FSLA March/April 2010 Newsletter

In This Issue

New Members

Interview with Bruce Bowers

Capitol Report

Insurance Tax Plan

Up Coming Events

Welcome New Members

Regular Member

Champion Special Risk Brokers, Inc. Coconut Creek, FL

Tower Hill Insurance Group, LLC. Gainesville, FL

Associate Member

Westchester Surplus Lines Insurance Company (ACE Group) Roswell, GA.

RSUI Group,Inc

Atlanta,GA

Florida Surplus Lines Association

Newsletter March/April 2010

Dear FSLA,

We have an exciting agenda planned for the 50^th FSLA Convention July 22 thru 24th, 2010 at the Amelia Island Plantationin Amelia Island, Florida! The convention registration packets will be mailed the first week of April to all of our members. In addition, online registration will be available at www.myfsla.com.

In honor of our 50th Anniversary convention we have two exceptional Keynote speakers, Mr. William R. Berkley Chairman and CEO of W. R. Berkley Corporation and Mr. Hank Watkins President of Lloyd's North America.

The Florida Surplus Lines Service Office will be hosting a two-hour continuing education course on understanding insurer financial statements with regards to property and casualty insurer solvency. Additionally, this course will include a panel discussion on the state of Florida's insurance market which will feature perspectives from various industry leaders including the agent, the insurer and the regulator. We will be releasing more details about this course offering as they become available. Please stay tuned!

In addition to our outstanding Key Note Speakers and informative continuing education opportunity, we have a NEW Friday afternoon recreational activity we know will peak your interests and appetites! Our very first "Culinary Demonstration" will be held at 12:30 PM, hosted by Chef Dale Ford! Details can be found in your registration packet. I hope to see you there!

Interview with Bruce Bowers: Florida's Market and How Suplus Lines Agents are Faring

By: Insurance Journal Florida Surplus Lines Supplement, http://www.insurancejournal.com/extras/fsla March 2010

Florida's Market Challenges

Surplus lines premiums and policy counts in Florida were down again in 2009. I guess that's not so much of a surprise. But what factors you see behind this trend and do you see any sign of a turnaround?

Bowers: There's a combination of things that caused this trend. It's been going on since 2007, 2008, 2009. Particularly it's been exacerbated this last year because of the economy, of course, but insureds are just not buying coverage at all in many cases, or they're buying coverage with lower limits. Whatever they can afford to buy, or get by with, they do. They may reduce their limits from $1 million to $500,000 on liability. Or they may not even take out insurance on their home, if they don't have a mortgage. So we're seeing a lot of that, where the insureds are going bare.

The second issue is the economy is generally very weak, obviously. We've had a real catastrophe in my mind, a crisis, and the premium basis is down. So when you go to rate of risk on sales, obviously it's going to be less than the previous year. And you go to rate of risk on payroll, it's probably going to be less than the previous year, too. So we're seeing a lot of that. If a person opts for insurance, usually it costs a heck of a lot less because of the premium basis.

Third issue is that the admitted markets are looking to maintain and grow market share, just like everybody else is. So in Florida, we're seeing an intrusion of the admitted markets into what previously we considered to be our territory, or our domain, the surplus lines business. But now we find people writing things across the entire spectrum. They're competing for market share. They're lowering rates. They're offering more coverages with bells and whistles that they previously didn't offer, that is more advantageous terms and conditions. So, we're seeing a lot of that going on, too. It doesn't appear to be abating at all, that portion of it

The fourth thing I can think of is that Citizens obviously is a major, major competitor of ours on both on residential and commercial. They have artificially low rates, not actuarially sound, as the press has reported timeâ€'andâ€'time again as of late. Basically, that is the competition in Florida now. If you want to play in Florida to any great degree, in any spectrum of commercial or residential, you have got to compete with Citizens. That is a difficult thing to do, given that the taxpayers of Florida really support that operation, and if there is a deficit, of course, the taxpayers make it up. So it's kind of an unlimited surplus situation, where most of the private companies that we represent and most of the private companies in Florida don't have that kind of luxury for unlimited accessibility.

For the complete interview and the Florida Surplus Lines Supplement visit: http://www.insurancejournal.com/extras/fsla.

Capitol Report

Legislative Update, March 22-26, 2010
By: Gary R. Sumner, Mang Law Firm, P.A.

The "Consumer Choice," Residential Rate Deregulation bill (Hb 447 by Representative Proctor) which passed the House Insurance Committee last week, was addressed in the Senate this week. Senator Bennett's companion Sb 876 passed the Banking & Insurance Committee despite a surprise appearance by Governor Crist who testified against the proposed legislation. The Senate bill now contains the same caps of 5% in year 1; 10%p in year 2; and 15% a year going forward after that, instead of the original bill which had no caps. However, with the Governors testimony and his previous comments to the public that he would veto the bill if it passes this session, the legislation looks dead on arrival.

