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    State Farm Letter

    Uploaded by

    Houston Chronicle

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 9
    Texas Department of Insurance Ofte o the Commissioner, Wa Cose OC £03 Guadaype “PO. Bor 140108, Austin Texas 787149108 512 4686468 llamo "512 479-2008 fy raid tate Bs Mr. Phillip Hawkins State Farm Lloys P.O, Box 149300 Austin, TX 78714-9300 VIA FACSIMILE Re: Homeowners Program Rate Filing Dear Mr. Hawkins: This letter isin response to State Farm Lloyds" rate increase filing for its homeowners, renters, and condominium owner's program on March 2, 2010. The effective dates ofthe fate increases are May 1, 2010, for new business and June 1, 2010, for renewal business. These rate ineresses follow closely on the heels of the last rate increase made by State Farm Lloyds for its homeowners program that was effective this past October, | am providing 8 copy ofthe fling with this letter, ‘The timing of ths filing causes me concer. State Farm Lloyds last rate change for its homeowners program was an inerease of 8.8% effective September 1, 2009, for new business. and October 1, 2009, for renewal business. State Farm Lloyds has had this, increase in effec: for only seven months. Multiple rate inereases within such a short, period of time nay indicate a lack of rate making discipline and lead to market instabiliy Given that State Farm Lloyds is the market leader. writing nearly 30% of the homeowners market, other companies may follow suit which would lead to further market instability. It appears that the timing of this is notin the best interests of Texas consumers. Consumers deserve a stable and competitive market. It is my hope that ‘State Farm Lloyds reconsider the timing ofthis filing and will voluntarily withdraw it Whe La Mike Geeslia Commissioner of Insurance Bnolosure a Mm. ‘STATE FARM LLOYDS COMPANY Texas Homeowners Program Filing Memorandum Effective Dates: 05/01/2010 New Business. 06/01/2010 Renewal Business Indicated Rate Change and Rate Revision ‘Attached for your review is our methodology for forecasting premiums, losses, and expenses to arrive at an indicated change (see Exhibits 1-9). The projections underlying the indicated change include the impact of applicable coverage changes. The result of the procedure is a 26.1% overall indicated change. This fling represents an overall 4.5% change for the Texas Homeowners Program. The loss experience by year is shown in Exhibit 10. ‘Summary of Indications and Changes by Form ‘Shown below are the indicated changes by Form and the overall changes, [ Indicated Summary Paley Form Rate Change | _ofChanges Homeowners 255% 45% 13.1% 43% zaeu | Homeouers Program 25.1% 4 Exhibit 11 shows the development of the indicated changes by Form. Homeowners Program Changes ‘A. Rate Manual Changes We are introducing a new rating approach which will simplify our personal ines ‘manual. Under this approach, we will preprint base premiums by zone and include ‘separate rating factors for subzone, construction, and Coverage A amount, To ‘obtain the premium for a particular policy, the system will then multiply the zone base premium by each ofits rating factors. This will replace our current approach ‘of preprintng already expanded basic premiums in the personal lines rating manual. Please refer to our manual pages for additional detail Individual policies will only be affected by this change when rounding or interpolating differences exist between the current and new approach, B. Home/Auto Discount We are increasing the Home/Auto Discount from 15% to 20%. Please see Exhibit 12 for support for this change. €. Zone Definition Pages ‘The Zone and Subzone Definition manual pages have been updated to reflect ZIP Code boundary changes and expired ZIP Codes, Homeowners Policy Basie Premium Changes ‘After including the impact of all other changes in this fling, we are implementing a statewide basic premium change in order to achieve the average 4.5% rate change for the Non-Tenant policy form Tenants Policy Changes ‘A. Basic Premiums ‘After including the impact of all other changes in ths fling, we are implementing basic premium changes that result in a statewide average 4.5% rate change for the Renters and Condominium Unitowners policy forms. B. Condominium Unitowners Occupancy Rating Rule We are changing the presentation of the Condominium Unitowners Occupancy Rating Rule. Specifically, we are changing the rating to be based on ‘number of \weeks' rented rather than the ‘number of days’ rented. This change will not result in any polces getting a different charge than they receive today. 