A.M. Best

Citizens’ Board Implements Reforms, Suggests Legislation to Shrink Company

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December 21  |  A.M. Best, Citizens  |   agetz

By Caroline J Saucer

A.M. Best Company, Inc.

Citizens Property Insurance Corp. got one step closer to shrinking its size and cutting $1.5 billion from its exposure when its board of governors ordered its staff to implement reform initiatives on Dec. 14.

The board also signed off on a proposed legislative package that will help make it more financially stable.

Citizens is working to reduce its number of policies from 1.5 million to 800,000 and to once again becomeFlorida’s “insurer of last resort,” said Sam Miller, of the Florida Insurance Council.

The policy count of 800,000 was an estimate based on how many policies the private property insurance market might be willing to write and if Citizens were to become a true residual market, Sharon Binnun, chief financial officer of Citizens, told Best’s News Service in an email.

Reports have said the company plans to lower its risk by about 7%, but Binnun said there’s no specific percent reduction goal. “Instead, the goal is to move back to being a true residual market and only writing business that the private market will not write,” she said.

As a result, Citizens’ catastrophe risk would be lowered. The company currently has a total exposure of more than $500 billion, which represents total insured value. Its probable maximum loss, which projects losses under different hurricane scenarios for specific insurers, is an estimated $23 billion for one in 100, Binnun said.

Citizens had claims-paying resources of more than $16 billion for the 2011 hurricane season when combining surplus, risk transfer and pre-event liquidity, she said. If the company experienced a bigger loss than that, assessments would be needed to cure the deficit.

Citizens’ plan also includes five suggestions for legislative change, according to Binnun, which include:

– Increasing the current 10% rate glide path.

– Requiring Citizens’ rates to be noncompetitive.

– Allowing Citizens to pass through to policyholder rates the entire cost of risk transfer.

– Revising existing statutory eligibility requirements.

– Removing statutory barriers to depopulation.

In November, Gov. Rick Scott ordered Citizens’ board of governors to develop a plan no later than Dec. 6 to shrink its size and exposure. “We know we have a serious problem if a major storm hits our state,” he said at the time (Best’s News Service, Nov. 14, 2011).

Citizens was formed in 2002 by combining two residual-market associations and was supposed to be the insurer of last resort. However, in 2007 it was allowed — and encouraged — to compete in the private market, Miller said.

Today Citizens has grown to become the largest property writer in Florida and the 14th-largest homeowners multiperil writer in the United States (Best’s News Service, Nov. 14, 2011).

According to BestLink, Citizens had a total of $2.6 billion in direct premiums written in 2010, with $1.16 billion in direct premiums written for its homeowners line.

The goal is to dramatically lower Citizens’ policy count and exposure by June 2012 when hurricane season begins, Miller said. By that time, the hope is that the company will be on the road to becoming Florida’s insurer of last resort again.

The top five writers of homeowners multiperil in Florida in 2010, according to BestLink, were Citizens Property Insurance Corp., with 15.3% market share; State Farm Group, with 12.97%; Universal Insurance Holdings Group, with 7.98%; Tower Hill Group, with 4.74%, and USAA Group, with 4.64%.

(By Marie Suszynski )

Florida Citizens Proposed Changes Include Mandatory 10% Sinkhole Deductible

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December 13  |  A.M. Best, Citizens, Florida  |   agetz

By Jeff Jeffrey

A.M. Best Company, Inc.

Florida’s Citizens Property Insurance Corp. has approved a series of recommendations designed to put it on stronger financial footing. The recommendations will now be debated by the Florida Cabinet on Dec. 6.

Members of Citizens’ actuarial and underwriting panel said during a Nov. 30 meeting that many of the recommendations would save Florida residents millions of dollars without needing new legislation to implement them. The recommendations include implementing a mandatory 10% sinkhole deductible; eliminating an increased limit to personal liability coverage, which had been raised to $300,000; and eliminating increased loss assessment coverage. In all, the panel made a total of 30 recommendations that would be implemented this month and during the first three quarters of 2012.

Citizens, formed in 2002 by combining two residual-market associations, has swelled to become not just the largest property writer in Florida, but the 14th-largest homeowners multiperil writer in the United States, based on direct premiums written last year of $1.16 billion, according to A.M. Best data. After extremely active hurricane seasons in 2004 and 2005, reinsurance rates soared and homeowners rates increased as a result. The state legislature capped increases for Citizens at 10% annually in 2009.

