Rock of ages cleft for Floridee’
we will no longer hide ourselves behind thee;
let the tears and the blood,
from the wounded policyholders which flowed,
be the sin of the perpetrator;
save us from that wrath and make me pure
As our wayward brothers and sisters come home it appears the Farm has met it’s match in Commissioner McCarty at FLOIR. Daniel Hays at the National Underwriter has the Farm slam:
In an unusual action, the head of a small, rival carrier has issued a statement slamming the decision by insurance giant State Farm to drop its Florida property business as “disgusting.”
The critical comment from Mike Gold, chief executive officer of Boca Raton, Fla.-based Peoples Trust Insurance Company, was coupled with an announcement that he and Florida officials will shortly unveil a plan to fix the state’s insurance market.
His comments followed State Farm’s announcement yesterday that a “weakened financial position” was forcing it to stop selling homeowners insurance after its request for an average 47.1 percent rate increase was denied.
State Farm, Florida’s largest private property insurer, said that within two years it will phase out more than 1.2 million home and condominium policies.
Mr. Gold said it “is absolutely disgusting what State Farm is doing, abandoning Florida homeowners after profiting for years on their policies.”
He added that “if they don’t want to partner with the state’s consumers on property insurance, they ought to be good corporate citizens and get out completely. Our industry has specific customer obligations, and my feeling is they should be all in or out.”
According to Mr. Gold, his firm “charges roughly half of what State Farm collects for the same policy and still makes money.”
Peoples Trust doesn’t tote Ed Rust’s multi million dollar pay package or pay tens of millions of dollars for it’s board of directors, so it is no wonder they can make money where the Farm claims it can’t. The story continues:
Peoples Trust, he said, has “a catastrophe plan to help fix the system they claim to be unable to work in, which we’ll unveil in a few weeks, that has the strong support of Florida Gov. Charlie Crist and Insurance Commissioner Kevin McCarty. It is the kind of creative thinking this industry desperately needs–something State Farm wouldn’t or couldn’t bring to the table.”
Jim Thompson, president of State Farm Florida, in a statement yesterday said the insurer was making the move “given the realities of the Florida property insurance market.”
Asked if the company (State Farm) had any reaction to Mr. Gold’s statements, spokesperson Michal Connolly said: “We don’t necessarily have a response.”
Regarding Mr. Gold’s comments that his firm can make money in the Florida property insurance market, she said she would not speak for another company, but “our financial picture speaks for itself.”
Indeed their financial picture does speak for itself. Check this out from early 2008:
After a year in which an absence of major catastrophes was offset by an increase in routine claims, State Farm Insurance Cos. still reported record earnings of $5.46 billion in 2007.
The company’s net income increased by 3 percent last year, up from a record $5.32 billion in 2006, according to information released Friday.
“We did well this year, but we try to not put too much weight on one year of successful results,” spokesman Dick Luedke said.
State Farm also released annual salary information for its top leader.
Chairman and Chief Executive Officer Ed Rust earned $11.71 million in 2007. His base salary of $1.77 million stayed the same as 2006, but his results-based bonus increased slightly, from $9.89 million in 2006 to $9.94 million last year.
Last year was the company’s fifth consecutive year of profit, after a $1.6 billion loss in 2002 and a $5 billion loss in 2001.
Its 2007 results were influenced by a variety of factors.
On the plus side, an absence of serious hurricanes or other disasters meant State Farm avoided the major payouts it had seen in years like 2005, when it handed out $6.3 billion to policyholders affected by hurricanes Katrina, Rita and Wilma.
Despite that, its property-casualty underwriting gain — the bread-and-butter division that includes home and auto lines — still dropped 79 percent, from $3 billion in 2006 to $621 million last year.
Of course the “gain” in insurance accounting is estimated. One of GAAP accounting’s better kept secrets is the use of estimates. In the case of a P&C insurer the “gain” is something along the lines of the excess of premiums over reinsurance and other hard costs plus an estimate of future claims. In turning down State Farm McCarty filtered out the financial chicanery including the built-to-suit-bogus short term weather modeling certain insurers have been peddling with their rate up requests.
We continue with the National Underwriter story:
The firm’s message to customers, she said, is that the pullout was a hard decision and not one the company wanted to make. “We tried everything, but faced with the bleak financial picture,” State Farm did what they felt was necessary, she added.
Commissioner McCarty yesterday said that the Office of Insurance Regulation has 90 days to act on State Farm’s pullout plan, and that if approved, State Farm must then provide 180 days notice to customers before any policies can be nonrenewed.
Mr. McCarty mentioned that his office has been working with state Sen. Mike Fasano, R-New Port Richey, to develop legislation to significantly limit the number of nonrenewals a company can issue in a year.
