With a four-year reprieve from hurricanes, the Florida insurance industry enters the 2010 hurricane season with its claims paying mechanisms in a much-improved condition from the past few years. However, the "extremely active" hurricane season predicted by the National Oceanic and Atmospheric Administration (NOAA) could quickly reverse that situation. "Insurers are still paying out in losses more than they're taking in," said Sam Miller, executive vice president of the Florida Insurance Council, Florida's largest non-for-profit trade association representing some 200 insurance companies and insurer groups writing business in the state. "Private companies as well as the state-run Citizens Property Insurance Corporation, have all encountered unprecedented numbers of new and re-opened claims stemming from the 2004 and 2005 hurricane seasons, and those new claims are eating away at funds that should be in reserve for future hurricane seasons. Because of this and other factors, reserves that should have been building over the past four years are far less than they should be," Miller said. Fortunately, however, other components of the industry's claims-paying readiness have much improved. When taken together, all of the components that ensure timely payment of claims have readied private insurers and Citizens for the six-month hurricane season that officially begins Tuesday June 1 and runs through November 30. One of the major claims-paying components that has shown marked improvement is the Florida Hurricane Catastrophe Fund (Cat Fund). Unlike the previous couple of hurricane seasons, the Cat Fund is fully financed, able to meet its financial obligations to insurers should a major storm or series of storms strike the state. That is a drastic improvement from the 2009 hurricane season when the fund was some $4 to $5 billion short of its financial obligations; even more so over late 2008, when a shortfall of up to $19 billion was identified by the Senate Banking & Insurance Committee. Luckily, Florida was spared from hurricanes and the shortfalls never materialized. With improved bond markets, a lower Cat Fund capacity–the 2009 Florida Legislature enacted legislation to reduce the capacity of the Cat Fund by $2 billion a year for five years–and no hurricanes which allowed for further cash build-up, the Cat Fund is fully financed. Citizens also reported recently that the lack of storms and improved bond markets have left the government-run insurer in relatively good financial condition. Some $4 billion in accumulated surplus and an estimated 2010 claims-paying capacity of over $14 billion has Citizens in its best financial condition ever. In addition, the combined PLA/CLA accounts require no pre-event liquidity for the first time in Citizens' history The important fact to remember, said Miller, is that, "We can't simply prepare for one major hurricane or one serious hurricane season, either of which could wipe out all of the reserves of the Cat Fund and insurers. We must also be prepared for next hurricane season and those that follow. There is no guarantee of another four-year reprieve from storm activity that would allow the Cat Fund and private companies to build new reserves. We have to ensure companies have the financial wherewithal to meet a current catastrophe with enough reserve to be ready for the next which is sure to come. Also important to consider is that the Cat Fund and Citizens operate on a balance between pre-event funding primarily through insurance premiums and after the hurricane financing – debt incurred through bonding on the New York financial markets and retired in the coming decades through assessments on all homeowners, business owners, charities who purchase insurance and motorists and truckers through their motor vehicle insurance. "Florida policy makers constantly review this balance to determine that it is appropriate," Miller said. "It should be tilted toward adequate rates and pre-event financing and away from debt and statewide assessments after a major hurricane as much as possible."