Allstate Files for New Homeowners Rates in California to Better Prepare for Catastrophes
RANCHO CORDOVA, Calif. (Sept. 1, 2006) – Allstate Insurance Company filed today with the California Department of Insurance (CDI) a new rating plan for homeowners insurance designed to preserve the company’s ability to write homeowners insurance in California given the state’s vulnerability to natural disasters.
If approved by the CDI, Allstate’s new rating plan will more accurately reflect the capital required to write California homeowners insurance and increase rates by an average of 12.2%, or an estimated $96 million in annual premium, the company’s first rate increase in more than three years.
“Our top priority is to protect our policyholders by ensuring we have the resources to be there for the hundreds of thousands of Californians who look to us for homeowners insurance protection,” said Robert H. Barge, III, field vice president for Allstate’s California region. “If approved, this rate filing will put Allstate in an improved position to deal with the volatility of natural catastrophes in the California homeowners insurance market.
Since Allstate’s California homeowners rates were last approved by the CDI in 2003, a number of factors have combined to significantly increase costs and exposure to risk in California:
Based on scientific study and analysis, professional catastrophe risk modeling firms have revised their models to reflect higher insured losses as recent disasters have revealed that those models previously underestimated post-catastrophe rebuilding expenses especially in large metropolitan areas.
Independent rating agencies have increased the capital requirements for property and casualty insurers to retain acceptable financial strength ratings.
The cost of catastrophe reinsurance has increased significantly. Allstate spent nearly $70 million on reinsurance in California in 2006, a cost that is not reflected in current rates.
The cost of rebuilding homes increased dramatically in the state, increasing property insurance exposure.
Allstate remains accountable for as much as $800 million in potential earthquake claims through the California Earthquake Authority’s industry assessments. The cost of ensuring the availability of that capital is not reflected in Allstate’s current rates.
The recent trend of drier, warmer summers leaves California increasingly susceptible to the threat of more frequent and intense wildfires.
“We have been fortunate that California was spared any major catastrophes in 2004 and 2005, but we only need to look back one more year to the Southern California Firestorm of 2003, which cost Allstate approximately $300 million, to be reminded of how tragic and costly catastrophes can be in California,” said Barge. “It would be a poor gamble to continue to hope for good fortune to protect the state from catastrophes.”
In April of this year, independent rating agency A.M. Best Company, Inc. published a paper detailing their revised methodology for evaluating insurers’ financial strength and ability to meet obligations to policyholders. Calling catastrophic loss “the No. 1 threat to the financial strength and credit quality of property and casualty insurers,” Best increased capital requirements to maintain the same rating.
In June, the CDI initiated a process to review homeowners insurance rates in California, including those of Allstate. As part of that process, the CDI has indicated it is looking to determine whether it should order a reduction in homeowners rates. Allstate and the CDI have agreed to use a homeowners rate filing to examine Allstate’s homeowners rates. The outcome of the rate filing and the review process remains uncertain.
“We appreciate the opportunity to present Allstate’s view on how to determine appropriate homeowners insurance rates including how to factor in new capital reserve requirements from independent rating agencies and new data from modeling firms showing increased risk for catastrophic loss,” Barge said.
Today’s rate filing comes at a time when The Allstate Corporation has been reviewing its exposure for catastrophic property losses in high risk states nationwide. Allstate has already announced actions in multiple states designed to help ensure its ability to be there for the millions of Americans who look to it for home, auto and life insurance protection.
Now celebrating the 75th anniversary of the founding of Allstate Insurance Company, The Allstate Corporation (NYSE: ALL) is the nation’s largest publicly held personal lines insurer. Widely known through the “You’re In Good Hands With Allstate®” slogan, Allstate helps individuals in approximately 17 million households protect what they have today and better prepare for tomorrow through approximately 14,100 exclusive agencies and financial professionals in the U.S. and Canada. Customers can access Allstate products and services such as auto insurance and homeowners insurance through Allstate agencies, or in select states at allstate.com and 1-800 Allstate®. EncompassSM and Deerbrook® Insurance brand property and casualty products are sold exclusively through independent agents. The Allstate Financial Group provides life insurance, supplemental accident and health insurance, annuity, banking and retirement products designed for individual, institutional and worksite customers that are distributed through Allstate agencies, independent agencies, financial institutions and broker-dealers.