Judge rejects State Farm rate hike

A Tallahassee judge has rejected State Farm's bid for a 47 percent hike in property insurance rates, raising the specter that Florida's biggest private insurer could drop a significant number of policies statewide.

State Farm's original request was turned down by Florida Insurance Commissioner Kevin McCarty. In an appeal, the insurer said it could have justified a 67 percent increase because costs have spiked.

State Farm said it is collecting less in premiums because of big discounts given to customers who strengthen their homes against hurricanes.

Administrative Law Judge Daniel Manry rejected those arguments, writing that State Farm Florida did not prove that its rate filing "is not excessive, inadequate, or unfairly discriminatory.''

State Farm officials have repeatedly warned of potentially dire consequences if they were turned down — that they may have to shed a large number of policies or even pull out of Florida.

With about 1-million property insurance policies in Florida, State Farm of Bloomington, Ill., is by far the state's biggest private insurer, second only to state-run insurer of last resort Citizens Property Insurance.

Citizens' policy count has fluctuated dramatically: It swelled to 1.4-million in 2007 as private insurers fled because of the risk of hurricanes and their inability to persuade regulators to back double-digit rate hikes. But over the past year, small private insurers and start-up companies have selectively taken several hundred thousand policies out of Citizens.

The flood to Citizens left State Farm as the sole major private insurer, bigger than the next eight carriers combined. It has about 100,000 policyholders in the Tampa Bay area, almost one out of every six homeowners.

State Farm spokesman Chris Neal would not address whether State Farm would drop policies. But in a statement, Neal said the facts presented to Manry "should have led to a different recommendation.''

"We need to be able to pay our customers' claims, particularly those due to catastrophic events such as hurricanes. Our rate request is justified and necessary to stabilize State Farm Florida's rapidly deteriorating financial condition and to serve those customer needs,'' Neal said.

"We acknowledge that this rate increase poses a difficult situation for our customers, especially in light of these tough economic times; however, it is the only responsible choice.''

In rejecting State Farm initially, the state Office of Insurance Regulation said the company didn't follow state law and properly pass on to their customers savings from buying the state's cheap back-stop insurance.

McCarty's office has 30 days to issue a final order endorsing the judge's recommendations. Ed Domansky, a spokesman for McCarty, said there would be no further comment because the insurance commissioner acts as the final hearing officer.

Although McCarty is expected to echo Manry's recommendation, State Farm Florida urged him to take into account its "rapidly deteriorating financial condition.'' Earlier, State Farm Florida told employees it lost $200-million the first nine months of the year despite the lack of a major storm and continues to lose $20-million to $25-million a month.

After McCarty acts, State Farm could appeal to the 1st District Court of Appeal, but that route can be expensive and hasn't been common.

Earlier this year, administrative law judges ruled against Florida Farm Bureau and Hartford Insurance, which were some of the first companies to appeal the state's rejection of their rate hikes after lawmakers made it tougher for insurers to raise rates in 2007. Neither of those two companies subsequently filed an appeal.

Jeff Harrington can be reached at harrington@sptimes.com or (727) 893-8242.

[Last modified: Dec 15, 2008 04:18 PM]

source: tampabay.com


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http://www.tampabay.com/news/business/banking/article936107.ece

New companies encouraged to insure in Florida

By Kris Hundley and Jennifer Liberto, Times Staff Writers
In print: Sunday, November 23, 2008

---

When it comes to Florida property insurance, political realities in Tallahassee are clashing head on with traditional industry standards of fiscal responsibility. The homeowner is caught in the middle.

The political reality is that elected officials, responding to residents' complaints and concerns about the state's multi­billion-dollar claim exposure, want to keep rates in check and reduce the size of the state insurer of last resort, Citizens Property Insurance Corp.

But in doing so, the state has been pushing some of these new insurers to write far more policies relative to their surplus than is considered safe by traditional property insurers.

Florida's Office of Insurance Regulation has approved more than a dozen new insurers to take about 400,000 policies out of Citizens this year. Until recently, takeout companies that received state incentive loans were also required to bring in at least $2 in premiums for every $1 of surplus, the pot of money insurers build to pay claims. The message: Write as many policies as you can.

