Senate Insurance Accountability Hearing: Day Two

On Tuesday, February 5, 2008, the Senate Select Committee on Property Insurance Accountability (“Committee”) held its second day of hearing testimony from insurance company executives.

To view a report of the previous day’s proceedings and access the Committee packet, click here.

Those testifying on the second day of hearings included representatives from Florida Farm Bureau Insurance (“FFB”), the Hartford Group, and American Strategic Insurance Company. The Committee questioned the representatives of these companies with many of the same questions asked during the February 4 hearing. However, of note, the tone used by Senators toward American Strategic Insurance Company was mostly complementary as compared to that directed toward other insurers who testified.

As in the previous day’s Committee hearing, this testimony was made under oath.

(In order to provide a streamlined summary, this report will only include a brief review of the discussions that took place. Please refer to the February 4 report for details on the types of questions asked).

Florida Farm Bureau Insurance

FFB executives (Michael Hill, Vice-President and CFO, and Melissa Shelley, Actuary) provided opening remarks, including facts supporting FFB’s compliance with House Bill 1A. Mr. Hill noted that FFB’s presumed factor and true-up filings indicated a 1.6 percent rate reduction from 2006. The Florida Office of Insurance Regulation (“OIR”) disapproved FFB’s filing, resulting in a current pending appeal before the Florida Department of Administrative Hearings (“DOAH”).

Ms. Shelley discussed reinsurance and rate issues, explaining that FFB strives to have sufficient surplus and reinsurance to cover a 1-in-250 year event.

OIR Property and Casualty Deputy Commissioner Belinda Miller provided the OIR’s perspective on FFB’s rate filing. OIR’s primary concern with FFB’s true-up filing was its cost of reinsurance, its need for 1-in-250 year event coverage, and its large probable maximum loss (“PML”) that was based on the near-term model she described as “overstated”.

Major concerns expressed by the Committee included the use of short-term models and their lack of accuracy. FFB noted that it only used the short-term models in calculating necessary reinsurance. The Committee also expressed its displeasure with FFB’s reliance on rating agencies, such as AM Best, in justifying its methodology.

Senator J.D. Alexander asked several challenging questions to the OIR Panel. Specifically, he wanted to know its method for determining rate sufficiency and whether it would deny a rate filing because it was too low. As an example, Senator Alexander cited the Poe Financial Group, which wend into insolvency, ostensibly due to insufficient rates.

Senator Alexander expressed the need for FFB to remain solvent and indicated he was not convinced that the OIR was justified in denying the FFB rate request.

The Harford Group

The Hartford Group executives (Thomas Johnston, Senior Vice President; Christopher Lewis, Vice President and Chief Financial Officer; Mark Homan, Assistant Vice President and Actuary; David Roach, Personal Lines Senior Product Manager) were called to testify. They noted that The Hartford Group’s (THG’s) combined rate filings reflected a statewide increase of 0.5 percent for Hartford Insurance Company, and an increase of 2.8 percent for Hartford Midwest. The OIR disapproved those rate filings which are currently on appeal before DOAH.

The Committee members again expressed concerns with the use of short-term models and reinsurance costs. Senator Steve Geller also noted that the OIR and THG need to improve their communication because their testimony reflects they are working off different baselines.

American Strategic Insurance Company

Finally, the Committee heard testimony from American Strategic Insurance Company (“ASI”) executives (John Auer, President; and Kevin Milkey, Analyst). The company was viewed favorably by OIR and the Committee.

In their opening remarks, the ASI executives noted that compliance with House Bill 1A was “simple.” Their combined rate filings reflected a 19.5 percent average statewide decrease for their policyholders. Ms. Miller stated that the OIR was very pleased with the rate filings of ASI. Senator Jeff Atwater ended his questioning noting it was “refreshing” to see an insurance company that can be successful under the current laws and regulatory atmosphere in Florida. The Committee members complimented ASI because it did not use short-term models in determining rates and accurately reflected the rate savings envisioned by House Bill 1A.

Conclusion

Following the ASI presentation, Committee members provided concluding remarks. Senator Geller discussed the possible class action lawsuit being pursued by Governor Charlie Crist and stated, “as it stands now, it is strictly an executive branch issue.”

Senator Al Lawson commented that the proceedings became very redundant and the “end game” is unclear. He also stated that the insurance companies are not violating any laws, although OIR is acting within the scope of its regulatory authority. Senator Geller responded that the “end game” will result in legislative recommendations by the Committee to the Senate President.

Senators Jeremy Ring, Burt Saunders and Alexander concluded their comments by noting that Florida is bearing too much financial risk. They also expressed concern regarding Florida’s exposure to significant catastrophe assessments.

The Senators requested a report from the OIR on the effects that a $10 billion and $16 billion catastrophic event would have with regard to future assessments.

Senate Banking and Insurance Committee Chairman Bill Posey concluded the meeting by stating that mitigation is the single greatest mechanism to lower insurance rates and harden homes.

The next meeting of the Committee is scheduled for February 19, 2008, from 8:30-11:45 a.m. During this meeting, the Committee will hear from other interested stakeholders in the insurance industry, including hurricane modeling companies and reinsurance companies.

Should you have any questions regarding the above materials, please feel free to contact this office.

 

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