Big companies aren’t eager to depopulate Louisiana’s insurers of last resort

NEW ORLEANS (WVUE) – Stephen Lovecchio, a branch owner of TWFG Insurance, is working to pull customers away from Louisiana Citizens, the state’s insurer of last resort.

“The migration of Louisiana Citizens in Orleans Parish is very, very large,” he said. “Not that bad in Jefferson Parish, but it’s very, very big in New Orleans. We just got the rates for Orleans Parish: Our $7,000 bonuses are going to be $13,000, so we’re aggressively trying to move our people.

Citizens inherited over 100,000 policies after insurance company bankruptcies. A 63 percent interest rate hike for Citizens’ Residential policyholders will come into effect from January.

Louisiana Insurance Commissioner Jim Donelon says the number of insurers who have pulled out of the state is not known.

“A total of eight companies have failed,” he said. “How many have retired? We don’t know, because most who retire just stop writing and don’t start writing again.”

A report by said state insurance regulators were desperate to remove people from Citizens and were “relentless in interpreting” a rule created by state legislators that says insurers must have a letter grade of B+ or better from the rating company AM Best. or equivalent to take over policies from Citizens.

“I don’t agree with that,” Donelon said.

He says he attends Citizens Board of Directors meetings.

“All of this will be reviewed by the Board of Citizens and by me providing my input and advice,” Donelon said. “We agreed throughout the process that these are not world class, giant national corporations that want to abolish these policies. They are generally small, regional companies that are active in coastal states.

He said none of the companies have a rating below “C”.

“All had a Demotech rating of ‘A-Exceptional’ at the time of their participation in the program,” said Donelon.

Demotech is a financial analysis and rating company. Donelon said it’s often difficult for smaller insurers to be rated by AM Best, which is considered the gold standard when it comes to ratings.

“We would be delighted if all of these participating companies received the highest rating available, an AM Best A+ rating,” said Donelon. “There are very few of those, and none of them are interested in taking Citizens’ politics. And a company’s rating is just one of the criteria used to judge a company’s health.

“They have to meet a risk-based capital requirement, a minimum capital requirement and an excess requirement, they have to have their reinsurance purchase reviewed to make sure it’s appropriate for the risk they’re taking. All of that is part of the credit check, not just that one letter grade of the rating from these handful of rating agencies.”

Lovecchio agrees that an AM Best rating is hard to come by for smaller insurers.

“Yeah, AM Best is really not good with our state airlines and smaller regional airlines,” he said. “Someone just makes cars or someone makes homeowners in Mississippi, they’re not going to get an AM Best rating because it costs too much for them to get it. And AM Best likes to work with national airlines anyway.”

Donelon said that newer companies also face challenges.

“It’s easy for State Farm and Allstate to earn an AM Best rating. Not so easy for a company that only does business in Louisiana or Florida,” he said.

Insurance companies also buy insurance called reinsurance, but this market is struggling.

“The reinsurance market comes from Europe and in particular from England,” said Lovecchio. “The problem with England is that the pound is now dollar for dollar where it used to be $2.20. The investments that everyone has made have gone down 20 to 30 percent and they’ve had big losses in the United States.”

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