TALLAHASSEE, Fla. (12/21/2007) - Florida Insurance Commissioner Kevin McCarty today announced the denial of rate filing submitted by The Travelers Companies Inc. (Travelers). The Office of Insurance Regulation (Office) sent Travelers a Notice of Intent to Disapprove after determining that the filing was not actuarially justified and lacked supporting information.
Travelers had originally proposed a statewide average rate increase of 4.6 percent for its homeowners business in Florida based on a computer-generated hurricane loss model which was not approved by the Florida Hurricane Loss Projection Methodology Commission. The Office's review of the filing showed that Travelers' rates should actually decrease by a statewide average of more than 11 percent.
"Our actuaries determined that the increased rates Travelers is seeking cannot be justified or supported by the traditional rules of loss estimation," McCarty said. "Using data from an unapproved hurricane model to justify the need for a rate increase is unacceptable."
The Methodology Commission has accepted hurricane models that reflect the long-run probability of losses; not models that cannot document the accuracy and reliability of their forecasts. The unaccepted model used in the Travelers' filing forecasts expected hurricane activity for a relatively short-term, five-year horizon. Many in the scientific community contend that such forecasts are not reliable because of cyclic weather factors that affect hurricane landfall in the North Atlantic, which are not well enough understood to be forecast. The Office determined that the rate filing also inappropriately applied Florida's own Public Hurricane Model to show a need for increased rates.
Earlier this year, Travelers' decreased its rates by a statewide average of 8.3 percent in response to legislation passed during January's Special Session which provided less expensive reinsurance from the state. Insurance companies buy reinsurance to cover catastrophic losses, like those often caused by major hurricanes that exceed what they could pay out on their own.
The four Travelers companies included in the filing are Travelers Indemnity Co., First Floridian Auto and Home Insurance Co., Travelers Indemnity Co. of America, and Phoenix Insurance Co.
Statewide, the Travelers companies insure approximately 75,000 residences, and collect $132 million in annual premium.
In December, the Office has issued 33 Notices of Intent to disapprove rate filings to 47 companies as part of its ongoing commitment to carefully review every filing in order to ensure that Florida consumers are not getting rates that are excessive, inadequate or unfairly discriminatory. Special legislation passed this year offered companies reinsurance at a reduced rate and required them to pass the savings along to their policyholders.
The Office will continue to determine, on a case-by-case basis, whether a company's rates are excessive and whether an official Order will be issued to reduce rates.
About the Florida Office of Insurance Regulation
The Florida Office of Insurance Regulation (Office) has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets. Business units within the Office are organized based on regulatory expertise and include the areas of life and health, property and casualty, specialty lines and other regulated insurance entities. It is within the Office that the mission of public protection is implemented through regulatory oversight of insurance company solvency, policy forms and rates, market conduct performance and new company entrants to the Florida market.
For more information about the Office, please visit www.floir.com.
# # #