The corporation has already imposed some additional changes to the kinds of coverage it writes and how those policies are written.

Starting next year, the company will end coverage of many screened enclosures and car ports, as well as end coverage of detached structures, including gazebos, cabanas and pergolas. There is also a $10,000 sublimit for cosmetic or aesthetic damages to floors (Best’s News Service, Nov. 4, 2011). The company also has implemented a sinkhole-inspection program, and earlier this year, it approved two additional remedies for policyholders whose homes are wired with aluminum, a potential fire hazard (Best’s News Service, March 16, 2011). The company also is looking into phasing out its builders risk program and exploring ways to encourage private insurers to take some of its business.

But Florida Gov. Rick Scott had ordered the board of governors at Citizens to develop a plan no later than Dec. 6 to further shrink the state-run insurer’s size and exposure, prompting this most recent list of recommendations (Best’s News Service, Nov. 14, 2011).

The question of what changes need to be made to Citizens to ensure its financial stability in the event of a devastating catastrophe is one that has garnered a great deal of attention this year.

Earlier this month, Don Brown, an insurance agent for the past 37 years, a former state lawmaker and former chairman of the House insurance committee, told Best’s News Service there are other things Citizens could do that while controversial, would help to reduce its financial exposure.

The top five writers of homeowners multiperil in Florida in 2010 were Citizens Property Insurance Corp., with 15.3% market share; State Farm Group, with 12.97%; Universal Insurance Holdings Group, with 7.98%; Tower Hill Group, 4.74%; and USAA Group, with 4.64%, according to BestLink.

P/C market ready to turn?

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November 22  |  A.M. Best, Hurricane Irene, News  |   agetz

Insurers under pressure after cat losses, lackluster investment returns.

A market turn may be in the offing as property/casualty insurers continue to deal with extensive catastrophe losses and disappointing investment returns, market observers say.

While reserve releases continue, they’re occurring at a slower pace. In addition, rising demand for commercial insurance is reflected in increased premium volume.

However, any turn is likely to be gradual and perhaps be more of stabilization than a true hard market, analysts say.

A survey of large commercial U.S. property/casualty insurers amply demonstrates the continued impact of catastrophe losses and poor investment returns during the first nine months of the year. Although net written premiums among the 10 largest U.S.-based or U.S.-listed commercial property/casualty insurers that report quarterly results were up 8.3% compared with the same period last year, the group’s collective net income fell by nearly half and its combined ratio deteriorated nearly seven percentage points to 102.6%.

“It’s been a difficult year,” said James Auden, an analyst with Fitch Ratings in Chicago. Few large insurers have an underwriting profit, and while specialty companies show an underwriting profit, they tend not to have significant property exposures, he said.

Catastrophe losses are “up considerably from last year,” with Hurricane Irene adding to third-quarter losses, he said. In addition, “pricing is inadequate broadly across commercial lines.”

“When we look at bottom-line performance, it’s very rare for a company to produce a double-digit (return on equity) this year,” Mr. Auden said. “The industry is not generating an adequate return on capital.”

“The first issue is the extent of catastrophic losses in a relatively mild hurricane quarter and less consistency. We’re seeing reserve releases dwindle as an earnings source,” said Meyer Shields, a director at Stifel Nicolaus & Co. in Baltimore.

“I do think we’ll see results continue to worsen, and some of it is from the ongoing deterioration we’re seeing in reserve releases. I think that will drive rates up, but I don’t think we’re at such a horrific state that we’ll see the kind of increases we saw after 9/11,” Mr. Shields said, referring to the market tightening after the 2001 terrorist attacks on New York’s World Trade Center and elsewhere.

A second issue that points to improvement in rates is a much worse outlook on investment income, Mr. Shields said. “Investment returns will remain low, which only leaves underwriting profit as a source of adequate return.”

Worldwide catastrophe losses— which Swiss Reinsurance Co. said amounted to $70 billion for the first half alone—and investment returns were big issues for the industry, said Mark Dwelle, an insurance analyst with RBC Capital Markets L.L.C., a unit of RBC Dominion Securities Inc. in Richmond, Va. Despite those factors, “results were generally pretty good in the context—we knew there were going to be catastrophe losses and they were generally well-telegraphed,” he said. “The optimism about the pricing environment had certainly increased, although there was only modest evidence of that in the actual results.”

