Regarding the Poe insolvencies, the A. M. Best Company sustained a Secure rating on members of the Poe Financial Group for about 8 months after the other rating service had wihdrawn ratings. Perceptions are one thing but facts are another.
While the FL marketplace, and every other, is stabilized by the prescense of a carrier of State Farm’s substance, the fact is that several larger national insurance companies outside of FL have failed when they were A rated.
You should try living up north on the coast. About 95% of the standard markets do not write property that is coastal. However, the local fair plan does but that is O K as long as the premiums are at reasonable rates; but they are not. They are the most competitive with respects to rates and wind deductibles. What will happen here if there is a major catastrophy and the Fair Plan needs to assess the member companies to balance its books and pay claims? Will they say: “you wrote it too cheap and cannot pay your losses? See you later, we’re leaving this state!”
McCarty wants to be Governor and is quite willing to do it on the backs of the insurance cos., and
Crist wants to be President and is quite willing to do it on the backs of the insurance cos.
Add also that both are quite willing to do it on the backs of Florida insureds, who, along with the taxpayers, will be left holding the bag and paying through the nose after the fact.
And the insureds and taxpayers will rejoice in how the politicians beat up those nasty insurance cos. until another major storm hits the state, then the insureds and taxpayers will blame…those nast insurance cos.
1. Start a company with borrowed 5 million.
2. Create a MGA to administer (Ha) the company.
3 Charge 65% of the premiums for doing so.
4. Put together some bulls*it reinsurance
5. Give the keys to FIGA when the wind blows.
6. Let all the citizens and good carriers,if any are left to pay for your loses through FIGA assessments.
7. Pay off the 5 million loan and pocket the rest through your MGA.
WAKE UP! THIS IS THE PLAN IN PLACE.
Let State Farm and any other carrier charge whatever they want as long as they are writing new business in coastal counties.
Bill…are you a State Farm Agent? Your small carrier battle cry is getting a little old. I suppose that State Farm started out as the largest insurer in the country didn’t they?
Peter: Time to read up on a little history. The marketshare of the little Florida-only companies has rocketed upward since 2005, going from 26% in 2005 to 43% in 2008 and a pro-forma of 56% when State Farm leaves. And, this growth in marketshare comes despite the failure of the largest of them all, Poe Financial, which ended up $1 billion in the red. A huge amount of this growth is not from companies that survived the ’04 & ’05 seasons, but rather from the creation of new companies after those seasons — e.g., Royal Plam, American Standard, Peninsula, etc. If State Farm exits the market, more than 75% of the premium in Florida will be written by companies without an A.M. Best rating. If you find that defensible as a legitimate storm preparation plan, then you deserve what you get when the guaranty fund sends you the bill.
Peter, you’re right that 2004/2005 were tough storm seasons but we had at least 8 insolvencies after those seasons and one (Poe)was the third largest in the state. Bigger, with repect to WP, doesn’t necessarily mean better. Additionally, many of the small carriers writing business now started after 2005. If they did exist prior to 2004, they had no market share. Many have no experience with handling CAT claims. It will be a mess when the time finally comes.
This debate over “who can pay claims”, “which financial rating means the most”, and “who has adequate rates& reserves” reminds me of the debate on credit scoring. With credit, we all admit there is a correlation between losses & financial responsibility, but we can’t agree on the “moral” argument. With property insurance, we agree that the storm is coming (look at the hurricane activity in Fla in the 1940’s – storms are nothing new, we just haven’t had normal activity in the 70’s, 80’s & 90’s)and we know it can be big, but we can’t agree on how much money a company needs to charge and put in the bank to pay for this future event. Apparently, our own OIR doesn’t think it’s very much.
Does anyone remember the early 1970s and how Jim Stone, the Insurance Commissioner of Mass, upended the auto insurance industry? If the situation in Florida is as politically motivated as Temblor thinks, everyone beware!
Mr. Solvency and Peter either must be the same person or in the same insane asylum.
By the way I own a fairly large primarily commmercial lines Independent agency in Florida and have been in the business since 1979.
Facts are that we have had in the past a somewhat stable market place with carriers like Allstate, State Farm, Auto Owners, Hartford, Metlife Home and Auto, Safeco, Atlantic Mutual, Hanover – All great carriers able and willing to write new policies and pay their claims. Rate increases where common and changed their competitivness in the market. If they raised their rates too high they lost market share, but at least we had a good market to write our clients with. Now we have abandoned free enterprise capitalism and have allowed our politicians to ruin our industry. Mr. Solvency should change his name to Mr. Insolvency.
Most of the companies you mentioned are great companies (Atlantic Mutual?) but the truth is that hundreds of regional insurance companies throughout the US have been serving their insureds since the 1850s.
