Cincinnati Companies Rate Hearing Report

On Friday, October 10, 2008, a representative from Colodny Fass attended a public rate hearing on the rate increases requested by Cincinnati Insurance Company and Cincinnati Indemnity Company (the Cincinnati Companies) in Tallahassee, Florida.  The Cincinnati Companies are the third group of insurers this year requesting rate increases of more than 15 percent, a threshold that automatically triggers a rate hearing with the Florida Office of Insurance Regulation (“OIR”).

To view the hearing agenda, click here.

At the hearing, OIR regulators heard testimony from several Cincinnati officials and asked pointed questions about the Cincinnati Companies’ rate filings, business practices and future plans in the State of Florida.  Below is a review of the pertinent discussions and actions that occurred at the meeting.

The Cincinnati Companies have requested average statewide rate increases of 36.8 percent and 39.6 percent for their homeowners and dwelling fire programs, respectively. The proposed rate increases would be effective March, 2009 for new and renewal business. Because the requested rate increases are not uniform, if approved, approximately 28 percent of Cincinnati policyholders would be subject to rate changes that could higher or lower than the averages requested.

Cincinnati officials were questioned first by OIR Actuary Robert Lee, and then by insurance consumer advocate Steve Alexander.  Mr. Lee’s questioning centered on the Cincinnati Companies’ justification and support for the rate filing.  Mr. Lee sought to understand the reasoning and math employed behind Cincinnati Companies’ rate filings, which he felt were not supported by sufficient exhibits or explanations.

Mr. Lee particularly challenged the filing memorandum that did not specify various actuarial information that would have been helpful to the OIR in determining whether the rates were actuarially sound.  Mr. Lee and other regulators also questioned the Cincinnati Companies’ use of the RMS model instead of the Florida Public Model.  The Cincinnati Companies have used RMS model 6.0(a) for all of their filings for all perils nationwide.  The regulators seemed to question the appropriateness of this policy, but did not say it was unreasonable.

Concern was raised with the fact that the Cincinnati Companies did not purchase the full amount of lower cost reinsurance from the Florida Hurricane Catastrophe Fund (“FHCF”), but instead purchased private reinsurance.  Cincinnati Vice President of Underwriting David Grauff explained they did this because their reinsurance normally expires in January, which does not comport with the June time frame for FHCF renewals.   Mr. Grauff reported that the Cincinnati Companies’ proposed rates were not increased by their failure to purchase the full FHCF coverage.

The final major concern raised by Mr. Lee was why the Cincinnati Companies’ expenses were static for the past few years while their policy count decreased.  In response, Mr. Grauff said the expenses included those for staffing and other “fixed” costs, and although Cincinnati lost 10 percent of its Florida business, this would not justify layoffs or cutting of other important expenses because the Cincinnati Companies write policies throughout the country.   The Cincinnati Companies have about 15,350 policies in Florida, including 150 in Palm Beach County and 77 in Broward County.

Mr. Alexander questioned the justification and support for the large rate increases that were requested.  Of particular concern to Mr. Alexander was the AM Best rating of the Cincinnati Companies.  Currently, the Cincinnati Companies are rated A+; however, their rates are among the lowest in the State.

Please note that the material above is a brief summary of the discussion and events that took place during the Cincinnati Insurance Companies’ Rate Hearing.  It is not intended to be a comprehensive review of any particular issues relating to the policies and/or issues discussed.  Further, this report should not be relied upon for making any specific decisions.  Should you have any questions about any of the above matters, please do not hesitate to contact this office.

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