Commerical Deregulation (Sb 2176 by Senator Peaden & Hb 1563 by Representative Drake)- Both bills were scheduled to be heard this week, but only the House bill was passed. The Senate companion was not addressed due to time constraints with the committee meeting.

MGA Amendment- Also in the House Insurance Committee this week, the controversial amendment addressing the MGA and affiliate issue which was brought to light in the recent series of articles in the Miami Herald, took center stage. Transactions between insurance companies and affiliates have come under scrutiny as the reporter uncovered cases of improper transfers of premium to their MGAs, which contributed to the failure of many insurance companies. Promoted by the Governor, the Office of Insurance Regulation (OIR), and the Department of Financial Services (DFS); and offered by Insurance Committee Chairman Patterson, the amendment would have given OIR authority over transactions between insurers and MGAs. However, even though most committee members agreed with the stated goal of providing oversight for MGAs, many committee members felt the amendment went too far and would have dire consequences on Florida's effort to attract more capital to the state. Concerns were that the broad language could reach into all affiliate relationships and affect their legitimate business practices. The issue is not dead however, as a "narrower" version of the amendment will most likely be offered in the next few weeks.

Sb 1460, relating to the Florida Hurricane Catastrophe Fund, passed the legislature unanimously and is headed to the Governor for his (expected) final approval. The legislation repeals the pending change in the Cat Fund contract year. The bill retains the Cat Fund contract year from June 1^st through May 31^st, with some needed revisions. It prevents the unintended accounting problems from the planned conversion of the contract year to the calendar year that would have affected the surplus for several insurers.

Related News

Commissioner Report to the Florida Cabinet- According to Commissioner McCarty more than half of the Florida insurer companies (206 total) writing homeowners coverage had underwriting losses for 2009, while 81 companies reported underwriting gains. The property & casualty industry has been under pressure from reduced investment yields, increases in potentially fraudulent claims, and an overall soft market. Another problem the industry is facing is the recent influx of re-opened claims from 4 and 5 year old storms, which will hopefully be addressed in the Public Adjuster legislation sponsored by Senator Bennett and Representative Long respectively, in an effort to reign in unscrupulous adjusters and provide better oversight.

Ø The focus next week in the Legislature will be the State's Budget. Regular Committee Meetings and Floor Sessions will resume in two weeks.

Ø 2010 Session Ends April 30^th

Florida can't afford insurance tax plan

BBy: Eli Lehrer & Sean M. Shaw, South Florida Sun Sentinel, www.sun-sentinel.com , March 21, 2010

Buried on Page 161 of the Obama administration's 2011 budget is the obscurely labeled tax proposal entitled "deduction disallowance for excess non-taxed reinsurance premiums paid to affiliates." It could cost Floridians billions of dollars over the next few decades while generating only about $50 million in federal revenue per year.

Explaining the tax proposal and how it impacts consumers requires background in how insurance and reinsurance work. To begin with, "primary" insurers that cover homes and businesses buy insurance of their own - reinsurance - to diversify risks and protect against big disasters like hurricanes.

Most U.S. reinsurance comes from offshorecompanies that often insure against events (like Tokyo earthquakes and UK floods) that probably won't happen simultaneously with disasters in the United States. Insurance companies can profit off one type of coverage when they lose money on another. Obama's new budget would give U.S.-based companies an advantage by imposing a burdensome tax on many offshore companies' reinsurance transactions, destroying their diversification business model, while allowing deductions for the same sort of transactions by U.S.-based companies.

While the tax would produce higher profits for some U.S. companies, it's likely to be a disaster for Florida consumer companies that rely heavily on offshore reinsurance. They would find their U.S. profits taxed away and have to downsize or withdraw from the U.S. market altogether, encouraging the U.S.-based reinsurance companies to raise their prices.

Consumers would simply end up paying these higher costs themselves. A 2009 report from the actuarial firm The Brattle Group estimated that a proposal similar to the Obama administration's would raise U.S. insurance prices by $10 billion, Florida's share of that being $550 million. Since most insurers in the state (102 out of 201 according to the Office of Insurance Regulation) lost money in 2009, even a relatively small increase in costs might well push more companies out of the state altogether, thus eliminating competition.

And Florida's taxpayers - already on the hook for more than $20 billion in unfunded coastal insurance liabilities - could see their potential costs soar. Today, about one Florida homeowner in five buys insurance from the state-run Citizens Property Insurance Corp., and everybody who has analyzed the situation agrees that this is too many. If the new tax comes into effect and private companies flee the state, the percentage of homeowners getting reinsurance via Citizens could easily double within a few years. Businesses and nonprofits - which are usually ineligible for Citizens coverage - could find it impossible to buy property insurance at any price.

Floridians have a lot to lose if the new reinsurance tax becomes law. Gov. Crist, every member of the Legislature, and most importantly, every member of the state's congressional delegation should speak out against the proposal. Florida can't afford it.

Eli Lehrer is a senior fellow and director of the Center on Risk, Regulation, and Markets at The Heartland Institute, and Sean M. Shaw is Florida's insurance consumer advocate.