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sptimes.com
Unsettling signs
Unistar Financial Service Corp. swooped in to buy Amscot Insurance when the company was accused of ""sliding'' unwanted coverage into policies. But customers can't yet rest easy. But six months later, Unistar is under investigation, locked in a dispute with Amscot and lacks approval to sell its own products in Florida.
By JEFF HARRINGTON
© St. Petersburg Times, published August 1, 1999
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Florida's media-savvy Insurance Commissioner Bill Nelson donned a pair of cowboy boots, jeans and a baseball cap two years ago and went undercover to investigate charges that Tampa's Amscot Insurance was sneaking unwanted coverage into auto policies.
Nelson said he, too, was cheated by an insurance agent who tacked a $100 charge for towing and car rentals onto his policy. His department said as many as 200 Amscot policyholders had been hit with similarly inflated charges when they wanted only bare-bones coverage.
The resolution came when Amscot owner Ian MacKechnie agreed to sell his insurance business in return for the state dropping its first and only criminal case accusing an insurer of "sliding" unwanted coverage into policies.
The flashy sting operation came in the middle of Nelson's re-election campaign. He won handily, and is now moving on to an expected U.S. Senate campaign. But the almost 20,000 customers of the former Amscot cannot yet be confident they are in good hands.
Unistar Financial Service Corp., a high-flying auto insurer from Texas, took over Amscot's policies and bought the company's 19-location insurance operation around Tampa Bay. But it has plenty of troubles of its own.
Texas insurance regulators are investigating its finances and accounting practices. Industry experts question a $514-million deal that benefited its top executives. And the American Stock Exchange has dropped the company and halted trading of its wildly gyrating shares.
After a meteoric and largely inexplicable rise to $61.621/2 a share, Unistar's stock plummeted 55 percent over two days in mid-July.
Unistar chairman and chief executive Marc Sparks said his company is misunderstood and was victimized by short sellers, probably competitors, who manipulated the thinly traded stock. But the new scrutiny by Wall Street has uncovered more questions about Unistar.
"We're really not sure what's going on with them," Mark Hanna of the Texas Department of Insurance said last week. "All of these red flags are going up, and all of our financial people are huddling."
David Schiff, a longtime industry consultant in New York, wrote a series of scathing columns about Unistar for SNL Insurance Daily. He contends Unistar is still wildly overvalued at $27.621/2 a share and due for a fall. "I don't know that the company is worth anything, and I can't see why anybody would be buying the stock," he said.
Unistar's battle for respect in Florida has been just as difficult.
Six months after quietly buying Amscot Insurance, Unistar has yet to win approval of the Florida Department of Insurance to sell its own products or operate its own premium finance company in the state. Instead, its agents sell auto policies for other insurers licensed in Florida and try to build on Amscot's old network of 15,000 to 20,000 active customers.
That is, assuming customers can find Unistar in the first place.
MacKechnie is still landlord of the 19 Amscot locations in the bay area and still operates Amscot's check cashing and tax preparation services out of them. Unistar has leased space inside each outlet, but MacKechnie has blocked their efforts to put up signs outside.
Richard Ficca, Unistar's St. Petersburg manager, accuses Amscot of tearing down at least one of the makeshift banners Unistar draped outside a storefront. "It's difficult for us," Ficca said. "We're trying to get established. We want to show the consumer we're here, and we want to write business."
Amscot's MacKechnie and Unistar's Sparks both built businesses centered on providing "non-standard" auto insurance to high-risk drivers who do not qualify for standard coverage or do not want to pay for it. But there is no love lost between the two entrepreneurs.
In an interview, Sparks called MacKechnie "a strange bird" who "has made our lives less than perfect" with disputes over the signs and expenses for the shared Amscot offices.
MacKechnie, a Scotland native who built Amscot (which stands for American/Scottish) from scratch, blamed any misunderstandings on Sparks. He said he thought Unistar would continue using the Amscot Insurance name and should have specified otherwise in its contract. "There are certainly areas of disagreement but I believe the document speaks for itself," he said.
It adds up to an awkward debut in Florida for Unistar, a company that bills itself as "the brightest star in the auto insurance galaxy."
Inside its storefront offices, agents promote a folksy image by passing out coloring books with safety tips from Sparky the Dog (modeled after Sparks' West Highland terrier).
Sparks, who has said he wants Unistar to become "the McDonald's of insurance," describes his operation as a one-stop shop providing claims adjusters, body repair shops and premium financing along with insurance.
Though almost all its business now is in non-standard auto insurance, Unistar says it intends to offer everything from standard auto insurance to renter's policies to property and casualty.
Sparks unabashedly predicts the company will have $1-billion in revenues fueled by operations in eight states, including 100 offices in Florida, by 2001.
If so, it has a long way to go. In the first quarter of 1999, Unistar made $1.4-million, or 6 cents a share, on $19.6-million in revenue. That means that even after its shares plummeted, Unistar was trading at an astounding 250 times earnings at $27 a share.