“The question that most investors are asking at this stage is at what point rate increases will be sufficiently larger than loss-cost trends to produce improved margins,” said Mr. Dwelle.

Signs of stabilization

There are some signs “with regard to overall pricing that it might be stabilizing,” said Rich Attanasio, a vp with A.M. Best Co. Inc. in Oldwick, N.J. Like other analysts, he pointed out that weather in the United States has had a “pretty significant impact” on insurers. In fact, weather events are a major issue for insurers, given the number of significant events in the past couple of years, he said.

“The question is: Is this the new normal?” said Mr. Attanasio.

He noted that price increases have not occurred equally across the board. While prices hikes have tended to fall hardest on homeowners and small commercial accounts, larger commercial property accounts are “probably stabilizing,” said Mr. Attanasio.

Fitch’s Mr. Auden said that “one encouraging sign is, we continue to see premium growth in the sector and that’s a sign of better economy,” thus creating more demand for coverage.

With greater revenue growth and despite weaker results, companies were making more positive statements about insurance pricing, said Mr. Auden. “But we don’t know if that’s an enduring trend. And given where accident-year results are, you need more pricing increases. We see it being more price stability rather than a hard market.”

“We got a more positive read on what is happening with rates, which should not be confused with rate adequacy, and it should not even be confused with rate increases keeping up with loss-cost inflation,” said Stifel Nicolaus’ Mr. Shields.

“There doesn’t seem to any kind of a hard market in the historical sense—it’s more of a gradual process,” said Alan Murray, vp and senior credit officer at Moody’s Investors Service in New York. He called the situation a sort of “good news/bad news dynamic.”

Mr. Murray said the bad news is the stabilization has come after many years of pricing weakening on commercial lines. But “the flip side is that companies remain quite well-capitalized.” He said one of the classic drivers of a hard market is weak earnings, significant loses and weakened balance sheets.

“We have not seen that combination of pressures materialize for the industry,” said Mr. Murray, who added, though, that Moody’s moved the outlook for commercial insurers to stable from negative during the third quarter.

Mark Hoffman

Business Insurance News

November 20, 2011 – 6:00am

A.M. Best Special Report: U.S. P/C First-Half Net Income Plunges on Cat Losses

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October 5  |  A.M. Best, News  |   agetz

OLDWICK, N.J.–(BUSINESS WIRE)– A.M. Best Co. reports that the U.S. property/casualty (P/C) industry’s underwriting and operating performance deteriorated significantly in the first half of 2011, battered by unprecedented catastrophe-related losses. The industry’s net income fell 67.0% to $6.9 billion, and its statutory combined ratio deteriorated more than 9.0 points to nearly 110.0 through the first half of 2011.

The industry’s performance measures are likely to remain under pressure for the remainder of 2011 because of a number of factors including: continued expectations for weak underwriting results due to elevated catastrophe-related losses through the third quarter; sustained challenging market conditions in the commercial lines segment; a sluggish economic recovery; relatively low investment yields; and volatility in the investment markets. In the first half of 2011:

  • Catastrophe-related losses climbed to an estimated $27.0 billion, more than doubling the total reported for the first half of 2010, and already surpassing the year-end 2010 total. These losses contributed 12.8 points to the six-month 2011 combined ratio compared with 5.8 points during the same prior-year period.
  • The industry’s investment performance improved modestly as insurers reported net investment gains of $28.7 billion, up from $27.6 billion during the first half of 2010.
  • Policyholders’ surplus increased $1.9 billion, or 0.3%, to $556.2 billion, from $554.3 billion posted at year-end 2011, despite underwriting and operating results deteriorating sharply.
  • Overall profitability measures remained relatively low, with the industry’s after-tax return on equity at 1.2%, down from 4.0% for the same period of 2010.

