TDI: Insurers’ Loss Ratios Indicate Good News on Horizon for Texas Homeowners

September 28, 2004

The Texas Department of Insurance reported that second quarter 2004 financial results submitted to TDI indicate a number of Texas homeowners insurance providers are improving their loss ratios—a result of efforts to improve underwriting and a quiet storm season during the early part of the year.

The average loss ratio for homeowners insurance companies for the first two quarters of 2004 is 38 percent.

TDI said the second quarter reports present an indication of improving conditions, but are only part of the picture and can not be used to set or determine rates. The reports do not include additional expenses such as agent commissions, companies’ operating expenses or the provisions for the inevitable catastrophe and natural disasters such as tornadoes, hail storms and hurricanes. These additional expenses typically add about 45 – 50 percent to an insurer’s cost of doing business.

“We’re optimistic about these numbers,” Texas Insurance Commissioner Jose Montemayor said. “They validate the historic rate reductions we ordered last year which are beginning to be reflected in the first two quarters. While we’re not out of the tropical storm season yet, we would expect Texas insurers to respond to the improving market conditions with increased competition for customers, offering better rates and more choices for most policyholders.”

The improved market conditions in Texas this year represent a dramatic change from the experience of insurers in recent years when many faced huge losses from severe weather and water-claims resulting from a perceived mold crisis.

Montemayor, however, expressed a need for rational expectations.
“While the anticipated changes may not happen overnight, many of the final rate reductions are continuing to be phased in,” Montemayor said. “I expect market competition to work; however, we are prepared to intervene if necessary.”

While these second quarter financial reports do not tell the complete story, they do indicate that TDI’s efforts to set rates according to fair rating standards were reasonable and accurate.

“This good news for Texas consumers is proof that our rate reductions were well on target,” Montemayor said. “The average loss ratio is strong evidence that the rates we approved were fair, reasonable, not excessive and appropriate. Any disputes about the fairness of the rate reductions we ordered have now been resolved with the loss ratio indicators. It’s time for the companies to make the adjustments so Texas homeowners can enjoy the success of our insurance reforms.”

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