NU Online News Service, Aug. 25, 3:22 p.m.EDT

On the 17^th anniversary of Hurricane Andrew, aFlorida insurers association produced an appraisal of the conditionof the state's catastrophe insurance market.

They Florida Insurance Council released its material yesterdayafter Tropical Storm Claudette made landfall in less than 24 hourstaking many people living in the Florida panhandle by surprise overthe previous weekend.

Focusing on the state's marketplace, the FIC noted the FloridaCatastrophe Fund has closed its potential shortfall gap fromearlier this year by more than $11 billion through a combination ofless insurers purchasing optional reinsurance through the plan andan increase in bonding capacity.

The FIC explained that the program is split into two layers. Thefirst layer is the mandatory program all insurers must buy intothat amounts to $17.2 billion. The second layer, the optionalreinsurance layer called the Temporary Increase in Coverage Limit(TICL), totals $5.6 billion.

What this translates into, the organization said, is a potentialshortfall of more than $7 billion for the overall program. Of that$7 billion, $1.2 billion falls to the mandatory program, while theremainder covers the TICL.

The state's property insurer of last resort, Citizens PropertyInsurance, was the primary purchaser of TICL for a total of $3.6billion. An additional 73 companies purchased the coverage, downfrom 133 last year, according to a report from the State Board ofAdministration. Total TICL capacity declined by $2 billion to $10billion by legislation, as the state seeks to eventually close theprogram.

The Florida Hurricane Catastrophe Fund Chief Operating OfficerJack Nicholson explained to National Underwriter that thecurrent estimated shortfall is based on a maximum loss of more than$23 billion, calculated to be a 1-in-49 year storm loss.

FIC's review noted that despite three years of being spared amajor hurricane the state remains the most prone to tropicalcyclone events.

"The history of hurricanes shows clearly this lucky streakcannot continue," the FIC said.

Historically, a major hurricane of Category 3 or higher strikesthe state every four years on average and 37 percent of allhurricanes make landfall on the state.

Mr. Nicholson said the mandatory limit of $17.2 billion that allinsurers buy into amounts to a 1-in-30 year loss.

The TICL, he noted, is not guaranteed and insurers buying thecoverage could end up not getting paid if not enough funds areavailable, he noted.

"They went into it with eyes open," he remarked.

However, all of that could change as bond markets continue toimprove, which they did from January to June, allowing the Cat fundto raise its bonding power from $3 billion to $8 billion.

The FIC report also notes that Citizens Property Insurance saysit has $16 billion in claims-paying ability through a combinationof surplus, reinsurance, pre-event bonding and lines of credit.