Fast Focus
	Florida’s approach to catastrophes is to use unrated or poorly rated carriers, raising questions about how much protection there really is.
	Every person and business with a Florida auto or property policy will be on the hook—unless the feds come to the rescue.

Committing Insurance Without a License

WHAT? ME WORRY? Florida's hurricane insurance reforms mean every Florida insurance consumer may be buried under surcharges piled atop surcharges--all to create cheap rates today. Some see a federal bailout in the offing.

By  Cheryl Arvidson

[Page 3 of 8]

The Guaranty Association, which covers insurer insolvencies, has been levying assessments equal to 2% of annual premium on Florida homeowners policies for the past two and a half years to cover claims resulting from the liquidation of Poe Financial Services in May 2006 (for a policyholder with a $1,000 annual premium, that amounts to $20).

Citizens also assessed Florida homeowners policyholders amounts ranging from 2.07% to 6.84% of premium to make up deficits from the 2004–05 hurricane season.

The only Citizens assessment currently in place is a 1.4% of premium charge that began in December 2006 and will continue through 2016. And the Cat Fund is levying an annual assessment of around $60 a year for five more years to cover bonds issued in the aftermath of the 2005 season. Any further assessments stemming from the current hurricane season would be add-ons to those pre-existing charges.

The risk of the hurricane package enacted by the legislature in 2007 has not escaped the attention of the rating agencies. A.M. Best weighed in last year and suggested insurers might wish to secure private market reinsurance as a backstop in case the Cat Fund could not make its promised payments. Fitch Ratings recently issued a special report calling the Florida homeowners insurance market “unstable” and said the situation is “not likely to be resolved in the near term.”

“Fitch’s main concern from a ratings perspective is that if a major storm(s) were to hit Florida this year, the fragile market could effectively collapse, especially if such an event intensifies the withdrawal of private capacity,” the report says.

The longer the situation goes on, Fitch said, the greater the possibility of a negative ratings impact for insurance companies with material presence in the Florida homeowners market.

Crist, who is not up for re-election for two more years and who won the gubernatorial race on his vow to fix the insurance situation, blew off the Fitch assessment.

“I don’t know what Fitch is,” Crist told reporters. “What I can tell you is that from a consumer point of view, it’s better than it was for Florida even a year ago. So no disrespect to Fitch, but what I care about more is Johnny and Susie Floridian than Fitch.”

Meanwhile, the thin reed on which the state’s insurance and reinsurance solution is hanging—the ability to issue bonds after an event to get the cash to pay for the losses—is anything but a certainty.

The largest-ever sale of this type to date was around $11 billion by a California municipality, and Florida could be seeking much more than that. Plus, it is one thing to try to issue bonds pre-event and quite another to go after funding following a major natural disaster. Then there is the huge problem of upheaval in financial markets due to the ongoing mortgage crisis.