Fla. Legislators Grill Hartford Over Rate Hikes

Feb 7, 2008

National Underwriter–Feb. 6, 2008

The Hartford had its turn yesterday before a special Florida Senate committee quizzing insurers about company practices and rates in the sunshine state.

Many of the questions revolved around the issue of profits, and whether the Hartford was seeking to make an excessive profit with their Florida rates. Specifically, members of the committee noted repeatedly a 2006 rate filing that included a profit factor of roughly 15 percent.

In response Thomas Johnston, senior vice president and chief actuary of property and casualty insurance for the Hartford, said the rates had received the okay from state regulators.

“They approved the filing,” he said, referring to the state Office of Insurance Regulation.

Belinda Miller, deputy commissioner of property and casualty for the OIR, acknowledged that the filing was approved but said the department’s analysis of the proposed rate used a different formula with a much lower profit factor of 5.6 percent and reached a similar result.

“If a company uses a different process than we use, but gets to the same number, we’re not going to fight over a process,” she said. “We just don’t have the resources for that.” Ms. Miller noted, however, that OIR actuaries noted the difference on their file, which was made public.

Hartford executives seemed to be somewhat unaware of the notes from the OIR, leading the committee’s co-chair, Sen. Steven Geller, D-Hallandale Beach, to question whether the company and the OIR are communicating adequately. “It would seem that you should be talking to each other,” he said.

Mr. Johnston said that based on its own assessment, the Hartford “would find it very difficult to do business in Florida” using the 5.6 percent profit factor used by the OIR. Given that the two ended up at the same result, he suggested that the OIR “must have loaded in extra losses” to account for the difference.

Some of the most pointed questioning came from Sen. Don Gaetz, R-Ft. Walton Beach, who inquired about a $1 billion share repurchase made by the company last year.

While noting that “profits are not a dirty word,” he asked whether that money could have instead been used to purchase reinsurance, provide a dividend or lower costs for policyholders, and if there was a specific reason why it couldn’t.

No one on the panel could point to a specific legal reason why the money could not be used to reduce costs for policyholders, although assistant vice president and actuary of corporate research Mark Horman noted such an action could be a “conflict with actuarial standards and practices.”

Mr. Gaetz disputed that notion, saying the money involved was not a reflection of past losses or profits, and that using them to lower costs, or repurchasing stock, would not necessarily be an actuarial issue. “Buybacks don’t make you more solvent,” he said.