Agree that rate increases are an important next step in FL but we shouild recall that bigger is not always better. Ask Mission, Legion, Transit, Executive Life, Kemper, Home and Reliance.
Peter aka Mr Insolvency, We need the super regional carriers. Atlantic Mutual was an A++ carrier who wrote HO5 policies in the 80’s and 90’s on package basis, Home Auto and Umbrella on one policy. It was the best coverage form at one of the best premiums available in Florida at the time. Unlike Independent Fire Insurance Company based in downtown Jacksonville somewhat like the start up carriers of today was heavily over exposed to florida windstorm. in October of 1992 it exploded and left many insureds without coverage after andrew. After Andrew reinsurance became unavailable and carriers were not able to increase rates due to regulatory restrictions. Then carriers forgot about the storm reinsurance relaxed and carriers were able to increase rates and start writing again after a few tough years. Then 04 hit and politics are driving rate regulation and politicians are looking the other way on financial regulations of new carriers this is allowing carriers who have no business writing insurance in our state have become prevelent. I am not just reminising here I am showing that history will repeat itself either for the better or worse. We have seen both.
There are about 1,000 property writers that write business in just one state but that is not ththe issue. The issue is rate adequacy. Carriers deserve and need adequate rates, realistic reinsurance and a relatively free market. But at the end of the day, carriers need to pay claims and reinsurers need to pay their cedants.
If this scenario in FL is politically motivated, Floridians will pay the price for the ambition of the individuals that put their interests above the interest of others.
That several dozen smaller, regional carriers are created in the process should not impune the smaller, regional insurers.
Peter, you miss the point, these carriers are not regionals, A regional carrier writes in an area of the country. For instance Auto Owners A++ JD Power and Associates just named #1 in the country for consumer claims satisfaction is a regional carrier licensed in 29 states has written in florida since 1959. Erie Insurance Group is a regional carrier, Harleysville Group is a regional.
St Johns is not a regional.
Universal Property and Casualty is not a regional.
First Protective is not a regional. And every other crap company started up in Florida.
These carriers are not regionals but rather state start up carriers with over concentrated catastrophe exposure in one state Florida. DO YOU UNDERSTAND NOW WHAT A REGIONAL CARRIER IS.
Point taken on regionals, the Florida property companies would be state specific. There are more than 1,000 state specific property insurers in the US.
What has agents and professionals upset is that established companies are leaving the marketplace. I long for 2004, 2005 and 2006 when companies filed for rate increases and received them. When the overwhelming majority of a carrier’s reinsurance was in the private sector.
By sheer numbers, Citizens could be more of problem than all the state specific companies together.
Most of the start-ups are funded by oppurtunists and those genuinely concerned about Floridians. If the reinsurance issue is resolved and then the rate adequacy issue is addressed, there is plenty of property insurance for everyone. Until then, the dialogue continues.
Last I checked Universal Property & Casualty was writing in Florida, North Carolina, and South Carolina. Additionally they have approval to write in Georgia. Guess they don’t qualify as regional…
…is just a label. The important point is that concentrating in Florida, the peak catastrophe insurance zone in the world (which is a fact, since most other zones that could claim the title from Florida, like California EQ, are significantly underinsured), is not like being a state-specific or regional carrier anywhere else. These companies don’t just carry cat risk, they have enormous reinsurance renewal risk — i.e., when reinsurers change their position post-storm and decide they won’t write anything with less than a $50M retention, what is the company with only $50M of surplus going to do? The answer so far has been to look to the State of Florida for cheap replacement reinsurance. That is not a successful business model. That is relying on politics to bail out a less than robust business model. Such a non-business model cannot succeed in the long run.
Hang in there, very well said, I think you have explained my point better than I could.
We need to get our regulators/politicians to do their job in florida and regulate the financial condition of the carriers writing coverage and get out of the way of free market capitalism in the insurance market place.
And the politicians getting out of the act will never happen. In Florida the Insurance Commissioner position has always been the first stepping stone to Federal House or Senate, Governor, or, in Crist’s case, President.
The Commissioner always bashes the insurance cos., does whatever possible to keep rates artificially low, all to please the retirees of the state, their single largest voting block.
This model perfectly explains the actions of our Governor and our Commissioner who, in the cause of their own political ambitions, would quite happily screw those very same constituents (and all the rest of us), as long as they are gone from their current posts when it happens.
They are taking a huge gamble with the future welfare of the state and it’s residents in the name of their own personal political ambitions.
Smitty, Most rating bureau’s take into consideration what the financial condition is of the carrier and where they write coverage. Most will not give an A rating to a company with very little surplus writing coverage in a catastrophy prone area.
