Citing tornadoes, Alfa suspends writing new policies on older homes

This aerial view of the Carters Gin subdivision in Toney, Ala., shows destroyed homes following an April 2011 tornado. (The Huntsville Times/ Michael Mercier)

Alfa Mutual Group, the state’s second-largest homeowners insurer, has suspended writing new policies on Alabama homes more than 10 years old, as it tries to get its hands around what are likely hundreds of millions of dollars of losses from last month’s tornadoes.
Ragan Ingram, chief of staff to Insurance Commissioner Jim Ridling, said the Montgomery-based insurer is writing only new policies on homes built since 2001. Homes built under older building codes are generally considered poorer risks.
Jeff Helms, a spokesman for the affiliate of the politically powerful Alabama Farmers Federation, would not directly confirm the move.
“As the insurance industry deals with the aftermath of this unprecedented event, Alfa is re-evaluating its risk exposure,” he said in a statement. “Alfa has seen a large number of applications for homeowners coverage following these storms, and we are taking interim steps to manage the growth of that line of business.”
It was not clear if the tornadoes will prompt an industry-wide rethinking of inland risks or if they will play into insurance woes along the Gulf of Mexico. Until now, the northern parts of the state have paid insurance costs one-half to one-fourth as much as Mobile and Baldwin counties, which are shunned because of hurricane risks.
State Farm Insurance Cos., Alabama’s largest homeowners insurer, said it was writing normally and hasn’t seen a surge in new business because of the tornadoes.
David Majors, a spokesman for the Bloomington, Ill., firm, said State Farm hasn’t done anything at the state level to reconsider risk. “At the corporate level, we might,” he said.
Ingram said state regulators plan to poll insurers on possible changes.
Helms would not discuss the details of Alfa’s finances, although, he said, the company continues to carry an A-plus rating from A.M. Best, which means that the rating firm judges Alfa’s financial strength to be “superior.”
“Alfa Insurance’s financial strength is among the best in the insurance industry,” Helms said. “Alfa had a catastrophe plan in place and was well prepared to respond.”
The insurer did not respond Tuesday to a request to speak to Chief Executive Officer Jerry Newby.
Alfa has said it has reinsurance against big tornado losses. It had $750 million in surplus at the end of last year in its two primary insurance units, according to reports filed with the National Association of Insurance Commissioners.
Ingram said regulators knew of no insurers in danger of being bankrupted by the storms.
“We’ve been in constant communication with the leading carriers in the state, and we’re confident that they’re in the financial position to meet their obligations,” he said.
Auto insurance, not property, is Alfa’s primary source of revenue. But with its business concentrated in Alabama, Alfa may fear a repeat of the storms.
The three largest modeling firms have estimated that insured losses from the outbreak could range from $2 billion to $6 billion across the South. That includes not only homeowners coverage but also payments for autos, commercial property and loss of business. Risk Management Solutions, one modeler, said 70 percent of insured losses were in Alabama.
More than 65,000 claims have been made statewide, so far, Ingram said.
Alfa, which has 18.3 percent of the Alabama homeowners market, has received 18,000 claims in Alabama, Mississippi and Georgia, including homeowners, auto and other lines, Helms said. State Farm, with 29.1 percent of the Alabama homeowners market, has about 18,000 claims in Alabama, and another 2,800 in Mississippi.
Those figures suggest that Alfa policyholders could suffer anywhere from $250 million to $850 million in damages from the storm. It’s unclear how much of that damage Alfa has passed off to reinsurers.
It could be the largest loss in Alfa history. Alfa had $323 million in catastrophic weather losses in the first nine months of 2004, when Hurricane Ivan hit, according to stock filings from a formerly public Alfa unit. It had $235 million in losses in the first nine months of 2005, the year Katrina hit.
Those losses led Alfa to cut almost 10,000 policies in Mobile and Baldwin counties and to refuse to write new homeowners policies in the coastal area. Alfa says it still has more than 20,000 policies in the two counties.