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Despite lower rating, Tower Hill says it’s in good shape if hurricanes hit

By Anthony Clark
Business editor
Despite taking a major hit to its financial strength rating, Gainesville-based Tower Hill Insurance Group says it is in a better position to cover hurricane claims after shunning voluntary state reinsurance.

A.M. Best Co., a financial ratings firm, downgraded Tower Hill’s rating from fair to poor, saying the insurer would not be able to cover two major hurricanes in one season.

But Best’s model assumes two one-in-100-year events, the odds of which are 1 in 10,000 and has never happened, according to a statement from Tower Hill.

Instead, Tower Hill can cover a more devastating 140-year hurricane and a second 60-year hurricane, the company said, adding that all of the hurricanes to make landfall since 1992, including Andrew, were less damaging than a 60-year hurricane.

The Florida Office of Insurance Regulation is in the process of reviewing Tower Hill’s reinsurance agreements and will determine if the company needs to purchase more, said Tom Zutell, deputy press secretary.

The state requires that property insurers buy reinsurance — insurance to cover insurers’ losses — from the Florida Hurricane Catastrophe Fund, which offers lower rates than commercial reinsurance.

Insurance reforms of 2007 also offered a second level of voluntary reinsurance from the Cat Fund, but companies are required to offer lower premiums to customers based on the voluntary rates whether the company purchases it or not.

Tower Hill opted out of the voluntary reinsurance and bought the more expensive commercial reinsurance, saying the state is unable to cover claims, with $15.8 billion to cover a potential liability of $27.5 billion.

"Tower Hill policyholders can be assured their hurricane claims will be paid in a timely manner and will not have to wait for a bailout, if any, from the federal government before their claim is paid," the company said.

Scott Johnson, executive vice president of the Florida Association of Insurance Agents, called the Florida insurance system a Ponzi scheme. The association has long maintained that the state keeps insurance premiums artificially low by denying rate increases that are needed to cover a major catastrophe.

Most insurers will not subject themselves to an A.M. Best rating, Johnson said. Tower Hill wanted one to show its financial strength, but after the company increased its rating standards for Florida property insurers, "it turned around and bit them."

"Tower Hill’s finances are the same now as they were before," Johnson said.

Tower Hill has asked to be delisted from Best’s ratings.

The Tower Hill Insurance Group includes the Tower Hill Preferred Insurance Company, Tower Hill Prime Insurance Company and Omega Insurance Company. It insurers 162,000 policies, including 114,000 homeowners policies.