Access a copy of this special report. BestWeek subscribers can download a PDF copy of all special reports as well as the associated spreadsheet data. Non-subscribers can access an excerpt of each special report and purchase individual reports and spreadsheet data.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

October 3, 2011

Florida Commissioner McCarty Rejects Much of Citizens’ Rate Increase

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September 27  |  A.M. Best, Citizens, Florida, News  |   agetz

Florida Insurance Commissioner Kevin M. McCarty granted Citizens Property Insurance Corp. a fraction of a rate increase that the state-run insurer sought, a request that would have raised premiums for sinkhole coverage by thousands of dollars for some residents.

McCarty granted a statewide average increase of 6.2% for homeowners policies, and an 8.6% average increase for dwelling fire policies. For just the sinkhole portion of the filing, McCarty approved an average 32.8% statewide increase for homeowners.

“Citizens’ requested sinkhole rate change, which would result in average increases of as much as $5,521, is not supported by credible evidence,” McCarty’s order stated.

The decision “is intended to reflect the legislature’s intention to give Citizens actuarially supportable rates for the sinkhole portion of the premium,” McCarty said in a written statement. “Although more credible data and study is required, these established rates will start Citizens on the path of having a sound rate for their sinkhole risk.”

In his order, McCarty said he wants data on the cost savings from a new law designed to address noncatastrophe cost drivers for property insurers, including sinkhole losses. His order instructs Citizens to contract with an independent firm to write a report on the impact of the new law.

During a Citizens board of governors meeting Sept. 12, Citizens representatives said they did consider the effects of the new law, known as Senate Bill 408 when it made its way through the legislature. Indeed, Citizens representatives said if it weren’t for the sinkhole changes in S.B. 408, its rate filing would have been higher.

Under the new law, rates for sinkhole coverage are not subjected to the state-mandated 10% rate cap imposed on Citizens.

An effort to reach Citizens for comment on McCarty’s decision wasn’t immediately successful.

The new rates are effective Jan. 1 for new and renewal multiperil homeowners’ and dwelling fire policies, andFeb. 1 for new and renewal wind-only policies.

Citizens, the largest homeowners’ writer in the state, has paid out $1 billion in sinkhole claims over the past nine years, and originally filed for a premium increase for sinkhole coverage that would have resulted in some policyholders, specifically in the sinkhole-prone counties of Hillsborough, Pasco and Hernando, paying thousands of dollars a year more for sinkhole coverage (Best’s News Service, July 27, 2011). Amid public dismay, and in some cases, furor over the proposed increases, the Citizens’ board of governors voted to phase in the rate increases – but agreed that if the rates approved by the Office of Insurance Regulation differ from those that were filed, it would reconsider the rate-increase implementation schedule (Best’s News Service,Sept. 13, 2011).

A study last year by the OIR found sinkhole claims more than tripled in Florida between 2006 and 2009, while costs surged to $406 million in 2009, up from $209 million in 2006. The same report found that of the total claims reported, only in about 20% of cases were insurance companies aware of repairs being initiated (Best’s News Service, Nov. 11, 2010).

Most recently, HomeWise Preferred Insurance Co., a Tampa-based property/casualty insurer, has been placed into receivership, insolvent because of sinkhole-related claims (Best’s News Service, Sept. 6, 2011).

The top five writers in the Florida homeowners’ multiperil market in 2010 were Citizens Property Insurance Corp., with a 16.06% market share; State Farm Group, with 13.61%; Universal Insurance Holdings Group, with 8.38%; USAA Group, with 4.87%; and St. Johns Insurance Co. Inc., with 3.44%, according to BestLink, which provides online access to A.M. Best’s database of insurance information.

Copyright: (c) 2011 A.M. Best Company, Inc.

Source: A.M. Best Company, Inc. Wordcount: 594

State Farm Seeks to Switch to Percentage-Based Homeowners Deductibles in Texas

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September 14  |  A.M. Best, News, State Farm, Texas  |   agetz

A unit of State Farm, the largest homeowners’ writer in Texas, has filed to eliminate flat dollar-fee deductibles and move to a minimum 1% deductible for all perils in the Lone Star state.

State Farm Lloyds is eliminating flat dollar-amount deductibles that currently range from $500 to $4,000. It also is introducing 4% and 5% deductibles, according to a filing with the Texas Department of Insurance.

The only exception to the percentage-based deductible, which is based on the insured value of the home, would be homes valued at less than $100,000, where the minimum deductible would be $1,000, State Farm spokesman Kevin Davis said.

