Insurer fine-tunes Gulf Coast commerce

Hurricanes Katrina and Rita hit the insurance industry hard in 2005.
The ravaging storms also left a local company facing decisions about
its business in the Gulf Coast.

Hurricanes Katrina and Rita hit the insurance industry hard in 2005. The ravaging storms also left a local company facing decisions about its business in the Gulf Coast.

Dauphin County-based Aegis Security Insurance Co. sells insurance for manufactured homes, motor homes, motorcycles and more. Aegis recently began to accept new homeowners’ policies in Mississippi’s hurricane-prone counties for the first time since the 2005 storms, said Mike Chaney, the state’s insurance commissioner. His office in February sent a press release praising Aegis for its decision.

“We’ve got a lot of people coming back,” Chaney said.
“From everything we know about them, they’ve been very good,” Chaney said of Aegis’ Mississippi record, which he said stretches back more than 20 years.

That record includes a tough 2005.

For example, Aegis booked about $3 million in premiums for “homeowners’ multiple peril insurance” in Mississippi in 2005, according to online data from that state’s insurance department. The company paid out about $10.8 million. More losses came in 2006. Aegis also took losses in an insurance category billed as “fire,” which likely includes hurricane-related losses, Chaney said. The numbers were similarly ugly in Louisiana, according to data provided by that state’s insurance department.

These blows were hardly crippling. Aegis is rated “excellent” by New Jersey-based A.M. Best Company Inc., which monitors the financial strength of insurance companies. The company reported earnings of $1.7 million in 2005, the only year since 2003 that the company’s earnings slipped below $2 million, according to Business Journal data.

Aegis suffers lower losses than other companies because of the management’s expertise and discipline in sticking to its pricing model, according to a November 2007 A.M. Best report. Aegis mitigates catastrophe losses by purchasing reinsurance and by modifying its underwriting decisions, according to A.M. Best.

“It’s a very disciplined organization,” A.M. Best analyst Jeff Mango said in an interview. The company’s exposure in the Gulf Coast was limited, he said.

Aegis did not respond to requests for comment.

The company’s story appears to track that of the entire industry in Louisiana and Mississippi. The storms led to big losses and legal battles, and many companies grew wary of taking new business. The states then made sweeping changes in construction and insurance rules to lure the industry back.

Aegis scaled back its exposure in the Gulf Coast after the storms, according to the 2007 A.M. Best report. The numbers bear that out.

In Louisiana, the company agreed to sell homeowners’ insurance worth $1.6 million in premiums in 2005, according to data from the state. By 2007, that number had shrunk to about $731,000.

Insurance companies lost business in Louisiana because much of the property they had been insuring was destroyed, said Rich Piazza, chief actuary for the state’s Department of Insurance. Business also slipped because companies stopped taking new policies in southern Louisiana and because some declined those renewals they were not required by law to accept, Piazza said. Finally, companies raised deductibles, resulting in lower premiums, he said.

In Mississippi, Aegis’ “homeowners’ multiple peril” premiums shrank from $2.9 million in 2005 to $2 million in 2006, the last year for which state data was available. The company’s fire-insurance line saw a much smaller reduction.
Aegis shied away from taking new business in the most vulnerable Mississippi counties after the hurricanes, but it did offer renewals there, Chaney said. Now, the company has agreed to take new business in the area, but with limited exposure in the three counties directly on the coast, he said.

Chaney credited the company’s return to two major changes. Inspections on the installation of manufacturing housing are stiffening, so homes should be better protected against storms. Also, Mississippi overhauled its “wind pool,” a state-run insurance plan for people who cannot find storm coverage in the private sector. The wind pool covers deficits by billing insurance companies. Until recently, the companies had no way of knowing how much money they might be on the hook for, Chaney said. The wind pool has been reorganized in a way that makes the liabilities predictable, and that encourages companies to return, he said. Companies also can lower their wind-pool assessments by offering wind insurance in the vulnerable counties.

Such changes have allowed Aegis and other companies to drop rates below their 2005 levels, Chaney said. Aegis’ rates are declining by an average of 20 percent statewide, he said.

Companies also are beginning to take new business in vulnerable parts of Louisiana, Piazza said.

“It’s starting to turn,” Piazza said.

But there, the companies are spurred in part by the willingness of the insurance department to approve rate increases, he said. Louisiana also made changes to its state-run insurance plan.

It makes sense that companies would reevaluate their business after a major catastrophe, Piazza said. Other hurricanes led to deeper changes, he said. After Hurricane Andrew in 1992, the industry changed how it evaluates storm risk and charges premiums, he said. When Florida was buffeted by four storms in 2004, the industry realized that multiple catastrophes were possible in a single year.

“Katrina was just a big loss,” Piazza said.
The risks highlighted by Hurricane Katrina are not enough to chase the insurance industry away from the Gulf Coast, he said.

“This is their bread and butter,” Piazza said. “This is why they are here in the first place.”

About Aegis Security Insurance Co.
Founded: 1977
Headquarters: Susquehanna Township, Dauphin County
Insurance lines: Manufactured housing, motorcycles, a range of bonds, others
Subsidiary: American Sentinel Insurance Co. provides some group benefits
President: Darleen Fritz
2007 direct premiums written: $75.9 million
2007 net income: $4 million
Web site: www.aegisfirst.com
Sources: Business Journal, A.M. Best Company Inc.

 

 

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