State Farm Florida, Regulators Have Hearing Date on Withdrawal Plan

State Farm Florida and Florida regulators now have an administrative hearing date to decide how the insurer will leave the property insurance market as it plans.

The Florida Office of Insurance Regulation and State Farm Florida have been unable to reach a settlement regarding the certain objections, or conditions, outlined in Insurance Commissioner Kevin McCarty's approval of the insurer's plan to exit the property insurance market in Florida. The company plans to stay to write automobile insurance.

Instead of requesting another extension, a joint response was filed with the Florida Division of Administrative Hearings. According to the documents, a hearing date has been set for Oct. 12-13, with another period from Nov. 9-20 if more hearing days are required.

In the meantime, Florida OIR spokesman Ed Domansky said he expects talks to continue in hopes of resolving the impasse. State Farm has said it too is committed to continuing a dialogue with the insurance department.

McCarty approved State Farm Florida's two-year plan submitted earlier this year, but McCarty wants to bar State Farm from penalizing policyholders for terminating their contracts early and from preventing its agents from working with other companies. McCarty also had concerns that the company had no plan to transfer its policies to the private market instead of state-run Citizens Property Insurance Corp. Furthermore, the OIR immediately wants State Farm's certificate to write insurance but the company wants to hold it during the course of its exit from the market (BestWire, Feb. 13, 2009).

State Farm agents are independent contractors who sell only State Farm policies. The insurer's agents also can assist policyholders who look to move from Citizens to designated, state-approved "take-out" companies. The insurer has not budged from its position that its contracts with agents are a significant part of a business model it is not willing to change.

When State Farm Florida first filed its withdrawal plan, it predicted the company would be insolvent by the end of 2011. In the latest DOAH filing, State Farm Florida requested a hearing before Oct. 12 for reasons "including the ongoing erosion of (State Farm Florida's) assets" while it is "forced to continue in operation under current rate and risk conditions."

The document said the OIR believes "since it appears that extensive discovery will be necessary, any time prior to the beginning of November is probably an inadequate time to prepare."

A.M. Best Co. in June downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to bb from bbb- of State Farm Florida Insurance Co. The outlook was revised to negative from stable. This was based on State Farm Florida's recent "significant deterioration in earnings and risk-adjusted capitalization and the expectation that this deterioration will continue over the near to intermediate term," A.M. Best said (BestWire, June 18, 2009).

The top five writers of homeowners multiperil in Florida, according to 2008 A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 18.7% market share; Citizens Property Insurance Corp., with 17.1%; Universal P&C Insurance Co., with 7.6%; USAA Group, with 5.4%; and Tower Hill Group, with 4.7%.