State Farm Lloyds is seeking an overall statewide average homeowners increase of 9.6%, effective Oct. 15 for new business and Dec. 1 for renewal business, according to the filing. While Texas is a “file and use” state, the insurance department is reviewing the filing, a spokesman said.

The average premium effect will be an additional 1.4%, Davis said, and the discount for people who get both homeowners and auto insurance from State Farm will rise to 25% from the current 20%. Some 85% of its policyholders in Texas get both homeowners and auto coverage from State Farm, Davis said.

State Farm is facing higher claims numbers and higher claims costs, Davis said. The company has paid some $410 million in homeowner claims and $115.5 million in auto claims to customers in Texas this year, mostly from hailstorms and wildfires in the spring. Those figures do not include claims from the latest wildfire outbreak, including hard hit Bastrop County.

While State Farm is moving toward higher deductibles nationwide, less than half of its customers have percentage all-peril deductibles, and less than half have all-peril deductibles of at least $1,000, spokesman Dick Luedke said in an email.

A higher deductible means the customers will be more invested in doing what they can to prevent a loss, said Luedke. “That is obviously good for the insurer. To the extent that it lowers costs, it’s good for all of our customers. And to the extent it inspires the owner of the home with the higher deductible to think more about loss prevention in all areas of his or her life, it is good for him or her as well.”

The last homeowners rate change for State Farm Lloyds, a 4.5% increase, took effect about 15 months ago. The last rate increase implemented for auto insurance was for a statewide average of 2.4%, effective just over a year ago, Davis said.

Texas homeowners, on average, pay among the highest homeowners premiums in the nation, because of the severe weather ? everything from hailstorms, tornadoes, hurricanes and wildfires. The average homeowners premium in Texas was $1,460 in 2008, according to a report by the National Association of Insurance Commissioners (Best’s News Service, Dec. 7, 2010).

Much of Texas is experiencing a devastating drought this year, and August marked the third consecutive month of less than one inch of precipitation in Texas, according to the National Climatic Data Center.

Since the fire season began in Nov. 15, the forest service and local fire departments have responded to more than 20,600 wildfires that have scorched more than 3.5 million acres, and this year is the worst on record for fire losses in the state, according to the Insurance Council of Texas. (Best’s News Service, Sept. 9, 2011).

As members of the National Association of Mutual Insurance Companies prepare for their annual convention later this month in Indianapolis, the catastrophic weather events of this year will be a key topic of discussion, NAMIC President and Chief Executive Officer Charles M. Chamness said.

As a result of the severe weather events this year, “I would not be surprised to hear members talk about the way the property insurance market needs to evolve,” with inland writers taking some lessons from coastal writers and adopting some of their practices, Chamness said. He made his comments in the context of talking about the upcoming NAMIC convention and not specifically about the State Farm filing in Texas. Percentage-based deductibles are common for wind perils, as well as for earthquake insurance policies.

The companies with the largest market share in the Texas homeowners’ multiperil market in 2010 were State Farm Group, with a 29.03% market share; Allstate Insurance Group, with 12.57%; Farmers Insurance Group, with 12.45%; USAA Group, with 7.71%; and Liberty Mutual Insurance Cos., with 5.23%, according to BestLink, which provides online access to A.M. Best’s database of insurance information.

State Farm Lloyds has a current Best’s Financial Strength Rating of B++ (Good). State Farm Group has a current Best’s Financial Strength Rating of A++ (Superior).

4:48pm (ET) 09/13/2011 AMBest

Fla. Hurricane Cat Fund COO: Private Market Needs ‘More Skin in the Game’

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August 16  |  A.M. Best, Florida, News  |   agetz

Source: A.M. Best Company, Inc.

The Florida Hurricane Catastrophe Fund may be unable to cover all of its losses in the event of a major catastrophe — unless significant changes are made to the cat fund — according to fund Chief Operating OfficerJack Nicholson. That’s why Nicholson has begun circulating draft legislation, which he said would help put the fund on more solid financial footing.

Among the changes included in the draft legislation are reducing the size of the government-run reinsurer’s “mandatory” layer, requiring insurers participating in the fund to pay more, decreasing special taxes the fund might impose on Floridians, and ending the fund’s never-funded temporary increase in coverage or TICL layer.

The cat fund is a tax-exempt state trust fund, which provides reinsurance protection to insurance companies that suffer losses as a result of a severe hurricane.

