Insurer says strong profits needed in Florida

By Michael Peltier

TALLAHASSEE, Fla. Feb 5 (Reuters) - An executive of The Hartford on Tuesday told Florida lawmakers probing high insurance rates that the group would need as many as six more years of strong profits to recoup losses from the devastating 2004 and 2005 hurricane seasons.

In a second day of sworn testimony by insurance executives, a Florida Senate committee sought answers to why rates in the state have not dropped for many consumers despite legislative action to lower rates.

In January 2007, Florida lawmakers expanded the state's hurricane reinsurance pool by $12 billion. But industry officials said reinsurance rates and replacement costs for damaged properties had climbed and offset the benefits of an enlarged state reinsurance fund.

Thomas Johnston, senior vice president for The Hartford Financial Services Group (HIG.N), on Tuesday said the 2004 and 2005 hurricane seasons still require the company to raise rates to recoup unprecedented losses.

"Our homeowners book lost about $500 million," Johnston told members of the select Senate committee. "We made profits in 2006 and 2007, but we probably need five or six more years at that level of profit just to break even from those losses."

Toward that end, the company last summer requested rate hikes that would translate into a 15 percent return on investment from its Florida customers. State insurance regulators rejected the request, countering that a 5.3 percent return was adequate. They are currently at an impasse.

Given recent indications that reinsurance is getting cheaper, regulators say they may be able to strike a deal.

"We may be able to find some middle ground now that they know better what their 2008 reinsurance costs may be," said Belinda Miller, deputy commissioner of the state's Office of Insurance Regulation.

The Hartford is in the process of dropping a number of policies to reduce its Florida exposure. Other companies including Allstate (ALL.N) are doing the same thing.

During two days of hearings, a major area of contention is whether companies used relatively new hurricane models in setting rate requests that have yet to be approved by the state.

Those models attempt to track near-term trends to account for what company representatives say are higher surface water temperatures expected over the next several years that may result in more destructive hurricane activity.

On Monday, an Allstate executive said the firm used short-term forecasts to augment more traditional long-term actuarial models when it asked for increases of 43 percent. That rate request was denied.

On Tuesday, representatives from the Florida Farm Bureau Insurance and The Hartford testified they did not use the short-term forecasts to justify rate hikes proposed in 2007.

Shortly after lawmakers expanded the hurricane fund, the Farm Bureau said the legislation would reduce rates by 25 percent starting June 1. A follow-up rate request submitted in May called for an increase of 26.8 percent.

Hartford's initial rate request cutting rates by 17.7 percent was followed by a request for an increase of 22.1 percent.

Insurers said that until the risk exposure can be reduced, they would continue to ask for higher rates.

State officials say their hands are tied.

"It seems like we've done all we can do," said Sen. Jeremy Ring, a Democrat from Margate.

The Senate committee was slated to conclude its hearing Tuesday. It will likely make recommendations to the full Senate but no legislation is required. (Editing by Michael Connor, Gary Hill)