But in the property insurance business, a rule of thumb for financial stability is that companies should have about 90 cents to $1 in premiums for each $1 held in surplus. That means insurers who meet Florida's much higher ratio are automatically considered much riskier by industry standards and major rating agencies.

"Those insurers are assuming more risk relative to the premiums they write, not to mention they're operating in a very volatile environment such as Florida,'' said Robert Hartwig, president and chief economist of the Insurance Information Institute, a trade association in New York City.

"It's interesting the state has such a rule, but not all that surprising. If the companies had a ratio of 1-to-1, they would not be able to depopulate Citizens as much."

Jack Nicholson, Florida's catastrophe fund senior adviser, who runs the loan program, said that the idea behind requiring smaller companies that got state loans to write a lot more premiums was to quickly bring new private capital into Florida. He said in hindsight, lawmakers and insurance experts realized they hadn't considered all the implications.

"We were like, wait a minute, that's aggressive. That might be too aggressive," Nicholson said.

Louisiana, another state eager to attract new insurers, requires more than double what Florida requires new insurers to keep on hand to pay claims. "Florida's more desperate," Hartwig said. "Offloading policies into startup companies is of greater importance there.''

The upshot is that of the 14 insurers approved to take policies out of Citizens in 2008, only one has been rated by A.M. Best, the gold standard in insurance ratings, and that rating was "weak."

That means homeowners trying to research the stability of takeout companies bidding for their business find themselves trying to sort through competing ratings from lesser-known rating services.

Some homeowners are opting to stay with Citizens. Hartwig said he might do the same if he were in a Floridian's shoes.

"If you're concerned, you might as well stay with Citizens because at least you know Citizens will be able to effectively tax everybody for your claims," he said. "You may be paying more than with a takeout company. But it may buy you some peace of mind."

American Integrity Insurance Co., Tampa

Takeout policies: 22,563 (2008)*, 108,729 (2007)

Majority owner is Dallas real estate developer and investor James E. Sowell, who also owns Sergeant's Pet Care Products and a home health company. American Integrity's president and 22 percent owner is Robert C. Ritchie, who has two decades of insurance experience, including American Modern Insurance Group. American Integrity received a $7-million Florida incentive loan from the state in June 2007. The company was rejected for an incentive grant in Louisiana in May after failing to meet that state's capital requirement. The company and its affiliates donated $42,500 to Florida candidates and PACs in 2007-2008.

Argus Fire & Casualty Insurance Co., Miami Gardens

Takeout policies: 10,105 (2008), 11,622 (2005)

Argus assumed its first takeouts of Citizens' policies in 2005, when it qualified for a state bonus now worth $2.4-million. Argus is a wholly owned subsidiary of United Automobile Insurance Co., owned by the Parrillo family. United Auto insures drivers with blemished records or poor credit ratings in 12 states. Among Argus' assets is a 35-foot Donzi speedboat. Argus, incorporated in 1994, is the only 2008 takeout company to be rated by A.M. Best, receiving a C- (weak) rating. Argus has the highest complaint ratio (share of closed complaints compared to market share) of the takeout insurers, according to data compiled by the National Association of Insurance Commissioners.

Avatar Property & Casualty, Tampa

Takeout policies: 11,623 (2008)

Avatar is the latest insurance play involving Dr. Kiran Patel, who made $200-million on the sale of WellCare HMO in 2002. Other founders include Sandip Patel (no relation to Kiran), WellCare's former counsel and a real estate developer (Orion Communities) who recently dropped plans for a Ritz-Carlton in Tampa. Avatar's president and controlling investor is Hitesh Adhia, a CPA, fund manager and former financial accountant with Florida Farm Bureau Insurance Cos. Avatar was started with a $10-million loan from its parent company, Avatar Partners, a limited partnership controlled by Adhia. The company's first takeouts took place in June.

Edison Insurance Co., St. Petersburg

Takeout policies: 1,901 (2008)

Edison's president and chief executive, David M. Howard, was president and chief executive of Insurance Management Solutions Group, a spinoff of St. Petersburg's Bankers Insurance, which was sold to Fiserv Inc. in 2003. Howard was an executive with Bankers Insurance in 1995 when it hired private investigators to spy on Florida's insurance regulator, Kevin McCarty, after it lost a state contract. Edison's chairman, Gary V. Trippe, has run an insurance agency in Fort Myers since 1981. Since forming in 2005, the company has given $13,800 to Florida insurance PACs. Edison was funded with $10-million from managers and investors, with no shareholder having more than a 10 percent interest.

