Alfa to cut 73,000 insurance policies in Alabama after tornadoes

 

Alfa Mutual Group  said today that it will not renew 73,000 property insurance policies statewide as it tries to stabilize itself following the April 27 tornadoes.
The insurer, based in Montgomery, said that a majority of the policies affected are for rental houses owned by landlords, but said that some traditional homeowners, manufactured home and fire policies will be dropped as well.
"While Alfa remains a financially strong insurance company, the increased frequency and severity of storms over the last decade have highlighted the need for Alfa to review its overall property portfolio," Alfa President Jerry Newby said in a statement. "Our top priority is serving our policyholders. We have a responsibility to manage the company in order to effectively deliver on Alfa’s promise to its customers."
The state’s second-largest home insurer said it expects about 25,000 claims as a result of the April 27 tornadoes, which caused estimated insured losses of up to $4 billion in Alabama alone.
The company declined to comment to the Press-Register, but an Alfa official told The Associated Press that it expects losses of $425 million from the tornadoes. The company buys reinsurance against tornado claims, so Alfa is unlikely to bear all that cost directly.
Ragan Ingram, chief of staff for state Insurance Commissioner Jim Ridling, said the company discussed the cuts with regulators earlier this week. Ridling said that Alfa’s risk is heavily concentrated in the state, and the company has been discussing changes for more than a year.
The company had already frozen writing new policies on houses more than 10 years old. In its Friday release, it said such steps to limit growth in property insurance were "temporary."
Alfa told Ridling in a letter that it would not drop any policyholders who also have life or auto policies, except where the rental home policies are concerned. Those other lines of business are generally more profitable than homeowners policies.
Consumer advocates dislike requirements tying policies together, saying customers shouldn’t have to buy one product to get access to another.
For a brief time after 2004’s Hurricane Ivan, regulators told companies that they could not tie their policies, but later revoked the ban, saying that it was reducing the number of firms willing to offer wind coverage to homeowners in hard-hit Mobile and Baldwin counties. Overall, insurers have announced plans to drop more than 50,000 wind policies in Mobile and Baldwin since Ivan.
Alfa said it would have 350,000 property policies left in Alabama, meaning it’s cutting about 1 in 6 of its policies. That’s likely to reduce Alfa’s share of the overall homeowners market in the state, which now stands around 17.5 percent, according to A.M. Best. Alfa said it has 700,000 automobile policies in Alabama.
The affiliate of the politically powerful Alabama Farmers Federation said its anticipated 25,000 tornado claims are less than half the number of claims made after Ivan. However, the projected $425 million loss would be more than the company’s losses in the hurricane, which would be about $385 million in today’s dollars.
"The severity of claims will make this tornado outbreak the costliest storm in the company’s history," Alfa said in a statement.
Ridling said he expects 70,000 to 80,000 total claims from the storm, meaning Alfa will bear roughly a third of all claims. He said the department expects between $2 billion and $4 billion in insured damage statewide, although that will include large commercial claims as well as the auto and smaller properties that Alfa usually covers.
Ridling said no other company has indicated that it plans cuts, and that the department hopes some national carriers will "step forward and assume some additional market share" in the state.
Alfa’s 2 property subsidiaries alone had $750 million in reserves at the end of the year, and regulators have said the company remains solvent.
But drained reserves could cause Alfa’s credit rating to be reduced, and heavy losses could cause reinsurers to charge more. Ridling said "likely reinsurance issues" helped spur the cuts.
A.M. Best had already revised Alfa’s long-term outlook to negative last year, citing in part its "susceptibility to severe weather-related events" because its policies are heavily concentrated in Alabama. The company maintains an A+, or "superior" rating from Best.
There was no discussion of how the cuts would be distributed across the state. Alfa has already dropped thousands of policies in Mobile and Baldwin counties, but says it still has about 20,000 policies of all types in the 2 coastal counties.
The company said it will begin sending out nonrenewal notices as early as Monday. However, it will take about 16 months for all the policies to be dropped, as Alfa has to give 120 days’ notice, and won’t cancel existing policies. Alfa said its in-house Alfa Agency group would try to find new coverage with other insurers for people who are cancelled.