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Castle Key Insurers Look for More than 30 Percent Hike

By Gray Rohrer, Sunshine State News

July 20, 2011

Castle Key Insurance Group, the third-largest private homeowner insurer in Florida, asked state regulators Tuesday for average rate increases of 31.2 percent and 35.7 percent for Castle Key Insurance and Castle Key Indemnity, respectively, two different entities controlled by the company.

The companies are subsidiaries of Allstate. They need an increase, company officials say, because of their dwindling surplus in the past few years, a rise in costs related to additional business and increased reinsurance costs. Its policyholder surplus dropped 3 percent last year, a total of almost $4.5 million.

“Our surplus level has been shrinking over the past several years, even though no hurricane has hit,” said Bonnie Gill, Castle Key vice president.

Gill noted that Castle Key's reinsurance costs will run $143 million this year, buying them $900 million worth of insurance against a catastrophic event that wipes out its ability to pay claims.

Surprisingly, the state’s Office of the Insurance Consumer Advocate, which typically argues against a rate increase or in favor of a lower increase than a private insurer seeks, largely endorsed the company’s rate hike request.

Although the ICA office asked the company to eliminate or reduce factors contributing to Castle Key's rate hike request, like debt and contingency fees and overhead expenses, they urged a profit margin of 10 percent rather than the 9 percent sought by the insurer.

The result was that ICA recommended a 23 percent rate increase for Castle Key Insurance, 8 percent less than the request, but a 47 percent hike for Castle Key Indemnity, 11 percent more than the original request.

Castle Key Insurance and Castle Key Indemnity are the third- and fifth-lowest private insurers in the state in terms of cost per policy and are rated B and B-, respectively. ICA actuary Steve Alexander said that while the rating is high, it is based on an assumption that the parent company, Allstate, would assume losses of its Florida subsidiary, which isn’t necessarily the case.

“What we have to remember is that its rating has been raised based on the expectation of parental support,” Alexander said.

Formerly known as Allstate Floridian, the parent company changed its name to Castle Key two years ago to combat the notion that the national company’s assets would pay any losses incurred in Florida.

In 2009, the Florida Office of Insurance Regulation ordered Castle Key Indemnity to add 100,000 new policies. The company did so, but mainly in inland areas away from the coast. It has now stopped adding new policies. Together, the two companies control nearly 266,000 homeowner policies in Florida.

Belinda Miller, OIR general counsel, stated before the hearing that the agency was leaning toward approval, but not necessarily the full amount of the requested increase.

“I expect that we will, at the end of the day, find that Allstate-Castle Key has a rate need, but it may not be 35 percent,” Miller said.

Castle Key officials said they did not pursue a higher rate increase, although it could have been justified, and an additional rate increase request would likely be submitted next year.

The OIR is expected to make a decision within the next two weeks.

Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.