Federated National Insurance Co., Lauderdale Lakes

Takeout policies: 15,000 (requested 2009), 13,814 (2004)

Owned by publicly traded 21st Century Holding Co., of which Federated president Michael H. Braun is chief executive. 21st Century was sued by shareholders in March for allegedly inflating its 2007 earnings estimates. Federated was fined by Florida's insurance regulators in 2001 and twice in 2005, including a $10,000 fine for failure to acknowledge claims in a timely fashion. Federated has postponed its 2008 takeout of 15,000 policies until January 2009.

Florida Peninsula Insurance Co., Boca Raton

Takeout policies: 48,217 (2008), 45,980 (2007), 9,974 (2006), 75,556 (2005)

Florida Peninsula received a $25-million loan from the state in 2007. Aleritas Capital of Overland Park, Kan., loaned the company an additional $20-million to meet Florida's matching requirement, with private investors contributing $5-million. Company president Roger Desjadon was previously president and chief executive of Prudential Property & Casualty Co.; other major shareholders include Paul Adkins of Boca Raton (17 percent) and Gary A. Cantor of Ocean Ridge (15.6 percent). Florida Peninsula, in business for four years, had the second-highest complaint ratio of the takeout insurers, according to data from the National Association of Insurance Commissioners. Since forming in 2005, the company has given $47,600 to Florida political campaigns.

Homeowners Choice Property & Casualty Inc., Clearwater

Takeout policies: 81,298 (2008), 13,702 (2007)

Homeowners Choice began operations in July 2007, raising about $12-million in a private placement offering. The company went public in July 2008, netting about $10-million toward its surplus. Homeowners' directors include Tampa attorney Martin Traber, Clearwater developer Gregory Politis, and Clearwater developer and investor Paresh Patel; all three also are directors of NorthStar Bank in Tampa. Company president Francis McCahill has worked in insurance for 38 years, including 12 years managing risk for Bristol-Myers Squibb Corp., Norton Simon and Harris Corp.

Homewise Preferred Insurance Co., Tampa

Takeout policies: 19,507 (2008), 30,474 (2007), 31,654 (2006)

Homewise assumed its first takeouts in 2006, targeting homeowners previously insured by bankrupt Poe Financial Group. It has now expanded into Texas, Louisiana and South Carolina. President Dale Hammond has 38 years of experience with insurers, including Unitrin and First Floridian (Travelers). The insurer received $8-million in capital in 2008 from parent Homewise Holdings Inc., which is controlled by HBK Capital Management in Dallas. HBK calls itself one of the largest hedge fund managers in the world. Four HBK managers, including managing director William E. Rose, are Homewise directors.

Landmark One Insurance, Miami

Takeout policies: 15,619 (2008), 8,822 (2007)

Landmark One was formed in 2007 as a sister company of Northern Capital Insurance so both companies could qualify for extra reinsurance from the Florida Hurricane Catastrophe Fund. Landmark was funded with $9-million from Northern Capital Inc., parent company of both insurers. The two companies share the same executive team, which includes majority owners Alexander Anthony and Albert Fernandez, former partners in a 22-year-old Miami insurance agency. Chief operating officer Juan Carlos Miguelez was previously director of Florida's Insurance Commissioner's office in South Florida. Landmark intends to focus exclusively on takeouts and has state approval to take up to 50,000 policies from Citizens.

Magnolia Insurance Co., Key Biscayne

Takeout policies: 116,055 (2008)

In 2008, its first year in operation, Magnolia has been approved to assume the biggest chunk of Citizens' policies. Magnolia is owned by Henry James Irl, who started the company with a $23.8-million loan from a subsidiary of Allianz Risk of Switzerland. Irl's failure to pay thousands of dollars in personal bills has led to court judgments against him in Florida and in his former home state of New Jersey. In one case, the judge ordered Irl's wages to be garnished to recover more than $36,000 owed to Chase Bank. Magnolia has hired call-center operator CGI Group to handle administrative, bill and claims issues.

