For the third time in 15 months, Florida property insurers arebeing told to belly up to the bar and pay another Florida InsuranceGuaranty Fund (FIGA) assessment to clear up the claims left behindby the failure of the Poe Financial Group. And while the twopercent FIGA assessment may not sound like much, when it's tackedon to the six other assessments levied since 2004 by FIGA, CitizensProperty Insurance Corporation, and the Florida HurricaneCatastrophe Fund, it represents just how heavy the financial burdenis being borne on the backs of Florida policyholders.

Insurance Commissioner Kevin McCarty recently approved theassessment that calls for all member carriers–in the “all otherlines” category–to forward to FIGA two percent of their 2006 netdirect written premiums, less dividends paid to policyholders. Themoney is due from carriers as of November 30, 2007. Homeowners andother insureds will see the latest FIGA assessment when it istacked onto next year's policies when they begin renewing aroundMarch. FIGA was established by the legislature in 1970 to payclaims for insolvent insurers and those ordered into liquidation.Currently, the association is overseeing 31 bankrupt carriers,representing some 3,300 open claims. The association also hasreserves of about $162 million.

Filling the Coffers

The new FIGA surcharge, which will add $20 dollars to every$1,000 in premium, serves as a reminder of just how extensive theproperty damage was from the eight hurricanes that pounded nearlyevery corner of the state in 2004 and 2005. It also comes at a timewhen the political climate has reached a boiling point as GovernorCharlie Crist, McCarty, and the legislature has declared a virtualwar on the industry.

Many Floridians are still complaining that they want relief fromskyrocketing homeowners' insurance rates and property taxes, anargument fueled by the fact that the state hasn't seen a hurricanein two years. But the new FIGA assessment is a perfect example ofwhat happens when short memories encounter the state's policy ofdeferring losses until tomorrow in order to have more moderaterates today.

Both Citizens and the Cat Fund currently have multi-yearassessments in place. Citizens has a 3.5 percent surcharge thatdrops to 2.07 percent next year, but will remain in effect until2016. The Cat Fund has a one percent assessment that will stay ineffect until 2012. The currently approved FIGA assessment marks thethird in two years to help retire the outstanding claims from Poe,and its three subsidiary companies, and the Vanguard Fire andCasualty Company.

“You have to add up all the recent assessments to put this onein perspective,” said Scott Johnson, executive vice president ofthe Florida Association of Insurance Agents. Together, all theassessments are reaching upwards of double-digits, and that's ontop of the rate increases carriers have passed on to policyholdersover the last couple of years. In some parts of the state,policyholders are in danger of seeing assessments rival the rise intheir homeowners' premiums.

Poe's Fall

The story of Poe Financial is a case study in both theopportunities and risks that carriers face if they are willing towrite homeowners' insurance in the state. Poe has the distinctionof being the largest insurance failure in the state, but Poe wasn'tjust another insurer.

Founded by former Tampa mayor Bill Poe in 1996, the insurer washeld up by regulators and lawmakers as a model company that heldthe key to depopulating Citizens, and for several years that provedto be the case. The carrier removed tens of thousands of policies,which, at that time, were eligible for take-out bonuses after beinginsured for three consecutive years. But the carrier's financialgamble failed to pay off.

By the time regulators moved to liquidate the company in June2006, it had over 320,000 policyholders, the overwhelming majorityof which had been assumed by Citizens and its forerunner theFlorida Residential Property and Casualty Insurance Company. Poesubsidiary Southern Family Ins. Co., primarily wrote commercialresidential and personal residential coverage, representing roughly43,000 policyholders. Atlantic Preferred Ins. Co., and FloridaPreferred Ins. Co., provided coverage to around 280,000 homeownersand condominium unit owners. The company, however, had one greatAchilles' heel, 85 percent of its policyholders were located inMiami-Dade, Broward, and Palm Beach counties.

The Florida Department of Financial Services moved to liquidatePoe after it couldn't pay its claims following the 2004-2005hurricane season. Poe paid out more than $2.6 billion in claims,and after reinsurance costs, the company's net loss was$369-million for the eight storms. However, by the time regulatorsreviewed all the records, they discovered that the Poe's threecompanies left behind some $1.4 billion in unpaid claims owed tosome 43,000 policyholders.

FIGA raised $450 million through assessments last year andrecovered some $650 million in additional funds from Poe. At thatpoint, the FIGA board estimated it would need around $500 millionto retire all other debits. But that has proved to not be the case.The latest assessment is expected to raise $315 million, $50million of which is being set aside to pay claims from Vanguard,which was liquidated by regulators last year.

Policyholders of Citizens, the state-sponsored insurer of lastresort, will be hit with the FIGA assessment this time because thelegislature removed their exemption from such assessments as partof the insurance reforms passed in January. As the state's largestproperty insurer, Citizens will pay the lion's share of the FIGAassesment–about $50 million. But Citizens spokesman Rocky Scottdoesn't expect it to have a major impact on the insurer or itspolicyholders who will bear the brunt of it. “It won't impact ourbottom line,” Scott said.

“We always thought another FIGA assessment was a possibility,”said Sam Miller, spokesman for the Florida Insurance Council, whichrepresents Florida's largest insurers. “It's not a good sign, butinsurers need to pay for others that go under,” he said. “Alltogether, these many assessments add up, but that's part of doingbusiness in Florida.”

Ironically, even though it's been two years since HurricaneWilma left a swath of damage through the state, new andsupplemental claims for more money from former Poe homeowners inSouth Florida continue to come in at the rate of 50 to 100 aweek.

FIGA Executive Director Sandra Robinson said the association hasreceived more than 4,000 Poe-related claims since the beginning ofthe year, for a total of 43,000 claims. She attributed thecontinuing influx of claims primarily to the aggressivesolicitation of homeowners by public adjusters in South Florida. Insome cases, she said, homeowners are just now reporting damage fromWilma. “It's surprising it takes two years to discover hurricanedamage,” she said.