TAMPA - As expected, Florida insurance regulators on Monday rejected State Farm's request to raise home insurance rates nearly 50 percent statewide.
State Farm, Florida's second-largest property insurer with more than 1 million policies, is weighing its options. It could ask for a lower rate increase, appeal the decision or make plans to drop more policyholders.
"We did provide strong support for this rate request," said State Farm spokesman Chris Neal. "We're going to review all of our options and take the best course to protect our Florida policyholders."
State Farm Florida officials told state regulators this month that the company is losing money in Florida and won't be able to cover losses from a major hurricane without a substantial increase in its rates.
For some homeowners, premiums would have risen more than 70 percent under State Farm's plan.
Homeowners in Pinellas County would have paid about $4,800 more each year on home insurance, regulators said, an increase in premiums of as much as 91 percent for some homeowners. In Hillsborough County, rates would have increased about 24 percent. In Pasco County, homeowners would have paid about 19 percent more in premiums under the State Farm plan.
State Farm has paid $1.20 in claims and expenses for every $1 collected in premiums in Florida since 2000. By the end of 2009, the company expects to be paying $2 for every $1 collected.
Florida regulators rejected the proposal in part because it said the company's reinsurance costs were excessive.
State Farm bought $9.2 billion of reinsurance, enough to cover claims resulting from a one-in-250-year storm.
Last year, the Legislature and Gov. Charlie Crist expanded the state's Hurricane Catastrophe Fund, a source of low-cost insurance, by $12 billion in an attempt to lower rates. State Farm, however, failed to pass the savings on to customers, a violation of state law, said Office of Insurance Regulation Ed Domansky.
State Farm also overstated its hurricane risk by adjusting hurricane-loss models to show losses four times greater than what they would have been, regulators said in a news release.
"State Farm did not provide appropriate support for the rate increase it requested," Deputy Insurance Commissioner Belinda Miller said.
The state agency's notice to reject the proposal could be appealed. State Farm has 21 days to ask regulators for an administrative hearing.
State Farm carries nearly 100,000 homeowners policies in Hillsborough and Pinellas counties combined.
During a public hearing Aug. 12, regulators questioned the calculations the company used in determining its premium needs. They also said the company used an unapproved hurricane-loss model to calculate its potential losses.
Steve Alexander, an actuary with the state consumer advocate's office, testified that State Farm's plan was an attempt to recover its hurricane losses from 2004 and 2005 and should be denied.
During the hearing, State Farm Florida officials said about half of its reinsurance coverage - $4.6 billion - is purchased from it parent company, State Farm Mutual. State Farm Florida pays its parent company about $550 million a year for the back-up coverage.