Northern Capital Insurance, Miami

Takeout policies: 14,656 (2008)

Northern Capital, affiliate of Landmark One, began writing policies in 2006, with its first takeouts from Citizens in 2008. The insurer received $8-million from its parent, Northern Capital Inc., in 2007. Wayne Fletcher, president of both Northern Capital and Landmark One, was previously chief underwriting officer for Senior Citizens Mutual Insurance Co. The combined companies have contributed $39,500 to Florida political campaigns and PACs over the past two years.

Southern Oak Insurance, Jacksonville

Takeout policies: 25,367 (2008), 29,428 (2007), 23,542 (2006), 24,017 (2005)

Southern Oak's president and majority shareholder, Tony Loughman, and director Ron Natherson previously worked at Citizens Property Insurance. Director Stephen J. Pajcic served in the Florida House from the mid 1970s to the '80s and was the Democratic nominee for governor in 1986. Pajcic and his legal firm have contributed $1.6-million to Florida political candidates since 1996. Southern Oak received a bonus of $1.75-million in 2008 for about 38,000 policies assumed from Citizens in 2005-2006.

Sunshine State Insurance Co., Jacksonville

Takeout policies: 27,107 (2008)

Sunshine State, formed in 1997, added $10.4-million to its surplus in June. President and chief executive John Rogan worked at CGU Insurance Co. in Mait­land and CIGNA. Sunshine merged with another Florida insurer, QualSure Insurance Co., in 2005. Other directors include Tal Piccione, who founded and runs U.S. Re, a large reinsurance brokerage firm in New York. Sunshine also insures homes in South Carolina.

United Property & Casualty Insurance Co., St. Petersburg

Takeout policies: 14,110 (2008), 23,178 (2005), 40,295 (2004)

Formed in 1999, it received a $20-million incentive loan from the state in 2006. The company went public this fall when it merged with a Connecticut-based shell company, raising $25-million for the original shareholders. President and chief executive Donald J. Cronin had been a vice president at operations of United Agents Insurance Co. of Louisiana. Directors include Bill Hood, retired founder of Special Data Processing in Palm Harbor; and St. Petersburg residents Kent Whittemore, an attorney; pathologist Kern Davis; and Mark Berset, owner of insurance agency Comegys.

* 2008 takeout figure includes policies expected to be assumed in December

Times researcher Shirl Kennedy contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996. Jennifer Liberto can be reached at jliberto@sptimes.com or (850)567-0604.

Tips on evaluating a takeout insurer

• Florida's Office of Insurance Regulation has online information on each company, including its most recent financial statement (www.floir.com/TakeoutCompanies.aspx)

• The National Association of Insurance Commissioners has licensing, financial and complaint information about all insurers (eapps.naic.org/cis/)

• Ask the company if it uses captive or contract agents. If the agents are on contract and work for a number of insurers, what kind of priority will they give your claim?

• When you call the company, is it answered by a call center? How long do you have to wait to reach a real person?

• What kind of discount will the insurer offer on your premium if you do a lot of mitigation or strengthening of your home?

• Look at the quarterly financial statement to see where the company gets its reinsurance. You want to see a number of reinsurers, in addition to the state-mandated purchase from the Florida CAT fund. The public financial documents do not specify how the added coverage is distributed among reinsurers.

• Remember: If you do nothing, your policy will automatically be moved to the takeout insurer. You have 30 days to respond to the private company's notification letter if you wish to remain with Citizens.

[Last modified: Nov 22, 2008 09:57 PM]

source: tampabay.com

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Hurricane Insurance

Is it true that if you live within one mile of the ocean and your building is worth more than $750,000, you are going to have to have hurricane shutters, impact glass or window film which meet the code requirements for newly constructed buildings by Jan. 1 or if you are insured by Citizens they can refuse to pay a claim, or cancel your coverage?

