July 2023 Board Meeting Minutes

Everline Resort, Olympic Valley, CA

July 9, 2023, 9:30 a.m.-2:00 p.m.

• Votes are highlighted in yellow for easy reference.
• An asterisk (*) indicates an attendee attended remotely.

Opening Business

Janet Beaver called the meeting to order at 9:20 a.m. and outlined the agenda. Dan Brown reminded all participants in the meeting of their obligations under the SLA’s antitrust resolution.

John Washington certified that the minutes of the October 2022 board meeting were accurate and correct. Terri Moran moved to accept the minutes as presented, Terrence Villar seconded, and the motion passed unanimously.
 

Presentations by SLA Interns

The SLA’s intern class gave presentations on their experiences at the SLA and then engaged in a dialogue with board members.
 

Personal Lines Report

Cliston Brown delivered a report, as requested by Terri Moran at the June board meeting, on the state of the personal lines market in California.

• Many factors are contributing to the burgeoning personal lines/homeowners crisis.
  • Inflation
  • Rebuilding costs are going up
  • Supply chain issues
  • Interest rates are up and the amount taxpayers can deduct in mortgage credits went down.
  • Even without climate change, the cost of insurance would still be going up.
• AIG, Allstate and State Farm have decided to stop writing new homeowners business entirely in California.
  • More admitted carriers can be expected to do the same.
  • At least 20 carriers have restricted how much business they will write in the state.
• At the Assembly Insurance Committee hearing on the FAIR Plan in March, where Mr. Brown testified, Commissioner Lara blamed the insurance industry for not anticipating climate change. Congresswoman Maxine Waters said the same thing in her letter of June 6 asking FIO for a study on insurers pulling out of covering homeowners in California, in which she also made unsubstantiated suggestions that antitrust laws may have been violated.
• FAIR Plan president Victoria Roach has bluntly told legislators that if a major event occurs, the FAIR Plan will not have enough money to pay claims.
• The intervenor process required for rate hikes of 7% or greater is very cumbersome.
  • In the Assembly Insurance Committee hearing in March, the insurance department admitted to legislators that some of the hearings had taken more than a year and a half.
  • Due to inflation, a 6.9% rate increase essentially amounts to taking a loss.
• Rates are completely inadequate in California because of Prop 103.
  • According to NBC, the average homeowners’ premium in California is about $1,300 a year, an increase of 16% from 2019.
  • However, by comparison, the average in Florida is more than four times higher—about $6,000 a year, an increase of 200% from 2019.
• Surplus lines homeowners filings in California have dropped precipitously over the last five years, falling from a peak of roughly 64,000 in 2017 to 25,000 in 2021, then popping back up last year to about 29,000.
  • Premiums, however, have nearly quadrupled since 2018, from $126 million in 2018 to $496 billion in 2022, reflecting the greater risk and the adjustments insurers have made to address the risk.
  • However you slice the numbers, surplus lines remains a tiny part of the homeowners market in California, roughly one-seventh of one percent of the 18 million insured homes in the state in 2021, per California Department of Insurance (CDI) data.
  • Mostly high-end homes concentrated in wealthy areas, as noted in an SLA heat map presented by David Kodama, Jr. The heat map provides vital information on each community in California regarding their fire risk, replacement costs, premiums, etc.

Financial Analysis Market Report

Glenn Leung reported that the full market report was available on the board website and reviewed some highlights.