Best’s is the only rating bureau that has any credibility, maybe Weiss, although I know very little about their process. I can tell you that a company who relies entirely on Florida’s Cat fund for reinsurance should not have a rating at all.
I have nothing against these companies and wish them the very best. That being said, history has NOT been kind to carriers with less than 20 years experience as the funding just isn’t there to handle large claims. Face it-providing Property Insurance is a gamble, at best. Everyone thinks Hurricanes…what about the Fires? Lightning Strikes? Break-Ins? It’s not a matter of “if” when it comes to claims..it’s a matter of when. If people want to feel comfortable when a Catagory 3 is bearing down on them and they have a 5yr old company that’s been given a “A” rating by Demotech (WHO???), then so be it.
I do not understand how being in business for 20 years makes an insurance company ready for a category 3 storm. An insurance company either has proper reinsurance or it does not.
As for the companies rated by Demotech, it is my understanding that almost all of the companies that they rated in the 1990s have received Secure ratings from Best, as soon as seasoning requirements were met.
The material that I have read indicated that virtually all companies ‘made it”. For example, Demotech bailed on the Poe Financial Group about 8 months prior to Best withdrawing its Secure rating.
Also, Demotech was the one that rated one of the first Florida specific companies, First Floridian Auto and Home, back in 1995 or 1996. American Strategic is another that comes to mind.
They do a credible job. I do not think you should dismiss companies rated by them.
You cant argue with Peter/Mr Insolvency. He only represents substandard start up carriers with coverage limitations for screen rooms and the like.
The proof will possibly be this year when we have a storm and the state cannot pay their required reinsurance from the Cat Fund. I am sure you read the article here in the Insurance Journal which states that these carriers should be commended due to the fact they realize the state has no money to pay the reinsurance they agreed to. So the carriers have obtained loans to last a few months until the state of Florida can figure out how to raise the funds necessary. All these carriers cannot obtain reinsurance in the private market place so they rely on the state for their existance. Good carriers have not done so and therefore they are a much better choice of carrier. The day of the demise of these carriers is not so far off. Not being negative just a realist.
This is the article in the Insurance Journal I was talking about.
Demotech is a farse, Lets see you can borrow money to pay some of your claims while the state tries to find a way to raise capital. Thats good business practices, how about buying real reinsurance.
——————————————
By Andrew G. Simpson
May 7, 2009
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Most of Florida’s smaller domestic property insurers have initiated backup financing plans in the event the state-backed hurricane fund can’t meet its obligations right after a major storm hits.
Insurance Journal Audio
Demotech on Florida Property Insurance: An interview with Joseph Petrelli of Demotech, Inc.
According to an actuary whose firm is reviewing 59 of the state’s domestic property insurers, the majority of them have developed contingency plans to pay claims until the Florida Hurricane Catastrophe Fund (FHCF) can obtain the funding it needs after a big storm to pay their reinsurance claims.
Joseph Petrelli, president of the actuarial services firm Demotech, based in Columbus, Ohio, said he believes that only about 6 to 10 of the Florida domestic carriers will flunk the contingency test and possibly be downgraded by his firm when all the data is in. A contingency plan is one of the factors weighed in the financial ratings his firm assigns to carriers.
Petrelli thinks consumers should know about the contingency planning the insurers have done and that the domestic carriers deserve credit for it.
“[T]he companies themselves have been, I think, very modest. They should be thumping their chests a little bit more about what they’ve done and how they’ve done it because there’s some fascinating programs in place for contingency plans,” Petrelli told Insurance Journal in a recent interview on the Florida property insurance market.
The HCFC, from which carriers buy mandatory and extra reinsurance, is a post-event funder. It’s essentially allowed to write some business before it actually has the funds in place to cover it, unlike a traditional insurance company.
Petrelli said that even though there is a shortfall in the state fund currently, he is confident that the FHCF will eventually be able to raise whatever funds it needs to pay claims after a storm.
But what Petrelli and his fellow Demotech actuaries are concerned about is a potential gap between when insurers have to pay policyholders and when the FHCF is able to repay insurers for claims that are covered under its reinsurance program.
“Whether it’s sold in the private bond markets or whether the federal government buys bonds or whether the state of Florida itself buys its own bonds from indirect obligation of its quasi-government entity, we think the money will be there,” Petrelli said. “So, what we talk to companies about is, ‘What are you going to do to continue to pay claims if the cat fund has a short-term liquidity problem?'”
His firm requires the carriers it reviews to have some sort of backup plan.
“What we say to our companies is, ‘OK, if you only get half your money, and it’s going to take them six months, eight months, whatever it might take to get you all of your money, how are you going to continue to honor claims during that period of time?'”