An unconventional beginning
Sparks and two partners began with a reverse merger with a publicly held company in Toronto called Caldera Inc. Caldera, renamed Unistar Financial, paid 19.8-million shares, or $514-million, for its first insurance company, International Surety & Casualty
That deal still attracts skeptical attention from insurance experts and regulators because International and its parent, International Fidelity Holding, were controlled by Sparks; F. Jeffrey Nelson, now Unistar's president and chief financial officer; and a third partner, Nicole Clayton Caver.
International also was -- and still is -- under administrative oversight by the Texas Department of Insurance. The reasons, spelled out in a letter from the department two years ago, included overexposure on one risk, late premium payments from an affiliate and books that were not in order.
Sparks described the Texas review as a minor matter and predicted it would be lifted shortly. "That's not for them to say," shot back Lee Jones, a spokesman for the insurance department. Jones confirmed the department is checking into issues concerning Sparks' operations, including:
n Unistar's stock free fall and allegations of stock manipulation.
n F. Jeffrey Nelson's background. The Unistar president's former family-run company, Texas Central Life, has been in receivership since going insolvent in 1992.
n Sparks' background. The Unistar chief executive personally filed for liquidation under Chapter 7 of federal bankruptcy law in 1987.
n The company's accounting practices, including an unusual practice of classifying customer lists as goodwill and putting them on the books valued in the millions of dollars.
Perhaps the most nagging concerns surround the International Fidelity holding company that was controlled by Sparks and F. Jeffrey Nelson.
When Unistar bought International Fidelity in August 1998, the company had little in the way of tangible assets. The insurance unit's biggest value, Unistar said, was its list of customers who had bought non-standard auto insurance. Unistar valued the customer list at $84-million.
Schiff, the industry consultant, scoffs at the valuation. "It had a negative book value of $10-million and they put it on their books for $84-million," he said.
On July 1, another company controlled by Unistar principals, U.S. Industrial Services, said it planned to buy the International Fidelity unit -- paying just $3-million.
Amid heavy criticism, Unistar scuttled the deal last week. Sparks said the wildly different valuations for International Fidelity and Unistar Insurance are just part of being a publicly traded company. "I don't have a clue" what the company is worth, he said. "It's all supply and demand."
Sparks said critics like Schiff are ill-informed and do not understand what his company is about.
"We're basically a retail agency, a wholesale agency, a premium finance company and a claims firm," he said. "We're everything but an insurance company, but they rathole us into that lackluster environment."
Unistar's strategy, he said, is to use its chain of non-standard auto insurance outlets to build a critical mass of customers that it can use for marketing multiple insurance products.
Tackling Florida
Sparks turned his attention to Florida in general and Tampa Bay specifically late last year. At the time, Amscot owner MacKechnie had only a few months left under a state-imposed deadline to find a buyer
Amscot agreed to the plea bargain with Nelson. MacKechnie, who maintains his innocence, said he agreed to settle only after his own legal bills reached about $1-million.
Sparks said he was approached by MacKechnie late last year and offered a deal he could not refuse. It closed, quietly, within 12 weeks. Neither executive would disclose the sales price but it was clearly less than $25-million, based on the what Unistar said it paid for all its acquisitions at the time.
A month after the Amscot deal closed, Unistar general counsel James Leach flew to Tallahassee to meet with Florida's insurance department and discuss getting permission to operate a premium finance company here that would provide loans to auto customers.
Phil Fountain, bureau chief in charge of agency investigations for the Florida department, said he left the February meeting impressed with Leach. "Overall, I had a pretty good feeling about the company," he said.
Still unclear is just how much the Florida Department of Insurance supervised Unistar from that point. MacKechnie and Sparks insist that Nelson's office was closely involved in approving the deal and that his regulators have been watching Unistar's operation since then.
Nelson did not return repeated calls for comment, but his spokesman downplayed the agency's role in regulating, or even monitoring, Unistar since it entered Florida.
The consent order with MacKechnie did not require the state to sign off on a sale.
Nelson spokesman Don Pride said that, by law, the insurance department regulates individual insurance agents, not agencies or their holding companies. It would have little reason to scrutinize Unistar unless it suspects fraud, he said.
He doubted his boss was even aware of any issues involving Amscot or Unistar once MacKechnie agreed to sell the company.
"This has really not risen to any level that Bill would be involved," Pride said.
Meanwhile, Unistar has been quietly preparing to attract attention in Florida.
In April, the company bought a string of small insurance agencies in the state: Allied Auto Insurance, Mr. Auto Insurance and Accurate Insurance Services. It now has more than 60 locations across Florida. Looking beyond Amscot, the company said it will open the first of four stand-alone locations in the bay area this month.
Within weeks, Unistar executives said they plan to launch a media blitz in the Tampa Bay area with 35 billboards and TV commercials.
"The fun thing about it is we're kind of sneaking into Florida, particularly Central Florida," said Ficca, Unistar's Pinellas chief, "because other insurance companies don't know we're here." |
