Though Florida property insurers have kept their celebrations quiet, 2006 was a very good year.
With no hurricanes playing havoc with the balance sheets, insurers collected record high premium rates and paid out record low claims. According to the Florida Office of Insurance Regulation, just-filed financial statements showed private insurers took in nearly $6.7-billion in premiums from homeowners last year. They paid out less than 60 percent of that - about $4-billion - in claims. Total underwriting profit: $2.7-billion.
At the four Florida "pups," the subsidiaries of national insurers that provide insurance to about one of every four homeowners in the state, the payout to policyholders was even lower. Companies' loss ratio - the percentage of premium dollars used to pay claims - averaged less than 35 percent for that group, the lowest loss ratio since at least 2000. Nationwide Florida fared best, last year paying out claims of less than 25 cents on every dollar of premium written. The company also reported net income of $54.8-million on its Florida property business last year, its most profitable showing over the past seven years.
But don't expect to see Nationwide Florida executives partying.
"While the 2006 season was mild, we have to prepare for the future," said Joe Case, spokesman for the subsidiary of the giant insurer based in Columbus, Ohio. "The wind is going to blow more frequently and harder. We have to be prepared to pay claims based on the very real risk that is the reality in the Florida marketplace."
Hence Nationwide Florida's decision to pursue a 71.4 percent rate increase, despite an initial rejection by state regulators.
J. Robert Hunter, director of insurance for the Consumer Federation of America and former Texas insurance commissioner, doesn't buy the industry's response to its good fortune in 2006.
"It shows Florida is not so bad, even with all the hurricanes," he said. "And in a year like 2006, it's a gravy train."
In January, Hunter was a paid consultant for the Florida Office of Insurance Regulation, calculating the presumed savings that insurers should experience as a result of their ability to tap lower-cost reinsurance through the state's catastrophe CAT fund. After reviewing a decade's worth of financial data, Hunter concluded, "Florida is hardly the money pit as often portrayed by the industry."
His evidence: From 1996 to 2006, the loss ratio for Florida insurers was less than 70 percent of premium, meaning insurers were paying less than 70 cents for claims out of every dollar of premium collected. Florida's rate was just 2 percent higher than the average loss ratio for all insurers nationwide, a variation he called insignificant.
"If you come in with your eyes open and understand what the situation is, there's no reason you can't make money in Florida," Hunter said.
Another sign Florida insurers aren't doing so badly: Last year First Floridian, which sells both auto and property policies in Florida, paid a $21-million dividend to its parent, Travelers Indemnity Co. in Hartford, Conn. The company, which has about 2 percent of Florida's property market and about 2 percent of the auto market, reported $70.5-million in profit last year, the highest since at least 2000.
"Our 2006 performance reflects a lower-than-expected year for catastrophes and strong results for our auto business," said Nancy Baily, president and CEO of Travelers of Florida. "After the catastrophes of 2004 and 2005, this will provide an additional buffer against the increased hurricane activity that experts predict for the next 15 to 20 years."
State Farm Florida, the state's biggest private property insurer with about 1-million policyholders, reported a profit of $134-million in 2006. Its loss ratio, meanwhile, was less than 33 percent.
Chris Neal, spokesman for the Winter Haven subsidiary of the Illinois insurer, said 2006 returns were what you'd expect in a noncatastrophic year. "But we need several of those put together to make up for one catastrophic year," he said. Since it shifted to writing policies in Florida under its State Farm Florida subsidiary in 1999, State Farm has had losses in four of its eight years, including a $771.3-million hit in 2004.
And though State Farm Florida reported a surplus of $718.9-million in 2006, Neal said that figure included a loan of $750-million from its parent company after the subsidiary had massive losses in 2004.
"We haven't been in a position yet where we can pay back any of that principal," he said, though the subsidiary has paid about $114.5-million in interest on the loan. "So our net worth is actually a negative."
But don't even suggest to Neal that parent State Farm, which reported profits of $5.3-billion in 2006, simply fold its Florida business into its operations.
"That's not acceptable on many levels," he said. "We can't jeopardize our millions of policyholders nationwide with one storm in Florida."
Robert P. Hartwig, president of the Insurance Information Institute in New York City, said it's critical that national insurers be allowed to maintain their separate corporate entities in Florida. As a group, insurers reported record profits from combined lines last year, with Allstate Corp.'s earnings at about $5-billion, Travelers (parent of First Floridian) at $4.2-billion and Nationwide Mutual Insurance at $1.1-billion.
"The clamor to get insurers somehow to fold their pup into the parent seems to be a solution in search of a problem," Hartwig said. "None of those (Florida) companies has ever failed to live up to its claims. But the parent cannot allow losses from a single state to potentially bankrupt their entire corporation."
Kris Hundley can be reached at email@example.com or (727) 892-2996.
Good times for insurers
In 2006, the four Florida subsidiaries of national insurers, which cover about one of every four homeowners in the state, collected record high premiums and paid out a record low percentage of that revenue in claims. Here's how much each paid out per dollar received in premiums.
Allstate Floridian 36.6 cents
First Floridian 43.5 cents
Nationwide 24.6 cents
State Farm 32.7 cents
Where Citizens Property Insurance stands
By far the largest property insurer in the state is Citizens, the state-created, not-for-profit corporation that has acted as insurer of last resort for Florida homeowners.
At the end of 2006, Citizens, with 1.3-million policyholders, had $1.1-billion in cash to pay claims. Its loss ratio for the year was 36.4 percent; in other words, for every dollar in premium collected, 36.4 cents went toward paying claims. Since legislative changes in January allowed Citizens to compete with private insurers on price, it has been adding new policies at a rate of 15,000 a week.
Other major players
USAA: The company, based in San Antonio, Texas, which had about 200,000 policyholders in Florida, reported 2006 net income of about $1.1-billion and a loss ratio of 58.8 percent. Those figures include both property and auto policies nationwide; the company does not breakout the profitability of its Florida homeowner business.
American Strategic Insurance Corp.: Based in St. Petersburg, the company reported net income of $4.9-million on its Florida property business in 2006, with a loss ratio of 30 percent. American Strategic had 243,242 policyholders at the end of 2006.