Praetorian Offers to Lower Florida Forced-Placement Rates by 18.8%

By | December 18, 2012

A forced placement mortgage property insurer providing coverage in Florida has offered to lower its rates by an average of 18.8 percent, despite the fact that state regulators said the rate decrease should be double that amount.

Praetorian Insurance Co. has been under fire since last August when Florida Insurance Commissioner Kevin McCarty rejected the insurer’s proposed 2.2 percent rate decrease on policies provided to mortgages lenders in cases where a homeowner is in foreclosure or behind in their payments.

Praetorian, which is a subsidiary of QBE North America, currently has 126,336 policies in force in Florida, representing $521 million in premiums. The policies are written by two other subsidiaries, Balboa Insurance Co., and QBE Specialty Insurance Co.

In rejecting the August rate filing, McCarty said the insurer provided insufficient data to support its propose factors for reinsurance, loss trend, and expenses. As a result, he said, a deeper cut in the insurer’s rates is warranted.

“Upon review of the information and data submitted by you, and upon the Office’s review of the data utilizing more than one model, the resulting indications demonstrate that a reduction of 35 percent to 36 percent is required,” said McCarty in a letter to the insurer.

The Consumer Federation of America Director of Insurance J. Robert Hunter had called on McCarty to cut Praetorian’s rates by 44 percent. He said the insurer’s proposed 2.2 percent decrease last August represented an “actuarial overreach” that relied more on expenses than claims costs.

“For every dollar Praetorian charged consumers between 2007 and 2011, it paid out only four and one-half cents in claims payments,” said Hunter. “The rest of the money went for either excessive profits for the insurer or kickbacks to banks and other lenders.”

In response, Praetorian announced it is creating a new insurance program called the hazard insurance protection plan. The program will replace Balboa’s risk place protection program and QBE Specialty surplus line lender program.

To arrive at the 18.8 percent rate decrease figure, Praetorian said it would first set QBE Specialty’s rates at Balboa levels. QBE Specialty rates had been 10.5 percent higher and combining the books of business is estimated to result in a 2.2 percent rate savings. Praetorian said it would then cut rates by another 17 percent.

Some of that savings comes from a proposed cut in commissions to mortgage lenders from 15 percent to 11 percent.

Florida Office of Insurance Regulation spokesperson Anita Durham said the filing is now under review. If approved as filed, the new rates would take effect on February 1, 2013. It is estimated that the new rates would result in a savings to lenders of $98 million.

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