Florida’s domestic carriers have responded to the concern. Petrelli explains:
“So, basically, they’ve gone to a lender, they’ve gone to a third party, and they’ve indicated, ‘We’ve got millions of dollars of exposure. The Florida Hurricane Catastrophe Fund is our reinsurer. It’s got this post-funding capability. And there’s a possibility we may not get that money in a timely manner, and we’re going to need to borrow some of it.'”
He said carriers have taken different routes. Some have secured the contingency financing with their receivables, while others are using their holding company assets or a corporate resolution authorizing a loan from the holding company if the FHCF monies do not show in a timely manner.
Some insurers have even adopted a 100 percent cash solution. “Their philosophy is, their thought process is that if there’s a shortfall that cash will be king, and because they already have their entire investment portfolio in cash that they will be in a position to sort of float their way out of this. We thought that was sort of an interesting response,” Petrelli said.
It may be an interesting option but Demotech isn’t convinced that the cash approach is as strong a contingency plan as additional capital infusions or borrowing money from either the holding company or a lender. But he said the response “at least showed that they’d been thinking about this.”
Petrelli said that other carriers have responded by cutting back on their writings so that they have less exposure. “That’s an interesting approach, but it’s not one that benefits the marketplace. As a matter of fact, it’s sort of counterproductive to the marketplace,” Petrelli said.
Demotech has an expertise in smaller companies like the Florida domestics. It is known for rating carriers that other rating agencies won’t because they are too small or too new. Demotech began issuing its financial stability ratings in 1996 to what were then called the “take-out” companies. Its ratings are accepted by Fannie Mae and Freddie Mac when they sell mortgages to the secondary mortgage marketplace.
“We actively monitor 59 of the companies that are writing coverage in Florida. We’ve been doing it for 13 years. We’re very comfortable with what’s going on in Florida,” Petrelli said. “We require companies to have, typically, a more costly and more effective reinsurance program than they might need from an incorporation perspective and a licensing perspective. So, we’re doing a lot of things behind the scenes that are basically intended to assist those companies survive the big wind.”
Not all of Florida’s domestic carriers are doing well. People’s Trust has been told by state regulators to stop writing because it risked exceeding its capacity at the pace it was growing. In a worse situation, the state had to go in and take over Coral Insurance and is now cancelling all of that carrier’s policies.
But Petrelli has confidence in the domestic insurers and thinks these two are not representative of the whole group of domestics.
“I would say that they are isolated problems,” he told Insurance Journal. “The reason I say that is when we look at the companies that we have reviewed and rated from 1996 to date, many of those companies now are 10 and 12 and 13 years old. Even though we don’t rate and follow them anymore, they have gone on to get very good ratings from other services. We know we have been able to identify some very strong companies.”
Still, he warns, the Florida property insurance market has its troubles and the exit of top writer State Farm will only further disrupt the market. Where will this business go? Petrelli said the domestic insurers are not equipped to absorb all of this business. Also, none of the other large insurers such as Allstate or Farmers are looking to grow in Florida. Finally, it is unlikely there will be many new start-up companies, according to Petrelli.
“It is either going to be Citizens [state-backed property insurer] or it is going to be the startup companies. I think it is very difficult for a startup company… to replace 16 percent market share is, I think, dozens of startup companies. And I can’t at this point in time see how anybody would be particularly interested in getting into the situation in Florida. … I think it is a situation where the market needs to stabilize and losing someone of the substance of a State Farm does not help the stabilization. I think it destabilizes it.”
This story is from an interview on the Florida market with Petrelli by Insurance Journal’s Andrew Simpson. The complete interview with Demotech’s Petrelli is available for listening at http://www.insurancejournal.tv.
Know it all, NONE of the good carriers left in the state would rely on it. It will not be there. This is why these start up carriers are going out to get loans for. Read the article in IJ regarding demotech and their statements regarding the start ups lack of financial ability to handle a storm and the Cat fund not having the resourses necessary to pay claims.
NONE of the start-up companies in Florida get all of their insurance from the Cat Fund. ALL of the insurers in FL that write property insurance must get some reinsurance from the Cat Fund.
Regarding the Poe insolvencies, the A. M. Best Company sustained a Secure rating on members of the Poe Financial Group for about 8 months after the other rating service had wihdrawn ratings. Perceptions are one thing but facts are another.
While the FL marketplace, and every other, is stabilized by the prescense of a carrier of State Farm’s substance, the fact is that several larger national insurance companies outside of FL have failed when they were A rated.
You should try living up north on the coast. About 95% of the standard markets do not write property that is coastal. However, the local fair plan does but that is O K as long as the premiums are at reasonable rates; but they are not. They are the most competitive with respects to rates and wind deductibles. What will happen here if there is a major catastrophy and the Fair Plan needs to assess the member companies to balance its books and pay claims? Will they say: “you wrote it too cheap and cannot pay your losses? See you later, we’re leaving this state!”