This is essentially true. A bill was passed during the 2008 legislative session that amended Florida Statute 627.351. The new rules mandate that, as of Jan. 1, any home within one mile of the "coastal mean high water line" with an insured value of $750,000 or more is not eligible for Citizens Property Insurance Corporation coverage unless it has opening protections as required by the Florida Building Code for a newly constructed residential structure in that area. A residential structure will comply if it has shutters or opening protections on all openings and if such protections complied with the Florida Building Code at the time they were installed.

source: sun-sentinel.com


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hurricane shutters, impact glass or window film which meet the code requirements



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Citizens Insurance 'opt-out,' 'takeout' system nettlesome

If you want to stick with the state-run Citizens Property Insurance, pray that private insurance companies don't consider you a "desirable" policyholder.

Once the private insurers set their sights on a Citizens customer, they won't give up. Turn down one, and another will likely hit you up.

The state's "takeout" process requires Citizens policyholders to opt out if they don't want to be moved to a private insurer. But as Largo residents Olga and Adrian Mackenrow learned, opting out can be an ongoing headache.

They received a takeout notice in January from Homewise Preferred Insurance Co. and thought they had properly sent the opt out notice so they could stay with the state-run insurer.

Olga Mackenrow even took off work one day to ensure it was all done correctly.

But by August, they found that, against their stated wish, they had been transferred to Homewise, with their bank paying their insurance premium to the private company from their escrow account. They had to take more money to pay Citizens to keep their policy with the state before Homewise finally reimbursed them.

"I was very upset about the whole thing," Olga Mackenrow said. "I sent everything certified mail. It's time, money. … When is this going to stop?"

Bill Sparkes, chief operating officer at Homewise, said it had no record of the Mackenrows sending an opt-out letter directly to the company, but did find an opt-out notification sent directly to Citizens.

More takeouts are being approved, with private insurers approved to take out 110,000 more policies beginning today.

Larry Willis, a board member of the Professional Insurance Agents of Florida and the Citizens Agents Roundtable, said the program's intent is good, but there have been problems.

Willis said the Roundtable, a group that informs Citizens about agent and consumer issues, told the state-run insurance company of one client that received four takeout letters from different companies.

Takeout insurers, mostly new, small insurance companies, bid on policies in Citizens. The takeouts often bid on the same policies that come with low risk and high premiums.

Citizens randomly awards the properties. If a homeowner decides to stay with the state, his policy goes back in the pool and might be picked again.

"The takeout process can be frustrating for everybody," said Willis. "It can be frustrating for the consumer, the agent, the takeout company and for Citizens."

John Kuczwanski, a spokesman for Citizens, said changes to the takeout process by the Legislature were designed to create more choices of insurance carriers for homeowners, which would lead to lower insurance rates and reduce the state's financial exposure in a catastrophe.

Homeowners initially might be uncomfortable with companies they don't know, but they will see the benefits, Kuczwanski said. "As people become more familiar with these companies, there's a different comfort level. We don't know why a person would opt to stay with us."

In the past, insurance agents had veto power over a proposed takeout offer. But the state wanted to give consumers more choice, while pressing to empty Citizens of hundreds of thousands of policies that have left the insurer with $437-billion in risk exposure for about 1.2-million policies.

Now if agents object to a takeout offer, the agent must inform Citizens, which will send a letter to the homeowner advising that he can bypass the agent.

Insurance agents say that the prospect of losing their commissions hamstrings them from giving their customers honest advice about their misgivings about some companies.

"We're being forced to do business with many more insurance companies than we would normally do business with," Willis said. "We don't know whether the company is going to be easy to deal with."

For homeowners who want to stay with Citizens, Kuczwanski said the process provides multiple opportunities to stay with the state-run insurer, starting with the opt-out letter.

There is also a 30-day rescission period where customers can switch back to Citizens, and after that, the state-run insurer will still review cases of those who want to come back.

Jane Ames, 76, of New Smyrna Beach, is "flabbergasted" at the process; she believes she should be able to "opt in" rather than "opt out." She said she sent an opt-out letter to Magnolia Insurance Co., only to receive another takeout letter, from Homeowners Choice Insurance Co.

"Whatever it is they're doing, it's backwards," Ames said. "They talk about making things easier for the senior years. Well, this is a joke."

After months battling to get reimbursed from Homewise and back with Citizens, the Mackenrows thought they were finished untangling the mess. But last month they received another takeout notice, this time from Magnolia. Again, they have opted out and are hoping it works this time without all the hassles.