The fund has a mandatory coverage layer of $17 billion, which Nicholson’s proposal would reduce to $12 billionby the 2015 contract year. The draft legislation includes provisions that would allow for increases after the fund demonstrates it can fully fund its single-season capacity and its second-season capacity.

Nicholson said his proposal would also seek to have the private market “put more skin in the game” by increasing co-pays from the current level of 10% over the next three years. For the 2013 contract year, the maximum available coverage percentage would be 85%; for the 2014 contract year, the maximum available percentage would go to 80%; and for the 2015 and subsequent contract years, maximum available percentage would go down to 75%.

“We would like to be able to say to the legislature that we can pay 100% of our losses, regardless of what happens. Right now, we can’t honestly say that we can,” Nicholson said. “These changes would move us much closer to that goal.”

Nicholson said it is essential for more private market reinsurers to help bear some of the cat fund’s load because the fund is being asked to do things for which it was never designed.

Nicholson said during the economic boom of 2007, lawmakers expanded the role played by the fund to help lower rates. That became a major problem when the mortgage crisis hit, because it caused the fund’s debt burden to explode, he said.

“The two markets each have their own role to play. The private sector should play a completing role in terms of capacity that the fund can’t support. And our role is to provide stability to the market,” Nicholson said. “When those roles began to overlap, there were serious problems.”

The fund and its largest client, Citizens Property Insurance Corp., which is the state’s insurer of last resort, have garnered headlines recently as more and more industry watchers warn of the potential risks associated with the two taxpayer-backed entities, which have the potential to severely hurt the state economy in the event of a severe hurricane.

In June, A.M. Best analysts released a statement that it “continues to be concerned” about the fund’s ability to pay all of its obligations in the event of a severe hurricane.

“[B]ased on the revised estimated claims-paying capacity recently released by the FHCF, the post-event maximum estimated borrowing capacity estimates have been reduced, as compared with the bonding estimates provided in May 2010. As a result of these factors, as well as A.M. Best’s analytical judgment, coverage provided by the FHCF’s mandatory layer will continue to be reduced by 5% in A.M. Best’s assessment of risk-adjusted capitalization. Given the lack of funding regarding the Temporary Increase in Coverage Limits, no credit (100% reduction) will be provided for this layer, as was the case previously. A.M. Best believes that reducing the amount of coverage provided via the FHCF and relating it to the projected borrowing capacity represents a more accurate view of overall risk-adjusted capitalization,” the release said (Best’s News Service,June 1, 2011).

And in May, American Strategic Insurance President and Chief Executive Officer John Auer said both the cat fund and Citizens need some major changes to avoid significantly hurting the state’s economy.

“As we sit currently, far too much risk is being borne by the taxpayers of Florida, through a combination of both Citizens and the Florida Hurricane Catastrophe Fund,” Auer said. “For years Florida has been only one major hurricane away from fiscal crisis. The current system requires all Floridians to pay hurricane taxes to subsidize million-dollar beach homes on Florida’s coast.”

Auer wants Citizens, which has ballooned to become the state’s largest insurer by market share, returned to its original mandate of insurer of last resort (Best’s News Service, May 31, 2011).

Also in May, Florida Gov. Rick Scott signed into law major property insurance legislation that puts additional limits on how claims against Citizens may be filed. The new law raises the minimum surplus requirements for residential property insurers; shortens the time frame for filing windstorm and hurricane claims to three years and sinkhole loss claims to two years; provides a more precise definition of a sinkhole; places limits on public adjuster compensation; and restores the replacement-cost holdback provision for dwelling coverage, among other reforms (BestWeek, May 18, 2011).

But if Nicholson’s proposal is adopted by lawmakers and musters the support of Scott, it would go a long way toward setting the cat fund on more solid financial ground, said Eli Lehrer, a vice president of the Heartland Institute.

Lehrer said while he would have liked to see Nicholson’s proposal set a higher level of retention for the fund, ensuring fewer storms would rise to the level of needing its backing, he believes the draft legislation includes a number of positive suggestions. Lehrer said he thinks ending the TICL layer of coverage would go a long way in improving the fund.

