Allstate wants to follow rate cut with 42% increase

Article Courtesy of The Palm Beach Post

By Randy Diamond
Published September 29, 2007


If Allstate Floridian Insurance Co. gets its way, the 14 percent rate decrease it put into effect June 1 will give way to a 41.9 percent increase in January.

Allstate, the state's fourth-largest homeowners insurer, instituted the cut as part of an insurance rate reduction plan mandated by state lawmakers, but now says its overall rates are inadequate to meet the threat of a major hurricane.

The insurer has plenty of company in seeking increases. It joins USAA, which has filed a request for a 53.9 percent hike, and Florida Farm Bureau, which seeks a 30.3 percent increase, as well as a number of smaller insurers.

All homeowner insurance companies must file reports with Florida insurance regulators by Monday showing their final costs of buying reinsurance. As of Friday, the majority of the state's insurers had not filed the "true-ups," as they are called.

Many companies had reduced rates as of June 1 based on preliminary findings of the changes. Those cuts averaged 12 percent, half of what state officials had predicted. True-up filings, such as the one Allstate filed Friday, threaten to wipe out even those small savings.

The requests for rate hikes have angered Gov. Charlie Crist and other state legislators. The legislature provided $12 billion in discounted reinsurance - insurance for insurance companies - with the understanding that the companies would pass on savings to customers.

The expanded Florida Hurricane Catastrophe Fund was the centerpiece of the rate reduction plan approved in January with strong support from Crist and the legislature.

Ultimately, that risk is passed on to policyholders throughout Florida, who would have to pay surcharges if the fund were forced to pay claims for a major hurricane. The catastrophe fund has $28 billion in potential liabilities but only $2 billion in assets.

Allstate is taking advantage of the state reinsurance fund, but spokesman Adam Shores said the company needs additional coverage to ensure it can pay claims in the event of a string of catastrophic hurricanes.

In its filing with the state, Allstate says it purchased $1.8 billion worth of reinsurance, which it estimated could pay claims for two one-in-100-year hurricanes.

It was not clear whether Allstate had increased reinsurance purchases from last year. Neither Shores nor insurance regulators could provide specifics.

Florida Insurance Commissioner Kevin McCarty, like Crist, has been critical of insurers that have filed for rate increases, charging that some have bought unnecessarily high amounts of reinsurance to drive up rates. McCarty was unavailable for comment Friday.

Jonathan Kees, a spokesman for the state Office of Insurance Regulation, questioned the Allstate hike. He said regulators would give the filing an in-depth examination to make sure it complies with reductions mandated by state lawmakers.

''A 42 percent increase in rates does not appear to be in line with that objective,'' he said.

The increase cannot go into effect without the blessing of state regulators. State law requires a hearing for any increase over 15 percent.

Shores said Allstate Floridian has been under pressure from agencies that rate financial stability. Insurers have purchased additional reinsurance because of the rating agencies' views that insurers are facing increased hurricane risk. They also question the viability of the state's catastrophe fund to pay claims after a major storm.

Allstate Floridian has about 300,000 policies. A smaller affiliate, Allstate Floridian Indemnity Co., is asking for 28.3 percent increase. It covers about 100,000 policies and reduced rates by 13 percent in June.

Allstate Floridian reported a net income of $27.6 million in 2006, after reporting losses of $185 million in 2005 and $725 million in 2004, according to statements filed with state regulators.

Both companies are units of Northbrook, Ill.-based Allstate Corp., the nation's largest publicly traded home and auto insurer. It set up subsidiaries in Florida to isolate the company from potential losses in the wake of Hurricane Andrew.

Allstate Corp. (NYSE: ALL, $57.19) reported second-quarter earnings up 16 percent over a year ago.

Net income increased to $1.4 billion ($2.30 a share) from $1.21 billion ($1.89). The company is scheduled to release earnings for its most recent quarter on Oct. 18.