rejected the bank purchase by Rome-based State Mutual Insurance Co. because of concerns over the insurance company acquiring a troubled bank.
In a statement to The Atlanta Journal-Constitution, CEO Delos Yancey III blamed the denial on election year politics.
“The insurance department is hamstrung in its ability to make reasonable decisions that are in line with state law, statute policy and practice because of the vitriolic environment within this negative political and cynical atmosphere,” he wrote.
Asked about Yancey’s remarks, Stephen Puetz, Oxendine’s campaign manager, said: “As insurance commissioner, John puts the interests of Georgians first.”
News of Oxendine’s rejection of the bank purchase comes at an awkward time. An ethics hearing on State Mutual’s donation is set for June 24, only weeks before the July 20 state primaries. Both Oxendine and State Mutual have attacked the hearings as politically motivated.
Yancey is a close friend of Oxendine who has hunted and vacationed with the commissioner. Yancey is chairman of the Georgia Life & Health Guaranty Association, a state-created organization that oversees troubled insurance companies. Oxendine appointed Yancey to the post.
But Yancey’s company had financial problems of its own this year.
In February, A.M. Best, the national credit rating agency for insurance companies, issued a negative outlook for State Mutual, citing the company’s “exposure to real estate-related investments and its declining premium writings.” A.M. Best noted State Mutual’s real estate and mortgage loan holdings were large. Yancey said in his statement that he expected the company’s rating to improve in the next review.
In March, State Mutual settled a class action lawsuit in Alabama that required the company to adjust premiums and payouts for thousands of policyholders. While details have not been worked out, it appears that many holders of life span term policies will see either reduced payouts or higher premiums. Also, State Mutual agreed to pay $500,000 to the lawyers who filed the lawsuit.
Yancey said State Mutual wants to buy a bank in part to unsaddle itself of troubled mortgages.
“State Mutual has a portfolio of mortgages, mainly in the Southeast, which have been impacted by the U.S. economy,” Yancey said. “The purchase of the bank would enable State Mutual to transfer those mortgages to the bank where they would enjoy financial options not available to insurance companies.”
In a May 19 letter to Oxendine, a lawyer for State Mutual wrote the company wanted to buy outstanding shares of Heritage First Bank, which has three branches in Alabama and three in Georgia (two in Rome). Last year, Yancey and other Rome businessmen loaned $5 million to the bank to keep it afloat. In the letter obtained by The Atlanta Journal-Constitution, State Mutual’s purchase price for Heritage First was redacted, however, State Mutual’s attorney wrote the price is “almost miniscule when compared to the assets.” The company wanted to close on the deal by June 18.
Yancey followed up the letter with a personal meeting with Oxendine later in May.
On June 7, Donald Roof, director of the Georgia insurance commission’s regulatory services, wrote to State Mutual’s lawyer that Oxendine’s office would deny such a request “based on the information provided.”
Meanwhile, Oxendine and State Mutual are fighting the state’s probe of the company’s campaign payments.
Last year the AJC reported that State Mutual and a subsidiary, Admiral Life Insurance Co., had sent almost 10 times the legal amount of campaign contributions to Oxendine using 10 political action committees in Alabama. The PACs were started by Donald V. Watkins, a banker who sits on the State Mutual board. The PACs all operate out of his bank, Alamerica, in Birmingham. The bank was once co-owned by Yancey’s father.
Georgia’s Ethics-in-Government Act prohibits officials from taking money directly from companies they regulate. The law also prohibits funneling money through PACs to get around contribution limits of $12,200 per candidate in a normal election cycle.
After the AJC report, Oxendine returned the donations and the Georgia State Ethics Commission launched an investigation.
It issued subpoenas to the Alabama PACs for financial records, but the PACs balked, arguing the commission had no jurisdiction in Alabama. In May, the commission issued subpoenas directly to State Mutual and Admiral Life in Rome.
In a recent letter to the Rome News-Tribune, Yancey defended making political contributions, but did not address State Mutual’s payments through the Alabama PACs.
“Simply, if we do not have a seat at the table, we will not have a voice in the regulations that affect their welfare,” he wrote.
State Mutual filed a lawsuit against the commission arguing the subpoenas were an attempt to hurt Oxendine’s reputation. The subpoenas have been stayed, pending a hearing.
Stacey Kalberman, the ethics commission’s executive secretary, said the investigation has taken so long because the PACs have “delayed, delayed, delayed” in providing financial information.
“We have been thwarted every time we have tried to investigate this,” she said.
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