Insurance Commissioner responds to critics

Historic City News has learned that yesterday, Insurance Commissioner Kevin McCarty sent to legislative critics a list of the more than 50 companies that have gotten a license to start selling property insurance in Florida since 2006.

This represents the latest volley in a back and forth over the future of how homes will be insured in hurricane-prone Florida.

The list includes 28 companies new to Florida and several others that have sought approval to add new lines of insurance, such as mobile home coverage, homeowners, or condo and apartment coverage.

The debate between McCarty, the state’s top insurance regulator, and legislators led by Rep. William Proctor, R-St. Augustine, has mostly centered on legislation that would have removed from regulatory requirements certain large, heavily-capitalized insurance companies. Such companies would have been able to raise rates without McCarty’s approval under the legislation, which was sponsored by Proctor and passed the Legislature (HB 1171), but was vetoed by Gov. Charlie Crist.

McCarty had opposed the bill.

Large insurers have been frustrated by their inability to raise rates because of regulatory disapproval, and the largest private insurer, State Farm, is on the verge of pulling out of the Florida property market entirely.

During the discussion of the need for unregulated insurance premiums, McCarty had made the case that a number of small, private companies have come into the Florida market in recent years, and that some of them could take up some of the slack – though not all – if large companies like State Farm shed policies. That assertion has been questioned by Proctor and others.

With the state’s backup insurer, Citizens Property Insurance, not pulling in enough in premium to pay out its possible maximum loss, just how many coastal residents could get adequate insurance in the event of State Farm’s departure has become a huge issue.

Proctor had written McCarty last week questioning McCarty’s earlier assertion that there were 40 new companies in Florida with as much as $4 billion in capitalization that stood ready to write new policies. Proctor had also complained publicly that he’d been unable to get answers from the Office of Insurance Regulation about just what companies were out there writing new coverage, how well capitalized they were, and how they were rated.

On Wednesday, McCarty sent Proctor the list of more than 50 companies either new to the market or newly writing certain types of property coverage with a total of $4.9 billion in capitalization, and thousands of policies, along with the ratings of those companies.

Some of those companies aren’t writing many policies – in fact one, Ranchers and Farmers Insurance had one policy in force at the end of last year – and OIR officials said they never intended to imply that those companies would take all the State Farm policies, only that they were out there and eligible to take some.

“There are actually about 200 property and casualty companies licensed to write residential policies in Florida,” McCarty wrote. “The references to these new companies has been to illustrate that even after the 2004 and 2005 hurricane seasons, some investors still view Florida as a place to do business.”

Some of the biggest on the list are Royal Palm Insurance, a company run by former state Sen. Locke Burt, that agreed in 2006 to offer coverage to some customers who were non-renewed by Allstate Floridian. Royal Palm had more than 124,000 policies at the end of last year, and $86 million in initial capital, according to the Office of Insurance Regulation.

The other two companies on the list with the highest number of policies had much lower initial capital: Magnolia Insurance Company had more than 100,000 policies at the end of last year, according to OIR, but just $20 million in initial capital. American Integrity Insurance has more than 90,000 policies and initial capitalization of just $14 million.

Still, like all of the companies on the list, save one, those two companies had “A” ratings from insurance rating agencies Demotech or AM Best.

While most of the new companies listed by McCarty had capitalization of less than $50 million, one made up a large part of the $4 billion. IDS Property Casualty Insurance, which entered the Florida market in 2006, had initial capitalization of $542 million.

And Insurance Regulation spokesman Ed Domansky said Wednesday that companies with the smaller capitalization wouldn’t be approved to take on large numbers of homes. “A company with $9 million in capital is not going to be approved by this office to write as many policies as the company with $50 million,” Domansky said.

McCarty acknowledged in his letter to Proctor that the smaller companies aren’t the entire solution.

“It is not my intention to downplay the serious effects of State Farm’s exit from the market and I do not mean to suggest that these new companies formed since 2006 will absorb all of the policies that State Farm plans to cancel,” McCarty wrote.

“While these 650,000-plus policyholders are a significant portion of the market (and impressive given the severity of the 2004-2005 storm season) – our state does not rely heavily on this segment of the market,” McCarty said.

In justifying his veto, Crist had said he couldn’t abide the possibility of “unpredictable rate increases.”

But Proctor, who got back into the back and forth on Wednesday with a new letter to the governor, suggested that’s the least of the state’s hurricane worries. He noted that if companies can’t pay claims, the state is on the hook for the difference and has the power to assess – or tax – insurance policy holders to bring in the cash.

“In our current situation, what is most troublesome, and indeed most unpredictable, is the potential magnitude and duration of the state-issued assessments to be levied on Florida homeowners in the wake of a major storm striking a metropolitan area,” Proctor wrote.

“Now, with the veto of House Bill 1171 and the continuing exodus of national companies, Floridians will be compelled to rely upon an emerging domestic market – which may in fact be much smaller in terms of claims-paying capacity than the Legislature was led to believe – and an insolvent Citizens Property Insurance Corporation,” Proctor wrote.

McCarty also asked Proctor for a meeting this summer to discuss the issues, rather than “continuing to send letters back and forth.”