If a 1-in-250-year storm were to hit Florida, policyholderassessments to support the state's hurricane catastrophe fund andits insurer of last resort could total $53 billion, a reinsurancebroker reported this week.

Paul Kneuer, senior vice president and chief reinsurancestrategist for Holborn Corp., a New York-based reinsurance broker,one of the authors of a new white paper on the Florida propertyinsurance market, said the $53 billion figure represents the burdenof such a storm on Florida homeowners--and ultimately, perhaps onthe federal government.

Mr. Kneuer said that one key step in developing the assessmentestimate was to calculate the market share of the state's residualmarket insurer, Citizens Property Insurance Company.

He believes that the report, titled "Florida 2007 Update: LawChanges and Market Responses," is the first to reveal Citizens'market share, which he put at about 23 percent for 2006, and at31.2 percent for 2007. He estimates the share will rise above 35percent in 2008.

"There's really no public data," said Mr. Kneuer.

In his view, state politicians are "trying very hard not to talkabout" how big Citizens and the Florida Hurricane Catastrophe Fundhave gotten and "what the potential downside is to the state," Mr.Kneuer said in an interview yesterday.

However, one official has sounded something of a warning. Thestate's Chief Financial Officer Adelaide "Alex" Sink told an NCCIconference in May that the state is "crossing its fingers" that nobig storm will hit and that Citizens is writing actuarially unsoundpolicies.

The politicians in Florida, said Mr. Kneuer, "are definitelywhistling past the graveyard."

Legislators there "entirely view this as something they can justpunt to the federal government," he said, referencing a remark madeearlier this year by a former Florida state senator, who said whenFlorida lawmakers increased the size of the Florida HurricaneCatastrophe Fund in January, one intent was to "create a largefunnel" for the federal government to "pour money into." (See NUOnline News Service, May 16.)

Holborn's white paper is not the first to estimate the dollarimpact of a 1-in-250-year event on Floridians. Last month,Milliman, in a report commissioned by the Property CasualtyInsurers Association, put a $69 billion price tag on such a storm,also attaching a $26 billion figure to a 1-in-25-year storm.

According to Holborn, its estimate of $53 billion in assessmentsequates to about $3,000, or one month's average take-home pay, forevery person in the state.

Breaking down the $53 billion figure, Mr. Kneuer estimated:

o $23 billion in assessments from total limits losses to theFlorida Hurricane Catastrophe Fund.

o $25 billion in assessments to shore up the operating deficitat Citizens.

o At least $5 billion in guaranty fund assessments, assumingthat a 1-in-250-year storm would bankrupt all "limitedapportionment companies"--small companies that write the majorityof their business in Florida.

The $23 billion estimate for the Cat Fund exposure, heexplained, includes exposure to a $12 billion layer of coveragethat--as a result of the insurance reforms signed into law inJanuary--sits above an existing $15.9 billion layer.

The Cat Fund's ability to pay claims is backed by state bondingauthority. The bonds, in turn, are serviced by policyholderassessments collected by voluntary carriers for most lines ofinsurance, including auto, at a maximum rate of 10 percent,according to the white paper.

Mr. Kneuer noted Citizens' market shares presented in the reportand used to calculate Citizens' portion of a $147 billion1-in-250-year loss are conservative. The 31 percent share figurefor 2007, for example, is based on an assumption that exposures inthe voluntary market "won't grow." But they're likely to shrink, hesaid.

"We've seen USAA say they expect to lose 10 percent. [And] ourmedium-sized clients that dabble in Florida all have verydeliberate shrinkage strategies," he said.

"We visited a homeowners company yesterday that is getting ridof half its Florida volume," he reported.

Mr. Kneuer detailed some alternative assumptions for definingthe overall market that could easily put Citizens' share at 40percent by the end of the year, driving the assessment calculationeven higher.

The 46-page white paper, which describes the prior law, thisyear's law changes and provides maps showing exposures to hurricanewind speeds along the Southeast coast, as well as populationdensity, will be available soon on the broker's Web site atwww.holborn.com.