One insurer not running from the risk

But State Farm Florida officials say they are worried about the impact of the proposed sweeping changes in the Legislature.

Published January 12, 2007

With insurers fleeing Florida and forcing homeowners into state-run Citizens Property at a rate of nearly 50,000 a month, one company has managed to keep nearly all of its policyholders.

State Farm Florida is by far the largest private property insurer in the state with just more than 1-million policyholders, about the same number it's had for several years. An equally impressive number is State Farm Florida's exposure to catastrophic risk, which at nearly $350-billion is more than the next nine property insurers combined.

In an interview Thursday, Dennis Martin, State Farm's staff director for strategy and legislative issues, and Chris Neal, public affairs manager, talked about how State Farm can remain a major player in Florida.

Their message: State Farm is worried about sweeping changes proposed by state legislators and, they say, forget all the talk about huge insurance industry profits. State Farm's Florida operation is in the red.

The insurance industry, including State Farm, posted record profits last year of nearly $60-billion. Why not pump profits back into the Florida market and offer lower rates?

Neal: Hurricane Andrew wiped out everything State Farm ever made on the homeowners' side in the previous 57 years. We took a $3,8-billion loss. Today, we have about $600-million in the bank, but we owe $750-million to the parent company from the 2004 storms. And we've invested $1.3-billion in the state so we can keep writing business. The parent company has never received a dividend from State Farm Florida and I don't see that ever happening. Even if it did, we would use it to build surplus, buy less reinsurance or write more homeowner policies.

Martin: It wasn't until June 2004 that we got back to our original capital investment. And seven weeks later after Hurricane Charley we were broke again.

In 1999, you formed State Farm Florida, a subsidiary of the parent company. Why?

Neal: By using our Florida-only subsidiary, we can protect the parent company from megalosses like we saw from Andrew and the 2004-05 storms. If not for State Farm Florida, we couldn't be in the property insurance business here.

How do you feel about the vast array of proposals before the Legislature?

Neal: Worried. We need the flexibility to adjust rates, to raise them or lower them.

Martin: And no residual (state-run) market can do better than the private market. In the private market, you take the losses. In the residual market, you fix it on the back end through assessments.

Where do you no longer write?

Neal: Miami-Dade, Broward, Palm Beach, Pinellas and Hillsborough. It's because we were overexposed there and we're reducing it through attrition. But we are making that up by writing in the central part of the state.

As a mutual company, State Farm answers to policyholders, not shareholders. How has that affected your ability to remain in Florida?

Martin: It allows us to take a longer view. You can't look at this year to year.

State Farm got a 52.7 percent rate increase last year. Why that much?

Martin: We could either reduce our exposure by cutting policies, or try to stay here and keep the policies we have. We had to receive that (increase) to stay in business."

Tom Zucco can be reached at zucco@sptimes.com or (727)893-8247.