Cypress Property and Casualty Insurance Company May 31, 2012 Rate Hearing Report

Jun 1, 2012


A hearing on Cypress Property and Casualty Insurance Company’s (“Cypress”) recent rate increase request was conducted yesterday, May 31, 2012.  Officiating on behalf of the Florida Office of Insurance Regulation were Michelle Brewer, Ken Rizenthaler and Stephen Thomas.

Cypress President Joe Braunstein opened the hearing with a few brief, general comments about his company, stating that Cypress’ surplus has been partially depleted by the effects of House Bill 1A’s enactment.

In 2007, Cypress had attempted to participate in the Insurance Capital Build-Up Incentive Program, he said, but the company was unable to continue to comply with the program’s requirements. In addition, Mr Braunstein stated that Cypress also has experienced significant increases in loss costs since then.  Strengthening Cypress’ surplus position is the primary goal of the company at this time.

Mr. Rizenthaler asked what the single greatest and least rate increase by territory for HO-3 coverage is, given the requested rate increase of approximately 17 percent.  John Rollins, answering on behalf of Cypress, said that the statewide HO-3 rate impact is around 19 percent.   The single greatest rate increase will occur in Hillsborough County at 28 percent and the lowest single rate increase will occur in Polk County at 10.8 percent.

Mr. Rizenthaler then asked the same question about the greatest and least rate increases in the HO-6 category, given the requested statewide average increase of 11 percent. Mr. Rollins responded that the greatest increase in HO-6 rates will be 20 percent and some policies will experience no change.

Continuing his questions, Mr. Rizenthaler asked about the impetus for the requested rate increases. Mr. Braunstein responded that the company was experiencing large losses due to rate inadequacy.

In response to Mr. Rizenthaler, who remarked that the earned premium is reflected in the company’s rate collection system, Mr. Rollins said that the abnormalities were due to the merger of two separate business lines during the past five years, which causes difficulty in determining the earned premium from rate collection.

Mr. Rizenthaler asked for the rate indication from the rate worksheet for HO-3 and HO-4 policies.  Mr. Rollins responded that the rate indications for HO-3 policies were 23 percent – four points higher than the requested increase. He added that the HO-6 rate indications were 15 percent – four points higher than the requested increase.

Mr. Rizenthaler then pointed out that the expense ratio for the filing was 32 percent and asked how that related to the company’s managing general agency (“MGA”) agreement.  With a 19 percent base fee in the MGA agreement, Mr. Rizenthaler was curious as to what constituted the other 13 percent of reported expenses. Cypress officials responded that the additional expense was attributable to overhead and other costs of doing business.

Mr. Rizenthaler also was concerned that the overall expense load was too high. Paul DiFrancesco, Cypress’ Vice-President, responded that the inflated costs are due to the conversion from outsourced services to in-house services. The expenses reflect the build-up of infrastructure to provide the in-house services, while still paying for contracted services for ongoing business. The company anticipates the conversion to in-house services will show cost reductions in the future.

To view the meeting notice, click here.



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