Everyone is missing the points, which are:
McCarty wants to be Governor and is quite willing to do it on the backs of the insurance cos., and
Crist wants to be President and is quite willing to do it on the backs of the insurance cos.
Add also that both are quite willing to do it on the backs of Florida insureds, who, along with the taxpayers, will be left holding the bag and paying through the nose after the fact.
And the insureds and taxpayers will rejoice in how the politicians beat up those nasty insurance cos. until another major storm hits the state, then the insureds and taxpayers will blame…those nast insurance cos.
1. Start a company with borrowed 5 million.
2. Create a MGA to administer (Ha) the company.
3 Charge 65% of the premiums for doing so.
4. Put together some bulls*it reinsurance
5. Give the keys to FIGA when the wind blows.
6. Let all the citizens and good carriers,if any are left to pay for your loses through FIGA assessments.
7. Pay off the 5 million loan and pocket the rest through your MGA.
WAKE UP! THIS IS THE PLAN IN PLACE.
Let State Farm and any other carrier charge whatever they want as long as they are writing new business in coastal counties.
Bill…are you a State Farm Agent? Your small carrier battle cry is getting a little old. I suppose that State Farm started out as the largest insurer in the country didn’t they?
In 1992, you said about a dozen insurance companies went under. What was the name of the rating service that rated the dozen that went under?
Also, 2004 and 2005 were tough years for storms and virtually all of the little guys then are standing now!
Peter: Time to read up on a little history. The marketshare of the little Florida-only companies has rocketed upward since 2005, going from 26% in 2005 to 43% in 2008 and a pro-forma of 56% when State Farm leaves. And, this growth in marketshare comes despite the failure of the largest of them all, Poe Financial, which ended up $1 billion in the red. A huge amount of this growth is not from companies that survived the ’04 & ’05 seasons, but rather from the creation of new companies after those seasons — e.g., Royal Plam, American Standard, Peninsula, etc. If State Farm exits the market, more than 75% of the premium in Florida will be written by companies without an A.M. Best rating. If you find that defensible as a legitimate storm preparation plan, then you deserve what you get when the guaranty fund sends you the bill.
Peter, you’re right that 2004/2005 were tough storm seasons but we had at least 8 insolvencies after those seasons and one (Poe)was the third largest in the state. Bigger, with repect to WP, doesn’t necessarily mean better. Additionally, many of the small carriers writing business now started after 2005. If they did exist prior to 2004, they had no market share. Many have no experience with handling CAT claims. It will be a mess when the time finally comes.
This debate over “who can pay claims”, “which financial rating means the most”, and “who has adequate rates& reserves” reminds me of the debate on credit scoring. With credit, we all admit there is a correlation between losses & financial responsibility, but we can’t agree on the “moral” argument. With property insurance, we agree that the storm is coming (look at the hurricane activity in Fla in the 1940’s – storms are nothing new, we just haven’t had normal activity in the 70’s, 80’s & 90’s)and we know it can be big, but we can’t agree on how much money a company needs to charge and put in the bank to pay for this future event. Apparently, our own OIR doesn’t think it’s very much.
Does anyone remember the early 1970s and how Jim Stone, the Insurance Commissioner of Mass, upended the auto insurance industry? If the situation in Florida is as politically motivated as Temblor thinks, everyone beware!
It is.
Mr. Solvency and Peter either must be the same person or in the same insane asylum.
By the way I own a fairly large primarily commmercial lines Independent agency in Florida and have been in the business since 1979.
Facts are that we have had in the past a somewhat stable market place with carriers like Allstate, State Farm, Auto Owners, Hartford, Metlife Home and Auto, Safeco, Atlantic Mutual, Hanover – All great carriers able and willing to write new policies and pay their claims. Rate increases where common and changed their competitivness in the market. If they raised their rates too high they lost market share, but at least we had a good market to write our clients with. Now we have abandoned free enterprise capitalism and have allowed our politicians to ruin our industry. Mr. Solvency should change his name to Mr. Insolvency.
Most of the companies you mentioned are great companies (Atlantic Mutual?) but the truth is that hundreds of regional insurance companies throughout the US have been serving their insureds since the 1850s.
Agree that rate increases are an important next step in FL but we shouild recall that bigger is not always better. Ask Mission, Legion, Transit, Executive Life, Kemper, Home and Reliance.
Start ups aren’t regionals, can’t be compared to them. Poe wasn’t a regional, it was a big gamble. Big difference.
Crist and McCarty are gambling they won’t be around to pay the piper, but the insureds and taxpayers of the state will be.