The burden is on Citizens policyholders to regularly check their mail for takeout letters and other insurance information, Kuczwanski said. "Maybe it's an unfortunate side effect of living in Florida."

Ivan Penn can be reached at ipenn@sptimes.com or (727) 892-2332.

source: St Petersburg times


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Adding windstorm protection saves associations more on insurance

TALLAHASSEE, Fla. – Oct. 31, 2008 – Condominium and homeowners associations that have added storm shutters, reinforced doors or roofs and put in impact-resistant glass to make their buildings more storm-resistant can get a bigger break on their windstorm insurance.

Citizens Property Insurance, the state-run insurer, began in September offering discounts of up to 45 percent for taking mitigation steps. As with hurricane coverage for single-family homes, apartments and condo units, the insurer was required to double mitigation credits it offered the associations.

The Office of Insurance Regulation required all insurance companies offering windstorm coverage on condominium communities with multiple buildings and homeowner associations to double their mitigation credits as of Sept. 1.

The deeper discounts are a boon for all homeowners in these developments, but especially those in South Florida. After the 2004 and 2005 storms, rates on windstorm insurance for these associations doubled – and in some cases even tripled. Citizens, as the insurer of last resort at the time, took up many of the riskiest properties along the coast – and throughout the state.

Now agents are worried about a negative impact on Citizens because the deeper discounts could attract more policyholders at a time when the insurer would like to shed policies.

More competitive

Though premium rates in the private market have eased in the past 12 months, Citizens’ rates are frozen by law and tend to be the lowest in many areas of the state. The state-run insurer is also more competitive now with private carriers. Law changes last year now allow Citizens to provide total coverage for these associations.

So agents aren’t surprised when clients are eager to consider a policy from Citizens to save some dollars, even though they could find coverage in the private market as well.

Evan Glassman, an agent with Advanced Insurance Underwriters in Hollywood, says he’s nervous about adding risk to Citizens, which is the largest insurer in the state. However, “as an independent agent, it’s our job to shop the entire marketplace and present every option available and present the pros and cons to our clients.”

Glassman said by taking advantage of the mitigation discounts, one client’s premium dropped to $25,000 with Citizens covering a small condo development from $45,000 with a private carrier affiliated with Zurich Insurance. Many individual homeowners as well as condo associations may have been eager to switch from Citizens because now the insurer’s own policyholders are required to make up a big chunk of any future deficit the company may face after a huge hurricane. The higher requirement was put in place by lawmakers last year.

But tough economic times could make some associations more willing to accept the risk of a big assessment in the future versus the benefit of lower premiums today.

“We’re going to see a rush back into Citizens,” says Dulce Suarez-Resnick, an agent with Brown & Brown Insurance’s HBA Division in West Miami-Dade. “In part, the economy is driving everything. These associations are trying to save where they can.”

Trimming budgets

She notes that many associations have many empty units, so collecting the full amount of maintenance fees they had budgeted for isn’t possible. So many are coming up short to cover insurance payments and upkeep on their buildings. “They have to trim budgets where they can. You can’t turn off the electricity in the common areas for a few hours to save money.”

For associations that are hard-pressed, any savings can be significant.

Resnick recalls the homeowners association in Doral where she lives saw their premiums shrink to about $80,000 from a high of $134,000 a couple of years ago due to the mitigation discounts and slightly lower rates. The higher credits are available on buildings valued under $10 million, which tend to be garden-style condo projects.

A Citizens’ spokesman said since the deeper mitigation discounts just went into effect two months ago, the company hasn’t seen a sharp increase in new condo policies so far.

However, the insurer has been feeling the pinch of having to credit back to the deeper discounts to homeowners who have taken the needed steps to harden their homes and buildings.

Sharon Binnun, Citizens’ chief financial officer, told a meeting of the company’s board of governors last week that she expects about 50 percent of the company’s windstorm policyholders to receive the mitigation discounts next year. That means the insurer will have to credit back about $640 million in premiums.

Citizens won’t allow condo associations to switch back to the company before their current policy expires just to capture the bigger mitigation discounts. The change-over must be done at renewal.

Associations already covered by Citizens also have to wait until renewal time to apply for the bigger discounts.

Copyright © 2008 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Information Services

source: floridarealtors.org

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