Insurers losing money despite lack of storms

After four hurricane-free years in central and South Florida, insurance companies should have been raking in the profits. All that premium money pouring in — and no big catastrophe claims checks going out.

Not so. Most of the state’s insurance companies report they are losing money. If the numbers are valid, the next big storm could not only destroy your home but also the company that insures it.

Based on insurers’ 2009 annual reports, 50 of out 70 Florida-based companies posted losses on their insurance business for the year; 31 of the companies reported a drop in reserves — the money insurers set aside to pay claims.

These Florida-based companies, many of them small, write about 52 percent of the residential homeowners insurance in the state. The rest is written by Citizens Property Insurance, the state-run company; State Farm Florida Insurance, the largest private carrier; and several dozen companies based outside of Florida.

The dreary financial reports coincide with a push in Tallahassee to pass legislation that would free up insurance companies to raise their rates at will — as much as 5 percent initially and as much as 15 percent in the future. Right now, any rate increase requires state approval.

Some are puzzled at how insurers can be doing so poorly during a time when hurricanes have bypassed Florida.

“Our insurance companies ought to be making good profits,” said Alex Sink, the state’s chief financial officer and a candidate for governor. Sink has asked Insurance Commissioner Kevin McCarty for a status report on the financial health of Florida-based insurers. It’s due Wednesday.

The companies aren’t alone in issuing dire warnings about the industry.

Demotech, a Columbus, Ohio-based rating agency, withdrew positive ratings on 10 Florida companies over the past year, including Magnolia Insurance, Edison Insurance and two insurers operated by Northern Capital Group.

A.M. Best, another rating agency, downgraded five Florida-based insurers — different ones — because they didn’t meet capitalization or other requirements.

And yet, in a move likely to fuel skepticism about insurance company losses, one company, Southern Oak, was just slapped by the state for overpaying a sister company to perform routine paperwork, pay agents and resolve claims.

It made Southern Oak’s bottom line look worse than it actually was.

If insurance companies are as bad off as they say they are, South Florida residents are especially at risk. In Miami-Dade, Broward and Palm Beach Counties, about 776,404 — nearly 55 percent of the 1.4 million insured homes — are covered by smaller firms that collect less than $200 million in annual premiums.

If a homeowner’s insurer goes belly up, the state’s guaranty fund will pay up to $500,000 — which might not cover all of the homeowner’s losses. Those payments could result in additional taxes for Floridians if the guaranty fund runs out of money to pay losses and needs to raise more.