Peter aka Mr Insolvency, We need the super regional carriers. Atlantic Mutual was an A++ carrier who wrote HO5 policies in the 80’s and 90’s on package basis, Home Auto and Umbrella on one policy. It was the best coverage form at one of the best premiums available in Florida at the time. Unlike Independent Fire Insurance Company based in downtown Jacksonville somewhat like the start up carriers of today was heavily over exposed to florida windstorm. in October of 1992 it exploded and left many insureds without coverage after andrew. After Andrew reinsurance became unavailable and carriers were not able to increase rates due to regulatory restrictions. Then carriers forgot about the storm reinsurance relaxed and carriers were able to increase rates and start writing again after a few tough years. Then 04 hit and politics are driving rate regulation and politicians are looking the other way on financial regulations of new carriers this is allowing carriers who have no business writing insurance in our state have become prevelent. I am not just reminising here I am showing that history will repeat itself either for the better or worse. We have seen both.
There are about 1,000 property writers that write business in just one state but that is not ththe issue. The issue is rate adequacy. Carriers deserve and need adequate rates, realistic reinsurance and a relatively free market. But at the end of the day, carriers need to pay claims and reinsurers need to pay their cedants.
If this scenario in FL is politically motivated, Floridians will pay the price for the ambition of the individuals that put their interests above the interest of others.
That several dozen smaller, regional carriers are created in the process should not impune the smaller, regional insurers.
Peter, you miss the point, these carriers are not regionals, A regional carrier writes in an area of the country. For instance Auto Owners A++ JD Power and Associates just named #1 in the country for consumer claims satisfaction is a regional carrier licensed in 29 states has written in florida since 1959. Erie Insurance Group is a regional carrier, Harleysville Group is a regional.
St Johns is not a regional.
Universal Property and Casualty is not a regional.
First Protective is not a regional. And every other crap company started up in Florida.
These carriers are not regionals but rather state start up carriers with over concentrated catastrophe exposure in one state Florida. DO YOU UNDERSTAND NOW WHAT A REGIONAL CARRIER IS.
Peter, you keep saying “regional carriers”. A startup, writing only in Florida, is NOT what is considered a regional carrier.
No one is impuning regional carriers, but you are not talking regional carriers.
Point taken on regionals, the Florida property companies would be state specific. There are more than 1,000 state specific property insurers in the US.
What has agents and professionals upset is that established companies are leaving the marketplace. I long for 2004, 2005 and 2006 when companies filed for rate increases and received them. When the overwhelming majority of a carrier’s reinsurance was in the private sector.
By sheer numbers, Citizens could be more of problem than all the state specific companies together.
Most of the start-ups are funded by oppurtunists and those genuinely concerned about Floridians. If the reinsurance issue is resolved and then the rate adequacy issue is addressed, there is plenty of property insurance for everyone. Until then, the dialogue continues.
Bill,
Last I checked Universal Property & Casualty was writing in Florida, North Carolina, and South Carolina. Additionally they have approval to write in Georgia. Guess they don’t qualify as regional…
Mr Insolvency,
NO THEY DO NOT QUALIFY AS A REGIONAL CARRIER .
Do they write commercial lines, auto, umbrella, life or any other products than their gutted HO-3 policy — NO.
Do they have an AM best rating of A+ or better. NO.
Mr Insolvency – I think you work in a bucket shop with no standard markets.
…is just a label. The important point is that concentrating in Florida, the peak catastrophe insurance zone in the world (which is a fact, since most other zones that could claim the title from Florida, like California EQ, are significantly underinsured), is not like being a state-specific or regional carrier anywhere else. These companies don’t just carry cat risk, they have enormous reinsurance renewal risk — i.e., when reinsurers change their position post-storm and decide they won’t write anything with less than a $50M retention, what is the company with only $50M of surplus going to do? The answer so far has been to look to the State of Florida for cheap replacement reinsurance. That is not a successful business model. That is relying on politics to bail out a less than robust business model. Such a non-business model cannot succeed in the long run.
Hang in there, very well said, I think you have explained my point better than I could.
We need to get our regulators/politicians to do their job in florida and regulate the financial condition of the carriers writing coverage and get out of the way of free market capitalism in the insurance market place.
And the politicians getting out of the act will never happen. In Florida the Insurance Commissioner position has always been the first stepping stone to Federal House or Senate, Governor, or, in Crist’s case, President.
The Commissioner always bashes the insurance cos., does whatever possible to keep rates artificially low, all to please the retirees of the state, their single largest voting block.
This model perfectly explains the actions of our Governor and our Commissioner who, in the cause of their own political ambitions, would quite happily screw those very same constituents (and all the rest of us), as long as they are gone from their current posts when it happens.