“The instability of the catastrophe fund is one of the single biggest problems facing the Florida property market and it’s the one receiving the least amount of attention. While Florida Citizens has its own problems, it isn’t likely to bankrupt the state,” Lehrer said. “The catastrophe fund could.”

By Jeff Jeffrey, Washington Correspondent:

Five reasons that Florida homeowners insurance is still getting more expensive

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June 8  |  A.M. Best, ASI, Florida, News  |   agetz

By Jeff Harrington, Times Staff Writer 
In Print: Wednesday, June 1, 2011

Florida’s annual, high-stakes game of hurricane lotto — will we be hit by a major storm this year or not? — kicks off with the start of hurricane season today.

Florida has been spared a significant hurricane hit for five seasons, but that means little to the industry and regulatory forces that set property insurance rates.

Experts predict an active season of three to six intense storms in the Atlantic, with a 72 percent probability of at least one major hurricane making landfall on the U.S. coastline. Regardless of whether that happens, homeowners may still wind up paying more out of their pockets.

Here are five reasons to expect property insurance rates to continue trending up:

1. Natural disasters other than hurricanes hit the re insurance market hard.

Reinsurance — an added layer of coverage that property insurers buy to protect themselves from catastrophic loss — has always been a key part of the equation in determining home­owners’ rates. When companies buy reinsurance, a portion of that tab gets passed on to customers through higher rates.

Insurers have lost more than $70 billion from recent catastrophes such astornadoes from Alabama to Missouri, depleting the insurance and reinsurance industries of much of their stockpiled capital. As a result, some insurers have turned to Wall Street to raise money, issuing a record high level of catastrophe bonds in the first quarter of 2011.

In a recent report, ratings agency A.M. Best highlighted the above-normal frequency of thunderstorms and tornadoes in predicting property insurers will face higher reinsurance costs. In an analysis last week, Reuters predicted reinsurance rates will rise up to 10 percent for contracts being renewed this summer by U.S. property insurers.

2. New hurricane model opens the door to higher rates.

Property insurers base their rate requests and estimates of potential storm damage by running various storm scenarios through hurricane models.

One widely used hurricane modeling company, Risk Management Solutions, has revealed a new model for estimating wind damage that indicates Florida insurers are more at risk than previously thought as storms move inland.

The new model has already prompted insurance companies to consider buying additional reinsurance. With the anticipation of a busy storm season, “all the stars are aligned … forcing us to buy more reinsurance,” said John Auer, CEO of American Strategic Insurance, a homeowners insurer based in St. Petersburg.

3. Friendly regulators and politicians.

The political climate in Tallahassee is far removed from the days when former Gov. Charlie Crist demonized State Farm for threatening to pull out of Florida if it didn’t receive hefty rate hikes.

Florida Insurance Commissioner Kevin McCarty has approved double-digit rate increases for numerous private insurers in the past two years. Gov. Rick Scott advocates higher rates for Citizens Property Insurance, the state-run insurer for those who cannot find coverage on the open market. Finally, thanks to the last legislative session, property insurers can more easily raise annual premiums up to 15 percent to pay for higher reinsurance.

4. Citizens Property rate hikes.

Under state law, Citizens Property Insurance is allowed to raise rates up to 10 percent a year. A measure that would have let Citizens escalate rates up to 25 percent annually failed in the Legislature. Nevertheless, Citizens’ board has been on a mission to raise rates to where they are “actuarially sound” or, in other words, raise premiums up to a level where Citizens can cover damage claims from a major storm.

As the dominant insurer in Florida with about 1.3 million policyholders, Citizens sets the pace. Its rising rates would allow private insurance companies to raise rates and remain competitive.

5. Nonhurricane costs.

One of the biggest drivers of rising insurance rates the past couple of years has beenincreased payouts for sinkhole claims.

A.M. Best Analysts: Probable Maximum Loss a Starting Point, Not Final Determinant, for Rating Discussion

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May 31  |  A.M. Best, News  |   agetz

The probable maximum loss is a starting point for a discussion between property/casualty insurers and A.M. Best analysts when reviewing ratings – not the final determinant.

“There is a common misconception that we get the model output from a company, we put it in to our BCAR model, and that’s the end of the discussion, and that can’t be any further from the truth” said Anthony Diodato, group vice president of property/casualty ratings, referring to Best’s Capital Adequacy Ratio, a measure of an insurer’s financial soundness.

