For the third time in 15 months, Florida property insurers are being told to belly up to the bar and pay another Florida Insurance Guaranty Fund (FIGA) assessment to clear up the claims left behind by the failure of the Poe Financial Group. And while the two percent FIGA assessment may not sound like much, when it's tacked on to the six other assessments levied since 2004 by FIGA, Citizens Property Insurance Corporation, and the Florida Hurricane Catastrophe Fund, it represents just how heavy the financial burden is being borne on the backs of Florida policyholders.

Insurance Commissioner Kevin McCarty recently approved the assessment that calls for all member carriers–in the “all other lines” category–to forward to FIGA two percent of their 2006 net direct written premiums, less dividends paid to policyholders. The money is due from carriers as of November 30, 2007. Homeowners and other insureds will see the latest FIGA assessment when it is tacked onto next year's policies when they begin renewing around March. FIGA was established by the legislature in 1970 to pay claims 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 has reserves 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 the property damage was from the eight hurricanes that pounded nearly every corner of the state in 2004 and 2005. It also comes at a time when the political climate has reached a boiling point as Governor Charlie Crist, McCarty, and the legislature has declared a virtual war on the industry.

Many Floridians are still complaining that they want relief from skyrocketing homeowners' insurance rates and property taxes, an argument fueled by the fact that the state hasn't seen a hurricane in two years. But the new FIGA assessment is a perfect example of what happens when short memories encounter the state's policy of deferring losses until tomorrow in order to have more moderate rates today.

Both Citizens and the Cat Fund currently have multi-year assessments in place. Citizens has a 3.5 percent surcharge that drops to 2.07 percent next year, but will remain in effect until 2016. The Cat Fund has a one percent assessment that will stay in effect until 2012. The currently approved FIGA assessment marks the third in two years to help retire the outstanding claims from Poe, and its three subsidiary companies, and the Vanguard Fire and Casualty Company.

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

Poe's Fall

The story of Poe Financial is a case study in both the opportunities and risks that carriers face if they are willing to write homeowners' insurance in the state. Poe has the distinction of being the largest insurance failure in the state, but Poe wasn't just another insurer.

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

By the time regulators moved to liquidate the company in June 2006, it had over 320,000 policyholders, the overwhelming majority of which had been assumed by Citizens and its forerunner the Florida Residential Property and Casualty Insurance Company. Poe subsidiary Southern Family Ins. Co., primarily wrote commercial residential and personal residential coverage, representing roughly 43,000 policyholders. Atlantic Preferred Ins. Co., and Florida Preferred Ins. Co., provided coverage to around 280,000 homeowners and condominium unit owners. The company, however, had one great Achilles' heel, 85 percent of its policyholders were located in Miami-Dade, Broward, and Palm Beach counties.

The Florida Department of Financial Services moved to liquidate Poe after it couldn't pay its claims following the 2004-2005 hurricane 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 regulators reviewed all the records, they discovered that the Poe's three companies left behind some $1.4 billion in unpaid claims owed to some 43,000 policyholders.

FIGA raised $450 million through assessments last year and recovered some $650 million in additional funds from Poe. At that point, the FIGA board estimated it would need around $500 million to retire all other debits. But that has proved to not be the case. The latest assessment is expected to raise $315 million, $50 million 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 last resort, will be hit with the FIGA assessment this time because the legislature removed their exemption from such assessments as part of the insurance reforms passed in January. As the state's largest property insurer, Citizens will pay the lion's share of the FIGA assesment–about $50 million. But Citizens spokesman Rocky Scott doesn't expect it to have a major impact on the insurer or its policyholders who will bear the brunt of it. “It won't impact our bottom line,” Scott said.

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

Ironically, even though it's been two years since Hurricane Wilma left a swath of damage through the state, new and supplemental claims for more money from former Poe homeowners in South Florida continue to come in at the rate of 50 to 100 a week.

FIGA Executive Director Sandra Robinson said the association has received more than 4,000 Poe-related claims since the beginning of the year, for a total of 43,000 claims. She attributed the continuing influx of claims primarily to the aggressive solicitation of homeowners by public adjusters in South Florida. In some cases, she said, homeowners are just now reporting damage from Wilma. “It's surprising it takes two years to discover hurricane damage,” she said.

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