They are taking a huge gamble with the future welfare of the state and it’s residents in the name of their own personal political ambitions.
Bill,
most of the companys that rate insurance companies charge a fee for that service.
Smitty, Most rating bureau’s take into consideration what the financial condition is of the carrier and where they write coverage. Most will not give an A rating to a company with very little surplus writing coverage in a catastrophy prone area.
Best’s is the only rating bureau that has any credibility, maybe Weiss, although I know very little about their process. I can tell you that a company who relies entirely on Florida’s Cat fund for reinsurance should not have a rating at all.
It’s nice to see that 100 year old Churchillisms still have their uses in the modern day.
I have nothing against these companies and wish them the very best. That being said, history has NOT been kind to carriers with less than 20 years experience as the funding just isn’t there to handle large claims. Face it-providing Property Insurance is a gamble, at best. Everyone thinks Hurricanes…what about the Fires? Lightning Strikes? Break-Ins? It’s not a matter of “if” when it comes to claims..it’s a matter of when. If people want to feel comfortable when a Catagory 3 is bearing down on them and they have a 5yr old company that’s been given a “A” rating by Demotech (WHO???), then so be it.
I do not understand how being in business for 20 years makes an insurance company ready for a category 3 storm. An insurance company either has proper reinsurance or it does not.
As for the companies rated by Demotech, it is my understanding that almost all of the companies that they rated in the 1990s have received Secure ratings from Best, as soon as seasoning requirements were met.
The operative phrase here being “almost all”. What about all those who didn’t make it?
The material that I have read indicated that virtually all companies ‘made it”. For example, Demotech bailed on the Poe Financial Group about 8 months prior to Best withdrawing its Secure rating.
Also, Demotech was the one that rated one of the first Florida specific companies, First Floridian Auto and Home, back in 1995 or 1996. American Strategic is another that comes to mind.
They do a credible job. I do not think you should dismiss companies rated by them.
If you’re referring to Winston, it isn’t yet 100 years.
You cant argue with Peter/Mr Insolvency. He only represents substandard start up carriers with coverage limitations for screen rooms and the like.
The proof will possibly be this year when we have a storm and the state cannot pay their required reinsurance from the Cat Fund. I am sure you read the article here in the Insurance Journal which states that these carriers should be commended due to the fact they realize the state has no money to pay the reinsurance they agreed to. So the carriers have obtained loans to last a few months until the state of Florida can figure out how to raise the funds necessary. All these carriers cannot obtain reinsurance in the private market place so they rely on the state for their existance. Good carriers have not done so and therefore they are a much better choice of carrier. The day of the demise of these carriers is not so far off. Not being negative just a realist.
This is the article in the Insurance Journal I was talking about.
Demotech is a farse, Lets see you can borrow money to pay some of your claims while the state tries to find a way to raise capital. Thats good business practices, how about buying real reinsurance.
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By Andrew G. Simpson
May 7, 2009
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Most of Florida’s smaller domestic property insurers have initiated backup financing plans in the event the state-backed hurricane fund can’t meet its obligations right after a major storm hits.
Insurance Journal Audio
Demotech on Florida Property Insurance: An interview with Joseph Petrelli of Demotech, Inc.
According to an actuary whose firm is reviewing 59 of the state’s domestic property insurers, the majority of them have developed contingency plans to pay claims until the Florida Hurricane Catastrophe Fund (FHCF) can obtain the funding it needs after a big storm to pay their reinsurance claims.
Joseph Petrelli, president of the actuarial services firm Demotech, based in Columbus, Ohio, said he believes that only about 6 to 10 of the Florida domestic carriers will flunk the contingency test and possibly be downgraded by his firm when all the data is in. A contingency plan is one of the factors weighed in the financial ratings his firm assigns to carriers.
Petrelli thinks consumers should know about the contingency planning the insurers have done and that the domestic carriers deserve credit for it.
“[T]he companies themselves have been, I think, very modest. They should be thumping their chests a little bit more about what they’ve done and how they’ve done it because there’s some fascinating programs in place for contingency plans,” Petrelli told Insurance Journal in a recent interview on the Florida property insurance market.
The HCFC, from which carriers buy mandatory and extra reinsurance, is a post-event funder. It’s essentially allowed to write some business before it actually has the funds in place to cover it, unlike a traditional insurance company.
Petrelli said that even though there is a shortfall in the state fund currently, he is confident that the FHCF will eventually be able to raise whatever funds it needs to pay claims after a storm.
But what Petrelli and his fellow Demotech actuaries are concerned about is a potential gap between when insurers have to pay policyholders and when the FHCF is able to repay insurers for claims that are covered under its reinsurance program.
