Florida Insurance Council
News Release
May 2, 2008

Contact:  Sam Miller, 850-386-6668 ext 223;
              Gary Landry 850-386-6668 ext 234
FOR IMMEDIATE RELEASE

TALLAHASSEE, FL--Florida lawmakers failed to adequately address the claims-paying ability of the Florida Hurricane Catastrophe Fund (FHCF) leaving open the real possibility that property owners will be unable to receive payment for claims if the state is hit by a major hurricane or series of smaller storms this season.

The Cat Fund is obligated to raise up to $28 billion and financial experts who manage the fund warned lawmakers prior to the legislative session that the current instability in the bond market makes it unlikely the state would be able to sell that level of bonds or “even come close to it.”  

If the Cat Fund cannot sell bonds to meets its financial obligations, the claims-paying ability of Citizens Property Insurance Corporation with its roughly 1.2 million policyholders, would be placed in serious jeopardy.  It is possible some Citizens claims would go unpaid altogether.  Not only that, but the timely paying of claims from private companies would also be jeopardized as private companies are dependent upon the Cat Fund after they were mandated last year to purchase reinsurance from the state-backed Cat Fund.

The Legislature refused to pass a partial solution-an idea put forth by Florida Chief Financial Officer Alex Sink who recommended a 25 percent in the Cat Fund’s liability.  She readily acknowledged that doing so would have translated into a two-to three percent premium increase, essentially killing the idea as politically unworkable in an election year.

Similarly, the Legislature that readily acknowledged that Citizens went bankrupt following the 2004 and 2005 seasons because the government-run insurer was charging inadequate rates during those years, refused to budge from the politically expedient position of keeping Citizens rates frozen at the inadequate 2005 premium level.  Financial experts calculated that Citizens could have collected about $150 million more than it has over the past two to three years if the Legislature had not frozen rates.   “That’s $150 million in claims-paying capacity that the government insurer could have had but does not have,” said Sam Miller, Executive Vice President of the Florida Insurance Council.

“In turn,” he said, “we could have placed $150 million less stress on the Cat Fund if rates had not been artificially frozen.”

The bleak financial outlook regarding the state’s liability in the event of a storm is well documented.  Both the House and the Senate heard presentations from Citizens and their financial consultants. House Insurance Committee Chairman Don Brown, R-DeFuniak Springs scheduled a six-hour meeting in which he placed Citizens’ officials under oath, to detail the prospect of Citizens and the Florida Hurricane Catastrophe Fund being unable to pay claims should a moderate to severe storm or series of storms strike Florida.

In similar presentations before the Senate Banking and Insurance Committee, Citizens officials and their actuaries said that in a 100-year PML event, Citizens would face claims of $24 billion and the Cat Fund would be expected to generate its total capacity of $28 billion. They reported that Citizens alone would qualify for $12 billion of the $28 billion.  Citizens’ Chief Financial Officer, Sharon Binnun said Citizens has $10.5 billion in claims-paying capacity, however about half of that is “borrowed money,” and the ability of Citizens to borrow all of the money it would need to meet its obligations is largely dependent on the Cat Fund being able to sell unprecedented levels of bonds.  

The Florida Insurance Council has a White Paper on the issue.  It can be found at this link:  http://www.flains.org/content/view/1573/51/.