The storms that hit Florida in 2005 keep taking their toll.
Gov. Charlie Crist and the two other state officials who oversee the Florida Hurricane Catastrophe Fund (Cat Fund) voted in April to issue up to $710 million in bonds to bolster the finances of the state-created reinsurance fund. The money will be used to pay off claims associated with storms such as 2005′s Hurricane Wilma.
However, those bonds will be paid back with an increase in a Cat Fund assessment already found on most insurance bills in the state, including auto insurance bills. The assessment will cost policyholders an estimated $18 more a year starting next January and will remain on insurance bills until 2016. Policyholders already pay about $60 a year in Cat Fund assessments.
The Cat Fund has been forced to borrow more money because it is running out of funds to pay insurers for claims related to past storms. Jack Nicholson, chief executive officer for the reinsurance fund, said he anticipates that the $710 million should be enough to deal with all outstanding claims. "We think we've got a pretty good handle on it," said Nicholson. "I think it's fairly conservative."
Fraud Concerns Addressed
The April vote to move ahead with the bonds did not come without some consternation from Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink. The three elected officials who sit on the board that controls the Cat Fund had initially balked at issuing the bonds back in February. Both Crist and McCollum had expressed concerns that the fund was paying off claims to insurers that may not be legitimate.
Ash Williams, the executive director of the state agency that deals with bonds and investments for the state, was forced to give a presentation that asserted that the number of actual incidents of fraud in claims is low. Instead, he blamed the continued losses on such items as damages for partial losses resulting in payment for total losses.
State officials backed legislation this year that would sunset claims earlier and would attempt to place more regulation on public adjusters who some insurers contend have led to continued claims from Wilma.
"Best Financial Position" Ever
Crist and the other members of the Florida Cabinet were also given a presentation on the state of Citizens Property Insurance Corp. at their April meeting. While state lawmakers continue to fret over the status of the finances of the state's largest property insurer, Citizens' officials instead talked about how well the company is doing.
"Citizens is in the very best financial position it has ever been," said Citizens' CFO Sharon Binnun. "Things are moving in the right direction."
The upbeat assessment from Citizens was based on the fact that the state's largest insurer has finally been able to build surplus thanks to the last four hurricane-free years and also allowed to raise rates.
According to a report in mid-April, Citizens has 1,051,373 policies in force and a total exposure of $405 billion. Of those million-plus policies, 998,686 are personal residential; the remainder are commercial residential and commercial non-residential. It has approximately $11 billion in cash and assets, $4 billion of surplus, and an estimated 2010 claims paying ability of more than $14 billion.
Binnun said that when "you put everything together" Citizens is "very comfortable" that it would be able to meet its obligations in cause of a catastrophic event. Citizens' officials are also happy about a recent bond sale where the company was able to secure $2 million in pre-event bonds and had its financial outlook upgraded by one of the bond rating agencies.
Assessments Still a Threat
Binnun noted that Citizens paid out $6.2 billion in claims (before getting reimbursed by reinsurance accounts) for all of the eight storms during the 2004 and 2005 hurricane seasons. However, an analysis by Citizens showed the need for emergency assessments on most insurance policies if Florida were hit by a storm the size of Hurricane Andrew.
Agriculture Commissioner Charles Bronson — who had asked for the presentation from Citizens — said he agreed that Citizens was needed or people would be in "real trouble" because they could not afford property insurance.
However, Bronson insisted that Floridians may not realize that state government helped bail out Citizens back in 2006 with more than $700 million in aid. He also said that while many residents may be aware of the 1.4 percent assessment now on their bills, they may not know that if anything happens in the future their overall insurance bills will go up.
"I don't think the general public is aware of it," said Bronson.
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