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Letter to the editor

State grills Allstate on rates

Regulators ask the insurer why it needs to raise its rates by a third.

By TOM ZUCCO, Times Staff Writer
Published November 16, 2007

Florida insurance regulators held a cookout Thursday inside the Senate Office Building in Tallahassee, and the Allstate insurance group was on the grill.

During a hearing to determine why the state's third-largest property insurer needs to raise its rates by more than a third - including a proposed average 125-percent increase in Pinellas County -Allstate Floridian vice president Bonnie Gill was sailing along with her explanation when Belinda Miller, the state's deputy insurance commissioner, stopped her.

The following exchange took place:

Miller: "You have to insure to two Hurricane Andrews in one year? Why to that level?"

Gill: "We have a very fragile surplus position."

Miller: "Was your decision driven by rating agency A.M. Best?"

Gill: "We are protecting our surplus."

Miller: "Was that decision driven by A.M. Best?"

"Gill: "In part, yes."

For three hours, regulators peppered Gill and two other Allstate officials with questions focusing on why the company needs so much reinsurance, why it consulted with a rating agency tied to the company's stock price, and why Allstate agents need more money.

But it was why Allstate used a hurricane catastrophe model that hasn't been approved by the state that drew the most attention.

"You used a model not approved by the state, and that is a very large part of the increase, correct?" asked Office of Insurance Regulation general counsel Steve Parton.

"That," answered Allstate general counsel George Grawe, "is the testimony, sir."

Allstate's journey to the hearing began in January, when lawmakers expanded the state's catastrophe fund by $12-billion and directed insurers to pass the savings on to policyholders. But for many companies, those savings never materialized, and nowhere was that more clear than in Allstate's case.

Those numbers represent the largest rate increases by any major insurer in Florida this year.

Allstate is also facing a two-day hearing in January that will focus on the company's dealings with hurricane modeling companies, rating agencies and reinsurers.

As industry profits soar, Allstate has been steadily chipping away at its Florida book of business. The company currently has about 400,000 policyholders, including about 18,000 in the Tampa Bay area. Five years ago, Allstate had about 750,000 policyholders statewide.

Grawe defended the rate hike, saying an increase in projected hurricane activity and suppressed rates were largely behind the proposed increases.

"Previous requests for adequate rates were not approved," Grawe said. "If not for an infusion of capital from the parent, we would be in same position as (bankrupt) Poe Financial Group."

If regulators reject the request, Allstate can petition for a hearing and appeal to the courts. But until the process is concluded, Allstate's June 1 rates remain in effect.

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

Breaking down rate request

Allstate Floridian is asking for a 41.9 percent rate hike, and Allstate Indemnity wants a 28.3 increase. Two other members of the Allstate group, Encompass Indemnity and Encompass Floridian, want 38.4 and 39.7 percent increases, respectively. The group is the state's third-largest property insurer.

[Last modified November 15, 2007, 23:03:49]