Regarding the private market (not Citizens), has anyone considered the effect of the current \”excess profits\” law on the carrier\’s ability to build up reserves for a bad storm year (Doesn\’t that law still apply to HO carriers?) I see a lot of comments on \”making millions\” in the good years but is the ROI really all that high on Fla business in the good years?
I don\’t think you understand. Citizens has already raised its rates to about double what they were. They are just rolling back the increase to 75% in lieu of the 100% they have already done. THEY are being reasonable. That\’s more than I can say for the other carriers in this state. And yes, if a carrier will not write my property, they shouldn\’t be allowed to write my auto. And again yes, Citizens can write my auto that is profitable in this state to offset some of the property losses. Makes sense to me.
Answer to \”I have a question\”. OK, so how come the top players in insurance (St Paul, Travelers, Allstate, State Farm) all ended the 2005 year with record profits. Forget about FL being profitable. They made enough money to pay all those large losses due to the hurricanes and STILL made a record profit??? OK, where did that profit go? Back to the policy holders in other states? I don\’t thing so. Now they are talking about lowing rates in other states. I will believe that when I see it. I have worked for Insurance companies for 30 years and it takes an act of GOD and a lot of fighting to get companies to lower rates. Even in a soft market, the insurance companies fight tooth and nail to keep the premiums up. It only takes one company looking for cash flow to mess things up but believe me, I haven\’t worked for a carrier yet that wants to see pricing go down. We will wait and see.
Do I take it your answer was \”yes\” the Florida excess profits law does to Fla HO business but you think a carrier making money in 30 or 40 other states should have to subsidize its unprofitable Florida business with profits made in other states? Okay, you\’ve got a right to your opinion but that carrier has a right to put its money where it makes a profit. So long, market capacity.
Sorry for not getting back to you but was sidetracked Friday afternoon. To answer your questions, I offer the following:
On the topic of not being able to carry forward prior years profits:
Carriers are required to \”close\” the books (i.e. underwriting profit or loss) annually due to federal tax code. There currently is no provision to allow them to save past year profits and \”store\” them for the next fiscal year. While one would think this would be a prudent practice to help smooth the peaks and valleys of financial performance, no one in the federal legislature has decided to tackle this needed feature.
With respect to reserving practices:
Each state, through it\’s appropriate regulatory body establishes the minimum reserving amount and through the National Insurance Commissioners Association, they have unilaterally landed on a 33% reserve amont. This means that for every dollar in premium taken in, 1/3rd has to be set aside in liquidable assets for claims payments.
Loss results, financial reporting and profit taking:
Most insurance companies are stock companies so the profits go back to the stock holders. Mutual Insurance Companies (most of these are life insurance, not property casualty) pay the profits back to their policyholders as there is no stock. The policyholders own the company.
A final thought: States will never give up the right to regulate prices – ultimately we might see federal regulation on the policy language, especially for commercial lines and there are also organizations like AM Best that not only rate carrier\’s financial status but also provide common policy language which is adopted by many carriers. I met with Hank Greenberg, of AIG fame several years ago and this was his thinking. Regardless of how the industry thinks of Hank, he knew his stuff. I certainly respect him.
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Regarding the private market (not Citizens), has anyone considered the effect of the current \”excess profits\” law on the carrier\’s ability to build up reserves for a bad storm year (Doesn\’t that law still apply to HO carriers?) I see a lot of comments on \”making millions\” in the good years but is the ROI really all that high on Fla business in the good years?
I don\’t think you understand. Citizens has already raised its rates to about double what they were. They are just rolling back the increase to 75% in lieu of the 100% they have already done. THEY are being reasonable. That\’s more than I can say for the other carriers in this state. And yes, if a carrier will not write my property, they shouldn\’t be allowed to write my auto. And again yes, Citizens can write my auto that is profitable in this state to offset some of the property losses. Makes sense to me.
Answer to \”I have a question\”. OK, so how come the top players in insurance (St Paul, Travelers, Allstate, State Farm) all ended the 2005 year with record profits. Forget about FL being profitable. They made enough money to pay all those large losses due to the hurricanes and STILL made a record profit??? OK, where did that profit go? Back to the policy holders in other states? I don\’t thing so. Now they are talking about lowing rates in other states. I will believe that when I see it. I have worked for Insurance companies for 30 years and it takes an act of GOD and a lot of fighting to get companies to lower rates. Even in a soft market, the insurance companies fight tooth and nail to keep the premiums up. It only takes one company looking for cash flow to mess things up but believe me, I haven\’t worked for a carrier yet that wants to see pricing go down. We will wait and see.
Do I take it your answer was \”yes\” the Florida excess profits law does to Fla HO business but you think a carrier making money in 30 or 40 other states should have to subsidize its unprofitable Florida business with profits made in other states? Okay, you\’ve got a right to your opinion but that carrier has a right to put its money where it makes a profit. So long, market capacity.
Hi to Perplexed Again,
Sorry for not getting back to you but was sidetracked Friday afternoon. To answer your questions, I offer the following:
On the topic of not being able to carry forward prior years profits:
Carriers are required to \”close\” the books (i.e. underwriting profit or loss) annually due to federal tax code. There currently is no provision to allow them to save past year profits and \”store\” them for the next fiscal year. While one would think this would be a prudent practice to help smooth the peaks and valleys of financial performance, no one in the federal legislature has decided to tackle this needed feature.
With respect to reserving practices:
Each state, through it\’s appropriate regulatory body establishes the minimum reserving amount and through the National Insurance Commissioners Association, they have unilaterally landed on a 33% reserve amont. This means that for every dollar in premium taken in, 1/3rd has to be set aside in liquidable assets for claims payments.
Loss results, financial reporting and profit taking:
Most insurance companies are stock companies so the profits go back to the stock holders. Mutual Insurance Companies (most of these are life insurance, not property casualty) pay the profits back to their policyholders as there is no stock. The policyholders own the company.
A final thought: States will never give up the right to regulate prices – ultimately we might see federal regulation on the policy language, especially for commercial lines and there are also organizations like AM Best that not only rate carrier\’s financial status but also provide common policy language which is adopted by many carriers. I met with Hank Greenberg, of AIG fame several years ago and this was his thinking. Regardless of how the industry thinks of Hank, he knew his stuff. I certainly respect him.
Best Regards,
Scot