Most Texas Insurers Profited Despite Hurricane Rita

March 24, 2006

Texas home insurers turned substantial profits last year despite Hurricane Rita's destruction, prompting state regulators to question whether some companies' rates are too high, the Associated Press reported.

Most of the state's home insurance companies posted big earnings in 2005, although nowhere near as high as 2004's record profits, according to the Texas Department of Insurance's financial reports. Texans pay the highest home insurance premiums in the country.

Insurance Department spokesman Jim Hurley said some insurers doled out to policyholders smaller-than-average percentages of the premium money the companies took in. That percentage, known as the loss ratio, is a good indicator of industry profitability and averaged about 57 percent across the state this year.

"Once we've analyzed the 2005 data, we will ask those companies to file and justify their rates,'' Hurley said. "It's too early to say how the rates will be affected, but there may be some movement.''

The loss ratios don't take into account the overhead, or expenses, incurred by the companies, including agent commissions. Such cost-of-doing-business expenses would be reflected in the companies' combined ratios.

State Farm, the largest insurer in Texas, paid out about 50 percent of its revenue from premiums in 2005, less than the average. It paid out 30 percent the year before.

The company has been in court for more than two years battling a state order that it lower homeowner premiums by roughly 12 percent. The order came after a 2003 state law that empowers the insurance commissioner to order any company to cut premiums that the state finds excessive.

State Farm officials have defended their rates as fair and competitive and pointed to favorable preliminary court rulings.

Jerry Johns, an industry spokesman, defended last year's profits, noting that insurance companies suffered during the early part of the decade due to massive water and mold losses. Those losses led to record premium hikes.

"We will be the first to admit that last year was a good year,'' said Johns, president of Southwestern Insurance Information Service. "But we are entitled to a few good years after so many unprofitable years in the past.''

To Insurance Journal, Johns added, "Insurance company profits cannot be viewed in the short term. For over 10 years the homeowners insurance industry in Texas has consistently lost money. There have been years when losses were horrific and the money earned in those odd years of profitability are used to pay claims during the years of extreme financial losses."

He noted that in addition to payment of claims, insurance companies incurred "expenses related to employee salaries, investigating claims, the tens of millions of dollars insurers pay in taxes and leases on office buildings."

Some consumer advocates disagree and say insurers like State Farm are bilking Texans.

"Even in a year when we had a major hurricane hit the Texas Coast, insurance companies are making extremely handsome profits on the backs of Texas homeowners,'' said Alex Winslow of the group Texas Watch. "The Texas Department of Insurance needs to flex its muscle and force insurance companies to lower their rates.''

Information from the Associated Press and The Dallas Morning News: www.dallasnews.com.