Belinda Miller, deputy commissioner for property casualty insurance said Mr. Gold had discussed his plan with the OIR, but details could not be released yet “I think it will definitely be a big change.”
She said Mr. Gold was an entrepreneur with “some interesting new ideas.”
What a shame the people of Mississippi fight for scraps while the State of Florida strives to lead the nation in property and casualty insurance innovation. The times they are a changing……
sop
What is People Trust’s AM Best rating?
How long have they been in business?
They are charging 1/2 what SF is charging?
Sounds like gambling to me.
I am sorry, but SF would not be doing this in a state as large as FL if they were making money.
http://www.peoplestrustinsurance.com/about_us.cfm
A rated by Demotech.
http://www.demotech.com/
Sounds like they like that cheap Florida reinsurance. Three member mgt team Sup, like I said they don’t spent hundreds of millions of dollars on exec salaries and bonuses. If I lived in Flroida I think I’ll be swapping to Peoples Trust.
sop
By the way I predcit other insurers will disavow the Farm’s actions. No reason to let one greedy corporate miscreant define an otherwise good group of insurance comapnies and their professional staffs.
OK guys the blog belongs to you.
sop
Folks. Demotech is not AM Best.
There is no silver bullett in the insurance business. The only way to build capacity is more $$$. Where is it coming from?
The difference between their costs of reinsurance and the premiums they collect.
It appears the state based RE works when insurers don’t try to game the system Sup. the Sun Sentinel did a story on them but it is pay and I don’t have time to dig it out of a cache somewhere.
Also Demotech sounds legit to me.
http://www.demotech.com/01_pages/about/highlights.aspx
sop
Here is State Farms’ earlier statement about the 47% increase in rates that they wanted.
http://www.statefarm.com/about/part_spos/community/sflocal/florida/rate_proposal.asp
Personally, I think they are doing the smart thing. If they don’t feel that they can live without the 47% leaving the state is the obvious answer.
However, I suspect that part of the problem is also the fact that Florida is one of the absolute prime housing bubble states, and that also has to be causing them huger problems. An insurer who is covering a lot of (now) over valued properties could find itself having all sorts of problems down the road.
So leaving for a couple of years until real estate prices stabilize may not look like such a bad deal.
I can advise that some E&O carriers for independent agents do not recognize Demotech ratings. Some require a certain AM Best rating for agencies to be covered writing for those companies.
I was impressed with this information on their website. I have never seen this level of transparency by a provider.
Reinsurance
Peoples trust has a comprehensive and substantial reinsurance program. The program has been designed to protect People’s Trust policyholder trust in the event of a major catastrophe. People’s Trust has placed catastrophe excess of loss reinsurance up to the 100 year modeled return period for its entire portfolio of insureds.
SUP I understand your concerns about the company. However, I’m willing to give the man a chance and I actually think he may be onto something. A free market solution to our insurance crisis born out of charater and the ability to build a better mouse trap. Seems like the American way to me. How about you SUP——
AMERICAN HERO—
Michael Gold
Chief Executive Officer
Michael Gold is a successful entrepreneur who, over his 30-year career, has created and built several companies into multi-million dollar businesses.
In 1976, he joined the Business Machines division of Litton Industries and became the company’s top sales person in his first year, beating out 7,000 other sales reps. After completing Litton’s management training program, he was promoted to Washington, D.C. branch manager and put in charge of government contracts.
In 1982, he co-founded Gold Office Products, a factory dealership representing Panasonic. It quickly became the fastest growing Panasonic dealership in the country, at one point delivering the single largest order for copiers in the company’s history.
In 1985, he co-founded Input Solutions, a Xerox/Kurzweil dealership of intelligent scanning equipment and software which grew and prospered. In 1992, he sold his share in Input Solutions to his partners to become the sole owner of Gold Office Products.
Under Mr. Gold’s management, Gold Office Products expanded taking on other dealerships including Canon typewriters, Sharp facsimiles, and the entire line of office products for Minolta and Toshiba.
In 2006, he became acutely interested in the homeowners insurance business after the premiums on his Florida home jumped more than 400% in just a couple of years. With the same intensity and passion from his previous business ventures, he studied the system and challenged business models that focused on runaway profits and sky-high premiums.
He recruited a team of highly seasoned, top-level industry professionals and investors who shared his frustration and interest in creating a reputable, well-funded, A-rated company that would provide secure coverage at reasonable prices.
Will Mississippi adopt the Gold Standard of insurance-
Stay tuned for updates.
I am all for an entity trying something new and I agree we should give them a chance. My observation based on 44 years in the business is a company cannot over extend themselves and have long term success.
When I first moved to MS in the early “70,s I served on the MS Ins Guranty Board. It was ugly working through all the insolvencies from Camille. I just say tip-toe slowly into unknown ponds.