In establishing or reviewing financial strength ratings of carriers, A.M. Best analysts want to engage companies in a discussion of how much risk they are taking on, Diodato said.

“We may start with a model output, but we’re expecting – and the better risk managers are able to do this – [a company to say] ‘this is the number we got from the model, but, because of the characteristics of our book of business … this is more of a reflection of how much risk we’re taking, and this is what we’re building into our risk-tolerance profile.’”

Diodato spoke during an A.M. Best webinar entitled Risk Management and Catastrophe Models, held in part in response to an updated version of the hurricane model from Risk Management Solutions Inc., released in February (BestWire, Feb. 28, 2011) which incorporates greater risk for inland areas and increases the PML for some carriers.

“When there is a model update, we expect companies to provide to us that new view of risk,” said Richard Attanasio, vice president of property/casualty ratings at A.M. Best. “But, more importantly, we expect them to provide to us their assessment of it – how they view the new model relative to their book of business.”

A.M. Best also conducts stress testing using a second event, said A.M. Best Vice President Thomas Mount.

“We not only want them to absorb one event and be done. We want them to be an ongoing operation,” said Mount. He added A.M. Best also examines the quality of the data used in the models and what types of coverages are included.

A.M. Best has changed no ratings of a company solely because of the RMS software update, Diodato said. He acknowledged there have been some companies that have been placed on negative outlook because they have had capital erosion over the past years and now “their assessment of risk that they’re providing us is different than what it was.”

A.M. Best doesn’t recommend one modeling firm over another, nor does it require carriers to use multiple models. If multiple models are used, A.M. Best considers all of them, taking the average, but the average can be weighted, in conjunction with discussions with the carrier.

Brokers have said they hope insurers don’t have a “knee jerk” response to the latest RMS model (BestWire,May 9, 2011). Other modeling firms include Eqecat Inc. and AIR Worldwide Corp.

To see the entire webinar, visit http://www.ambest.com/webinars/rmc11.

(By Diana Rosenberg, senior associate editor, BestWeek)

Copyright: (c) 2011 A.M. Best Company, Inc.

Source: A.M. Best Company, Inc

Wordcount: 500

A.M. Best Upgrades Issuer Credit Ratings and Revises Outlook of American Capital Assurance Group and Its Members

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March 19  |  A.M. Best, ACA, News  |   admin

CONTACTS:

Analyst(s)?Raymond Thomson ?(908) 439-2200, ext. 5621 ?raymond.thomson@ambest.com ??Jeffrey Mango, CPA ?(908) 439-2200, ext. 5204 ?jeffrey.mango@ambest.com

Public Relations Rachelle Morrow (908) 439-2200, ext. 5378 rachelle.morrow@ambest.com

Jim Peavy (908) 439-2200, ext. 5644 james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK, N.J., MARCH 19, 2010

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “bbb+” from “bbb”, revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of B++ (Good) of American Capital Assurance Group (ACA) (St. Petersburg, FL) and its members. (See below for a detailed listing of the companies.)

The ratings reflect ACA’s profitable underwriting performance in the Florida small commercial and homeowners markets, as well as its solid risk-adjusted capitalization resulting from prudent underwriting, a tempered direct premiums written trend in recent years and a sound overall risk management focus. As a result, surplus growth has occurred in recent years, complemented by support from ACA’s parent company. The positive outlook contemplates that operating performance and risk-adjusted capitalization will continue to trend favorably in the near and long term.

These positive rating factors are somewhat offset by ACA’s limited product offerings and current geographic concentration of risk in Florida, with subsequent exposure to weather-related events and significant dependence on reinsurance. In order to mitigate this concern, the group continues to maintain conservative catastrophe reinsurance coverage.

The ICRs have been upgraded to “bbb+” from “bbb” and the FSR of B++ (Good) has been affirmed for American Capital Assurance Group and its following members:

– American Capital Assurance Corporation

– ACA Home Insurance Corp.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit Best’s Ratings & Analysis.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best’s Credit Rating Methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

View a list of companies related to this press release. The list will include Best’s Ratings along with links to additional company specific information including related news and reports.

http://www3.ambest.com/frames/frameserver.asp?site=press&tab=1&altsrc=26&altnum=&refnum=65494653775146556653

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