First Home Insurance Requests 39.3 Overall Homeowners Policy Rate Increase

The Florida Office of Insurance Regulation (“OIR”) held a public rate hearing yesterday, December 7, 2010, on First Home Insurance Company’s (“First Home”) requested homeowners policy rate increases filings.  To view the meeting agenda, click here.

According to the OIR, First Home, based in Maitland, Florida, has 17,424 policies across the state, including 11,603 that would be affected by the proposed rates.  About 2,600 home and condominium unit owners would be affected in Broward, Palm Beach and Miami Dade counties, as well as approximately 3,200 Orlando area homeowners in the Orlando area.  First Home’s requested 39.3 percent overall statewide rate increase includes an 87 percent increase on windstorm premiums.  The company’s condominium unit insurance premiums would increase by 27 percent.

After being opened by OIR Deputy Director Michael Milnes, the hearing commenced with testimony on behalf of First Home from its President and Chief Executive Officer Michael Lefler, who stated that the requested increase is very close to the rate indication.

The rate increase is needed, Mr. Lefler explained, because First Home is experiencing a 64.8 percent loss ratio and reinsurance costs are increasing.

OIR Actuary Ken Ritzenthaler noted that the requested rate increases for the HO-3, HO-4 and HO-6 policies were 39.5, zero (0) and 27.4 percent, respectively.

Mr. Ritzenthaler expressed concern that First Home did not review the HO-4 policy, hence the zero percent movement.  He also questioned Mr. Lefler about First Home’s parent company and managing general agent (“MGA”).  It was noted that part of the fees associated with the parent company were used to pay down debt from Florida’s Insurance Capital Build-Up Incentive Program funds. 

First Home’s accounting process for reinsurance and reinstatement costs was also part of Mr. Ritzenthaler’s concern.  However, he indicated that these issues did not appear to be a critical fault in the filing.

Mr. Ritzenthaler questioned First Home’s use of hurricane models that were not approved by the Florida Commission on Hurricane Loss Projection Methodology. First Home representatives explained that the company’s reinsurance contract required it to use the selected models.

First Home rates were also noted to be significantly higher or lower than their competitors, depending on the territories in question.

Representatives from the Florida Insurance Consumer Advocate’s Office also testified on First Home’s rate filing. Florida Insurance Consumer Advocate Terry Butler noted that his office will continue to support efforts to further regulate managing general agencies. 

Florida Insurance Consumer Actuary Steve Alexander indicated his concerns with the trend and credibility of First Home’s HO-3 filing.  He noted that the company had a fair rate of return on surplus at 10.48 percent. However, he took issue with what as he described as “an unreasonably high” expense ratio.  Mr. Alexander questioned the arms-length nature of the MGA/insurer relationship.

Following this testimony, Mr. Milnes concluded the hearing without giving any indication about the appropriateness of the filing.

Should you have any questions or comments, please contact Colodny Fass.