The Office of Insurance Regulation in Florida has rejected a rates filing from QBE US subsidiary Praetorian to cut its rates for lenders’ mortgage insurance (LMI) by 2.2% – instead suggesting the insurer consider a cut of 35%.

LMI – also referred to by US regulators as force-placed insurance – is taken out by lenders to cover a property against the homeowner failing to maintain insurance on it, as required by the mortgage agreement.

It is controversial in the US because of the high cost of premiums, which are passed onto the homeowners, and low payout ratios.

The regulator has labelled Praetorian’s proposed rate “excessive”, adding there is “insufficient support for the loss trend” claimed by the insurer.

It says the expenses and reinsurance costs Praetorian claimed are “excessive relative to services rendered”.

“Praetorian did not provide appropriate support for the rate decrease it requested,” the office’s Deputy Commissioner of Property and Casualty, Richard Koon, said.

But QBE Group CEO John Neal has defended the rates, saying at a media briefing in Sydney last week that the LMI market has the potential to be heavily hit by catastrophes, especially in hurricane-prone Florida.

He says the company will negotiate a rate with the regulator before refiling within 21 days, but the rate will be “nowhere near the numbers that are being talked about”.

Other US insurance regulators have taken similar action on LMI rates but the Florida decision is the most significant, with the state posting the largest number of mortgage foreclosures and representing the biggest chunk – at 40% – of QBE’s US LMI business.

QBE and other LMI insurers also face two class actions in Florida, with homeowners alleging collusion, profiteering and kickbacks between insurers and mortgage companies – an allegation QBE denies.