“Whether it’s sold in the private bond markets or whether the federal government buys bonds or whether the state of Florida itself buys its own bonds from indirect obligation of its quasi-government entity, we think the money will be there,” Petrelli said. “So, what we talk to companies about is, ‘What are you going to do to continue to pay claims if the cat fund has a short-term liquidity problem?'”
His firm requires the carriers it reviews to have some sort of backup plan.
“What we say to our companies is, ‘OK, if you only get half your money, and it’s going to take them six months, eight months, whatever it might take to get you all of your money, how are you going to continue to honor claims during that period of time?'”
Florida’s domestic carriers have responded to the concern. Petrelli explains:
“So, basically, they’ve gone to a lender, they’ve gone to a third party, and they’ve indicated, ‘We’ve got millions of dollars of exposure. The Florida Hurricane Catastrophe Fund is our reinsurer. It’s got this post-funding capability. And there’s a possibility we may not get that money in a timely manner, and we’re going to need to borrow some of it.'”
He said carriers have taken different routes. Some have secured the contingency financing with their receivables, while others are using their holding company assets or a corporate resolution authorizing a loan from the holding company if the FHCF monies do not show in a timely manner.
Some insurers have even adopted a 100 percent cash solution. “Their philosophy is, their thought process is that if there’s a shortfall that cash will be king, and because they already have their entire investment portfolio in cash that they will be in a position to sort of float their way out of this. We thought that was sort of an interesting response,” Petrelli said.
It may be an interesting option but Demotech isn’t convinced that the cash approach is as strong a contingency plan as additional capital infusions or borrowing money from either the holding company or a lender. But he said the response “at least showed that they’d been thinking about this.”
Petrelli said that other carriers have responded by cutting back on their writings so that they have less exposure. “That’s an interesting approach, but it’s not one that benefits the marketplace. As a matter of fact, it’s sort of counterproductive to the marketplace,” Petrelli said.
Demotech has an expertise in smaller companies like the Florida domestics. It is known for rating carriers that other rating agencies won’t because they are too small or too new. Demotech began issuing its financial stability ratings in 1996 to what were then called the “take-out” companies. Its ratings are accepted by Fannie Mae and Freddie Mac when they sell mortgages to the secondary mortgage marketplace.
“We actively monitor 59 of the companies that are writing coverage in Florida. We’ve been doing it for 13 years. We’re very comfortable with what’s going on in Florida,” Petrelli said. “We require companies to have, typically, a more costly and more effective reinsurance program than they might need from an incorporation perspective and a licensing perspective. So, we’re doing a lot of things behind the scenes that are basically intended to assist those companies survive the big wind.”
Not all of Florida’s domestic carriers are doing well. People’s Trust has been told by state regulators to stop writing because it risked exceeding its capacity at the pace it was growing. In a worse situation, the state had to go in and take over Coral Insurance and is now cancelling all of that carrier’s policies.
But Petrelli has confidence in the domestic insurers and thinks these two are not representative of the whole group of domestics.
“I would say that they are isolated problems,” he told Insurance Journal. “The reason I say that is when we look at the companies that we have reviewed and rated from 1996 to date, many of those companies now are 10 and 12 and 13 years old. Even though we don’t rate and follow them anymore, they have gone on to get very good ratings from other services. We know we have been able to identify some very strong companies.”
Still, he warns, the Florida property insurance market has its troubles and the exit of top writer State Farm will only further disrupt the market. Where will this business go? Petrelli said the domestic insurers are not equipped to absorb all of this business. Also, none of the other large insurers such as Allstate or Farmers are looking to grow in Florida. Finally, it is unlikely there will be many new start-up companies, according to Petrelli.
“It is either going to be Citizens [state-backed property insurer] or it is going to be the startup companies. I think it is very difficult for a startup company… to replace 16 percent market share is, I think, dozens of startup companies. And I can’t at this point in time see how anybody would be particularly interested in getting into the situation in Florida. … I think it is a situation where the market needs to stabilize and losing someone of the substance of a State Farm does not help the stabilization. I think it destabilizes it.”
This story is from an interview on the Florida market with Petrelli by Insurance Journal’s Andrew Simpson. The complete interview with Demotech’s Petrelli is available for listening at http://www.insurancejournal.tv.
Know it all, NONE of the good carriers left in the state would rely on it. It will not be there. This is why these start up carriers are going out to get loans for. Read the article in IJ regarding demotech and their statements regarding the start ups lack of financial ability to handle a storm and the Cat fund not having the resourses necessary to pay claims.
NONE of the start-up companies in Florida get all of their insurance from the Cat Fund. ALL of the insurers in FL that write property insurance must get some reinsurance from the Cat Fund.
Numerous changes are coming between now and January 15, 2010.