5 6 7 ‘State Farm Uoyss Texas Homeoumers Index of Ext __Desatpion Calculation of inceated Rate Level Adusment ‘Average Premium Per Plcy "Non-Cat erage Paid Claim and Cia Frequency Adjusters to Pa Loss Ratio Catasropte Provision Underuiing Expense Exhibit Provision for Underating Proft and Contingencies “Total Fhancal Neads Anais Deserpon of Adjusted Losses Frequency Seventy and Pure Premium by Pert (Goss Undorring Proftr Loss Indicated Fate Level Adjustment by Form ‘Suppo forincrease in HemelAuto Discount ‘Statnide Average Rate Level information Historical Experience Expense Ifmaton — neluding Disallowed Expense Adusment Prof Provan Adjustment Esti State Farm Loyes ‘eras Homeowrers Inccated Rat Love Adjustment Posies Efecto: 5/1/2010 New 6/1/2010 Renewal remus, Losses and Expenses Per Pocy Projected To 6/1/2011 Sor Potcy Eamed Premium 1425.11 1000 Non-Catastophe Incured Losses and Loss 50775 358 Adjustment Expenses, Incured Losses 300.19 a3 Incred Loss Adjustment Expenses 11858 aa CCatastophe Losses and Loss Adjustment o1254 430 Expense Total Los60s and Loss Adhsimant Expenses 112029 738 Total Underaring Expenses 348.75 245 Fored Expenses ware 80 Variable Expenses 221s 186 Sup Note asst 60 Total Loss ane Expenses 8S Indicated Rate Love Adjustment ‘The Rate Love adjustments derved by sing he flowing formal IO=(((L + F)/(100-V-S-P)}~ 1)" 100 where: C= nccated Orange o Rate Level L= Total Lass and Loss Adjustment Expenses F=Fed Experses V= Vanatle Expenses 'S= Surplus Note = Proft and Contngoncios allexpressed as a percent of projected eamed premium ‘Solving the equation using the dala shown above and a 90% provision for prof and conngences ys 10 =((786 +89)/(100- 186-60-90)- 1) 100 (@75/604)~ 1)» 100 (1261 1)* 100 26.1% moreaee exmit2 ‘State Farm Lye ‘eras Homeowners ‘Average Premsum Per Poey Premium per poly for he curent calendar years projected by asjsting actual premium wring to cue premium eels © ‘reflect tems suchas changes aos, flaton and dtnbuson The esting curent lvel writen promis then forecast by estimating the elects the same ements (ates, ation and stbuton changes wil Pave nie years Writ premium per okey and earned premium per olcy are projected to the mcipont of the pend proposed rates are oben elle by straight line sterpoltion between te approprae calendar yea forecasts. |. Premium Adjustments A. Rate Change Adjusent Rather than assume a uniform dstibutn of premen wigs by month o determine ales af current rae evel we ‘assign a ate chang: factor by ment anc apply te aor to monthly wren prema dations Actual arte premium per poly is adjusted to cent rat evel n recognion of the flowing rate changes, Eocive Date ew Renewal et “e208 ‘1/2008 28. ‘2008 ‘172008 0 w2si208, 9.282008 00 B08 1212006, 00 52000, ‘15/2000 09 ——siran0e- “r2009 85 8B. nation Austnt Actua writen premium is further acusted 10 reflec inflatonary changes. Curenly, 1.0% change in pole amount resuts na 074% change in poicy premium. The anticpated increase in policy amount and the esting premium increase ae shown below for Texas, 2000, 2010 Dori Ba] Tne in Ply Amount 1 OD TF Premium €quivalnce Facer ‘o74s| 0744 | ~o7ae| aaa [PResuiing etct onPrenium +1030 | s030-| +30) “+ 090, (©. Adjustments For Aniipated Shits Disbutons \Writen premium per poly futher adjusted to recognize any projected changes in our dstibuson of business that ‘ono relecedin caren data or ends. - 2008) 2010, Dont Diz, ( Rajesent Facer 000 1.000-| "1006 1.000 Eabit 2 (Cortinued) AL Promium Calculations ‘A. Curent Calendar Year Historical writen pramium ajsted orfet changes in ae lve, inflation an distribution to get an estimate of the current calender year writen premium at cent vel by marth, Eamed premium isestmated by esming the preium writen unfomly aver a 13-monh perod with the es and ast ‘month each eaming 1/24” and ine remaining morshs each eaming 1/12" ofthe premium wren This produces a "more acouate estate of eamed premian an can be produced using the raditonal paablogram method, Our estimate o 009 premium pe policy i: $1366 90, Ths estimate refs atest actual premium per pocy assed or ams suchas cue aes an iabon, B. Subsequent Caloncar Years Each subsequent calendar year's wien premium is estmated by apni adjustment factors for iftation and

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