Florida Consumer Chief Backs Double-Digit Hikes for Allstate

By | July 22, 2011

Florida’s consumer advocate says Allstate’s two Florida home insurers are among the state’s best run and deserve double-digit rate increases along the lines they have requested.

The Allstate units, Castle Key Insurance Co. and Castle Key Indemnity Co., which insure 266,000 homes, are seeking average rate increases of 31.2 percent and 35.7 percent, respectively. With their 800 agents, the two companies represent the fourth and sixth largest home insurers in the state.

At a recent public hearing, the insurers found unexpected support from the state’s Office of Insurance Consumer Advocate. Steve Alexander, actuary for the consumer office, said that out of the 47 Florida-exclusive insurers providing homeowners insurance in the state, the two Allstate insurers are among the most efficient when it comes to costs. “They have some of the lowest expenses in the state, which I think is a real plus,” he said.

He also applauded their willingness to do business in Florida with all the risk that entails, when they could be earning a guaranteed quarter of a point on a one-year U.S. Treasury bond.

Alexander recommended that Castle Key Insurance Co.’s proposed 31.2 percent increase be reduced to 23.7 percent. He also recommended that Castle Key Indemnity’s proposed 35.7 percent increase be increased to 46.9 percent on the basis that it be phased in over a two year period

Within his recommendation, Alexander suggested that Castle Key receive no increases for debt service or contingency fees, he did recommend a profit component of 10 percent, which is slightly higher than the nine percent sought by the companies. He also recommended a 1.5 percent factor for general expenses and a 5.1 percent factor for acquisition and overhead expenses.

Bonnie Gill, vice president for Castle Key, said double-digit rate increases are needed to shore-up the insurers’ claims paying ability in the event of single or multiple-year storms. She said that even without any recent major losses, the companies are not raising enough cash. At the same time, by law, the Florida Hurricane Catastrophe Fund is also scaling back the amount of reinsurance it can offer companies.

“With our ongoing losses since 2006, we don’t have enough money to cover claims,” Gill said, adding that the companies combined surplus dropped by three percent last year.

Gill said that due to the state catastrophe fund’s scaling back, the companies had to spend $143 million to secure $900 million in private reinsurance, a price tag that represented more than half of the companies’ annual premiums.

OIR Actuary Bob Lee noted that Castle Key used the new AIR-12 hurricane model, which was recently approved by the Florida Commission on Hurricane Loss Methodology, which had an effect on the companies’ exposure.

Shantelle Thomas, senior actuary for Castle Key, defended the AIR model’s use. “We believe the new model is the best to date and that it should be considered in the rates,” she said.

Earlier this year, the Castle Key insurers announced they would no longer write new business. Thomas said the companies are considering a number of other underwriting changes depending on the results of the hurricane season, its loss experience, and a review of credits to policyholders for taking steps to strengthen their homes.

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