Hurricane Season: Insurers Plan For Worst, Hope For Best

May 15, 2012

With two weeks to go before the hurricane season officially begins, players in the multi-billion dollar property insurance market meet in Orlando Tuesday to prepare for the worst and hope for the best.

With $17 billion in obligations, the Florida Hurricane Catastrophe Fund could find itself about $1.8 billion short if it has to go to the bond market immediately following a particular devastating storm, according to an analysis prepared an upcoming workshop this week on the catastrophe fund.

But the state remains in strong financial position to weather a particularly bad storm if allowed to pay off claims within a two-year period, a scenario seen as much more likely.

“If the (CAT fund) can realize and use its estimated 12-24 month post-event bonding capacity of an additional $5 billion, it could meet its full initial season obligation and apply additional bonding amounts and fund balance accumulated during that period to subsequent season claims paying capacity,” according to an analysis compiled by Raymond James.

State CAT fund officials are scheduled to meet this week with insurance industry representatives for an overview of the state-backed fund.

In order to meet its mandatory level of just over $17 billion, the CAT fund would have to float about $8.8 billion in bonds. Conservative estimates of the current bond market, however, say the capacity for such bond sales would tap out at $7 billion, leaving the gap.

Jack Nicholson, chief operating officer of the fund, said the $1.8 billion estimate is merely an indicator telling private insurers what their potential re-insurance needs may be. For large companies able to string out their losses over a two year period, the gap in coverage will have little impact.

Smaller companies, however, may consider the figure and determine that they need additional re-insurance from the private market in case a severe storm hits.

“If a company can wait two years to tap into the fund, they are fine. But for some smaller companies, the lag may be a legitimate concern,” Nicholson said

The CAT fund does an analysis of its bonding capacity twice a year – in May and October – the May figure is used primarily as a gauge of the availability of bond investors. During the credit crisis of 2008, the state would have only been able to secure about $3 billion from the bond market, a far cry from the $13.3 billion in potential losses.

If the state can’t meet its obligation through traditional bonding, it can levy assessments on policyholders or can go to the bank lending market to make ends meet.

“However, complete certainty of funding for the FHCF can only be achieved by increasing the pre?event committed cash resources of the fund for example, by doing a prevent liquidity funding program or by decreasing the potential obligations of the fund – or both,” the analysis concludes.

By The News Service of Florida

Pictured: A satellite image of Hurricane Ivan in 2004. Courtesy NOAA for NorthEscambia.com, click to enlarge.

Comments

4 Responses to “Hurricane Season: Insurers Plan For Worst, Hope For Best”

  1. No Excuses on May 15th, 2012 6:45 pm

    Citizen’s is supposed to be the insurance company that people who can’t get insurance elsewhere can go and be insured. I don’t think they should be allowed to deny anyone who can pay the premiums! That’s why they exist.

  2. River Rat on May 15th, 2012 12:47 pm

    If they can build Mobile Homes and sell them, then they should have to insure them and at a reasonable price. My insurance on my mobile home runs me $2,198.00 per year and it is a 1998 model. That is just crazy!

  3. figures on May 15th, 2012 8:22 am

    Becky, from what I understand, Citizens is the ONLY insurance company that will insure mobile homes. Well, at least it was when we lived in a mobile home a few years ago! Who will give you insurance if they will not?

    I, personally, believe that as long as you are paying for insurance, you should be insured. They should not be able to drop you ever, for whatever reason! Most homes decrease in value as time passes, does this mean, eventually, everyone will have to move to a newer home just so they can be insured? Impossible.

    This is another issue that makes me sick to my stomach.

  4. Becky on May 15th, 2012 1:04 am

    I received a notice from Citizen’s (state run) today that they will be re-evaluating my home to decide if it is worth their lowest cash value limits. If they decide it isn’t, I will not be insured. Yes, I live in a mobile home but it has been here since 1993 and has made it through every hurricane we’ve had since with only minimal damage from only Ivan.

    Very telling that this is happening right as hurricane season starts.

Written by William Reynolds · Filed Under News