Armed Forces Rate Filing Hearing Report

On Thursday, November 29, 2007, a member of this firm attended a public rate hearing for the Armed Forces Insurance Exchange (“Armed Forces”) at the Florida Office of Insurance Regulation (“OIR”). 

Presiding over the hearing from the OIR was Michael Milnes, Deputy Director of Property and Casualty; Ken Ritzenthaler, Actuary; and Rhonda Johnson, Assistant General Counsel.  The subject of the hearing was the true-up filing required under House Bill 1A, including the presumed factors set forth by the OIR.  Armed Forces filing, submitted September 27, 2007, sought a 53.7 percent rate increase.  Inasmuch as the filing was “file-and-use,” any requested increase by Armed Forces cannot be passed along to consumers without OIR approval.

Armed Forces provided opening comments and noted that it was established to ensure that United States armed forces members could secure insurance when for-profit insurance companies would not insure them. 

Member-owned and governed by its subscribers, Armed Forces has operated at negative $46 million and subsidized its losses through subscriber surplus since Hurricane Andrew.  However, that option is no longer viable for the company.

Currently, Armed Forces has approximately 6,500 subscribers in Florida and it would like to continue writing policies.  Recently, the company has been required to reduce its risk in Florida and thus has non-renewed many long-term subscribers.

The OIR panel questioned Armed Forces on its rate filing.  The following information was discussed during the dialogue:  Armed Forces currently writes  HO-3  and HO-6 policies.  The rate indication was 55.1 percent for HO-3 and 34 percent for HO-6.  However, Armed Forces is seeking a 54 percent increase in HO-3 and 39.1 for HO-6.  Armed Forces used industry data through December 2006 to determine its annual loss trend.  The OIR expressed concern that the most recent data was not used. 

There was also discussion regarding hurricane and non-hurricane loss projections.  Armed Forces stated that it used the RMS model 6.0, which is a long-term model. 

The OIR panel expressed concerns that this model was not approved by the Florida Commission on Hurricane Loss Projection Methodology.  The OIR panel also questioned why Armed Forces used a sinkhole presumed factor of 9.6 percent inasmuch as the recommended presumed factor was 14.4 percent.  Armed Forces stated that it found that factor on the OIR Web site.  Also, the OIR panel questioned some of the stated acquisition expenses, given that Armed Forces is not writing new business in Florida.  Armed Forces responded that those expenses include more that just acquisition activities.   

Next, there was discussion about the reinsurance expenses in the filing.  Armed Forces explained that it had non-Florida Hurricane Catastrophe Fund (“FHCF”) expenses of 43.6 percent.  Discussion ensued regarding the proper use of FHCF layers to ensure the least expensive reinsurance program within required parameters.  There was detailed questioning and analysis about the reinsurance expense to determine the best use of FHCF protections. It was also noted that Armed Forces purchased more reinsurance in 2007 than 2006.

Following questions by the OIR panel, the Florida Insurance Consumer Advocate’s Office was recognized to provide testimony.  Stephen Alexander queried Armed Forces representatives about writing new policies if the rate increase is approved.  They stated that if the rates are adequate they would write new policies. 

Mr. Milnes concluded the meeting and stated that the record will not be held open.

 

Please feel free to contact this office should you have any questions or comments regarding the above information.