NAMIC Urges Change To Fla. Assessment

NU Online News Service, March 11, 9:25 p.m.EST?An insurance company association says carriers faceinsolvency in Florida from improperly allocated assessment forhurricane risks unless the state's catastrophe fund's accountingprogram is fixed.

The National Association of Mutual Insurance Companies, based inIndianapolis, Ind., said it planned to present its findings to theKansas City, Mo.-based National Association of InsuranceCommissioners during its March meeting in Atlanta.

The association said it is seeking to prevent insurers fromfacing solvency-threatening assessments from the Florida HurricaneCatastrophe Fund (FHCF) due to its accounting practices.

"Instant insolvency is the potential landmine faced by a largenumber of insurers in the Florida property-casualty market withoutalteration of current accounting guidelines for treatment of FHCFassessments," said William Boyd, NAMIC's financial regulationmanager.

"Current accounting for fund assessments does not distinguishbetween guaranty funds and the FHCF," Mr. Boyd noted. "Inapplication to subject insurers, these two categories of fundassessments ought to be recognized as distinct. If more appropriatestatutory accounting treatment is not developed for FHCFassessments, a severe weather event in Florida may result insolvency-threatening liabilities in many insurers' financialstatements."

The FHCF assesses insurers in the Florida p-c market for amountsneeded to service debt floated by the fund to raise capital forresidential policyholders' claims resulting from severe weather.There is the potential for assessments to individual insurers to be4 percent over 30 years.

"Putting the entirety of that future liability for assessmentson the balance sheet at one time, as insurance accounting nowrequires, is irrational," said Mr. Boyd.

The FHCF, set up by 1993 legislation, has not been triggeredyet, although occurrence of a weather event of sufficient magnitudeto do so is understood as an actuarial certainty, the associationsaid.

The change sought by NAMIC involves recognition that Florida lawallows insurers to collect from policyholders amounts to coverfuture FHCF assessments and the fact that assessments in the moredistant future cannot be reliably estimated.