Florida’s hurricane catastrophe fund needs infusion before
Mar 6, 2009
Miami Herald–March 5, 2009
BY BEATRICE E. GARCIA
storm season
Insurance regulators have 30 to 45 days to come up with a plan to shore up the state’s hurricane catastrophe fund, which backs up the private insurers operating in Florida.
At a meeting of the state Senate Ways and Means Committee, Insurance Commissioner Kevin McCarty gave the first notice of the timeframe state officials are working with to devise a means for the Florida Hurricane Catastrophe Fund to fully fund its obligations.
Hurricane season starts June 1. Insurers working Florida will be shopping aggressive for backup coverage by mid-April so it’s in place before the wind begins to blow.
State senators also also urged regulators to see if Florida could keep State Farm Florida Insurance from leaving the state. In late January, State Farm said it would no longer sell property insurance in Florida because it was losing money since it couldn’t charge sufficient rates.
The catastrophe fund, created after Hurricane Andrew hit South Florida, can potentially sell up to $29 billion of backup insurance to insurers for the 2009 hurricane season. It doesn’t have that money in the bank. There’s about $7.6 billion on hand now.
Normally, it would sell bonds to make up the difference.
Given the ”cratering” of the financial markets, McCarty said it wouldn’t be likely that the catastrophe fund could enough bonds to make up the difference. At best, CAT fund officials estimate the fund could sell an estimated $3 billion. McCarty said he made the point that Florida is working with a real deadline for the cat fund when he vistied with U.S. Treasury Secretary Timonthy Geitner last week in Washington D.C.
”It will be 30 to 45 days before we’re in a situation where [insurers] are in the market looking for reinsurance coverage and we need” to have some certainty about the ability of the CAT fund to pay,” said McCarty.
Most of the private insurers as well as Citizens Property Insurance, the state-run company, rely heavily on the CAT fund for back-up insurance coverage.
More importantly, the CAT fund’s coverage is less expensive which has kept some premium rates lower in the past two years. However, if insurers have to buy more reinsurance coverage in the private market, premiums rates could rise.
Private reinsurance would be more expensive and that expense is a factor in premium rates.
There is also a concern some insurers could face lower financial ratings. Without an A-rating some banks might not accept a company’s policy on a mortgage, having severe reprecussions for homeowners.
Demotech, the Columbus, Ohio, -based company that provides financial stability ratings to many Florida insurers that are taking policies out of Citizens and many which are writing their policies, has warned that it’s closely following what kind of reinsurance plans companies put in place for the coming hurricane season.
Companies seek the ratings from Demotech, because A.M. Best, the Oldwick, N.J., ratings agency, won’t examine companies that have been in operation less than five years.
At the end of the committee Thursday afternoon, state Sen. Al Lawson, D-Tallahassee, asked McCarty to ”actively assess” ways to bring State Farm back into the market.
OIR has approved State Farm’s withdrawal plan with certain conditions and asked the company to turn over its certificate of operations.
”What you’ve done is a travesty,” said Lawson, who is an insurance agent and the Senate minority leader.
J.D. Alexander, a Republican from Winter Haven who chairs the Ways and Means committee, said his office has been ”inundated” with calls from current State Farm policyholders who are getting quotes from other companies at much higher rates than they are currently paying.