Fla. Cat Fund Can’t Handle Major Storm, Says McCarty
Mar 6, 2009
National Underwriter–March 6, 2009
BY PHIL GUSMAN
The Florida Hurricane Catastrophe Fund could face a significant shortfall if a major storm hits Florida this year, the state’s insurance commissioner told a State Senate committee yesterday.
Kevin McCarty, Florida Insurance Commissioner, speaking before the Florida Senate Ways and Means Committee, said there is a “cratering” of the financial sector due to the economic downturn, and municipal bonds are being affected as well.
Municipal bonds, Mr. McCarty said, are “the backbone of funding” for the hurricane fund, which backs up the private market in the wake of a hurricane by providing reimbursements to insurers for a portion of their catastrophic hurricane losses.
The fund sells bonds to cover claims after the fund runs out of money, Mr. McCarty explained, but in today’s environment, the fund likely cannot sell enough bonds to cover the claims should a major storm hit.
He said there would be a “significant shortfall” in bond sale capacity.
Mr. McCarty said it is “critical” to come up with either a private or public solution, as insurers will be in the market looking for reinsurance coverage for the hurricane season in 30-45 days and there needs to be certainty that the fund has the ability to meet its obligations.
Some legislators on the committee sought to address other insurance issues when questioning the commissioner, including circumstances surrounding American International Group (AIG), State Farm’s recent decision to exit the state property market, and the legality of tying homeowners policies to other coverages such as auto.
Regarding State Farm, Sen. Al Lawson, D-Tallahassee, called the insurer’s exit a “travesty” and told the commissioner he should go back and ask the insurer to come back to the market.
Committee Chairman Sen. J.D. Alexander, R-Lake Wales, said many people replacing State Farm policies are paying more than what they would have been paying had State Farm been granted its requested rate increase.