• Four LASLI applications were recently approved by the CDI, bringing the total to 137.
• More than half of the recent applications mentioned auto, trucking or transportation in their plans of operation.
• More than one-third mentioned program business.
• A couple of them mentioned property or homeowners.
• Spinnaker Specialty Insurance, which is owned by an insurtech, was recently added.
• Several companies seeking to place new subsidiaries on the list, like W.R. Berkley, already have insurers on the LASLI.
• One new applicant has come in, AM Specialty Insurance Company, which does not meet the “seasoning requirement” and probably won’t be approved.
• The average time from filing to approval is at least a year due to an extensive SLA review process and sometimes vetting by CDI as well. Insurers can write prior to being on the LASLI and this can often help their applications.
• AM Best negative outlooks include five companies on the list:
  • Mercer Insurance Company, “A” rating but negative outlook.
  • Vault E&S, “A-“ rating but negative outlook.
  • Canopius U.S. Insurance, “A-” rating but negative outlook.
  • Hallmark Specialty Insurance Company, moved to “B++” and then to “C++” in just a couple of days; it is no longer rated by A.M. Best; its E&S business was sold to Core Specialty; Hallmark withdrew from the LASLI effective May 10, 2023, and no longer meets the requirements to be used as an eligible carrier in California. There was a lot of adverse development on the commercial auto side.
  • Rockingham Insurance Company downgraded with a negative outlook due to poor underwriting results.
• LASLI has seen premium growth of 7.2%, but this growth was really mixed, with California decreasing by 1.7% and New York by 2.9%, but 18.6% growth in Texas and 13.7% in Florida.
• On profitability, US LASLI insurers and applicants saw a first-quarter underwriting profit decrease of $219.8 million, and reported an income of $393.8 million.
• Looking at the overall P&C industry, including admitted, the national industry posted its first and worst underwriting loss in the last 12 years, with a combined ratio of 102.2%.
  • Factors were an unusually active catastrophe period for first quarter, inflation, challenges in private auto market, and personal lines direct incurred losses.
  • Some sectors that did better were commercial lines, mortgage insurers and reinsurers.

Learning Center/SLA University Discussion

David Kodama, Jr., presented plans for the Learning Center and SLA University over the rest of 2023 and into 2024.

• The Education Department is run by Annie McFate, who has hired two other people. They have a three-person team to take the Learning Center to the next level and achieve the vision Bob Gilbert asked the SLA to pursue, to make sure that members know who the SLA is and how it can serve them and bring value to their professional development.
• The SLA’s goal is to be the premier one-stop-shop platform for members to continue their continuing education and professional development needs.
• Education and Compliance Committee chair Tim Chaix asked that the SLA not promote other CE providers and deliver more of its own courses.
• One tactic the SLA will take is to create a working group and make sure that whatever it delivers represents the needs of the membership.
• One key goal is to partner with other states so that CE courses can count for credit in other states as well.
• The Education and Compliance teams are developing a great rapport with the CDI, just as Financial Analysis has. The SLA is bringing in personnel that are well respected by the CDI.
• The SLA is looking to develop LMS platforms and looking for someone who has dealt with multiple vendor platforms to help advise the SLA.
• The SLA is seeking continued engagement with, and guidance from, the Education and Compliance Committee.
• The SLA is putting its CE courses into an on-demand section of the website, which is not well-organized or branded, and the intention is to up-level it to SLA University. The vision is to offer a menu of courses that members can take and receive certificates of completion, to make it more of a service to members.
• With both SLA University and the LMS, the SLA will create working groups with representatives from across the membership to guide its decisions. Mr. Kodama asked board members for referrals for those working groups.

 
Benjamin McKay said the SLA has implemented Salesforce and attached it to RAPID, and getting those systems communicating with each other is priority one. Priority two is redoing the website—the SLA University and the Learning Center will be part and parcel of that. Between now and the Stamping Committee meeting in September, the senior staff will be putting together a three-year plan detailing sequencing and costs for the board and the Stamping Committee. The SLA needs to determine how many people are taking the CE classes and how many resources should be used to that as compared to other priorities.
 

SL-2 Modernization Update

Yusuf Mayet reported that the compliance team has been working on modernizing the SL-2 form, reducing it from eight questions to four questions, and that form has been presented to the head of the CDI’s licensing division. She gave her approval and asked only for minor, non-substantial changes. A scheduled meeting to present it again will be on July 14, and it will then be presented to the full CDI, after which it is hoped it will be ready to go immediately. Mr. Kodama said getting legal approval could present challenges, but the SLA has been developing a great rapport with the CDI. In addition to the new form, technology implementation has to be put into the SLIP portal, with an eye toward putting it into a DocuSign-type system.
 

Export List Update

Mr. McKay said the Export List hearing is coming up soon, and the CDI wants to change the way it interacts with us related to the Export List, and they are creating an interactive process in which the SLA will provide advice and counsel on whether a coverage should be on the Export List. The CDI suggested this to the SLA, which speaks to the relationship the SLA has built with the CDI.
 

Adjournment

All business being concluded, Ms. Beaver adjourned the meeting at 12:58 p.m.