WFSU News
by Lynn Hatter
June 1, 2011
TALLAHASSEE, FL (wfsu) – This week marks the start of hurricane season and as Floridians make the dash to the nearest store to stock up on essentials like canned foods, water and tarps, the state has been prepping too. Florida’s property insurer has been increasing its on-hand cash and the reserve fund has more money in it now than ever, but as Lynn Hatter reports, all that money may not be enough if the “big one” hits.
Back in 2004 and 2005, when the state suffered through eight hurricanes, Citizens Property Insurance was still relatively small, and there were plenty of other companies in Florida to absorb the damage that year. Citizens Chief Financial Officer Sharon Binnun, says a lot has changed since then.
“Citizens share was just over 6-billion dollars. So Citizens back, five years ago, had far less resources readily available to it. It also didn’t have as much developed infrastructure with respect to corporate governance, claims adjustment and deployment resources.”
Since that time, other insurers have left the state, causing Citizens to go from the insurer of last resort to the insurer of first and in some places, only, choice. And as a result, the company has had to boost the amount of money it has on hand.
“Citizens has between all of its resources, in excess of 15-billion dollars that would be available to pay claims. And the most extreme event could be losses in excess of that dollar amount, but those are resources that we have readily available. So we feel comfortable that we have adequate resources and that we can issue checks so people can repair their properties.”
Part of that 15-billion dollars is coming from the Florida Hurricane Catastrophe Fund. It’s the re-insurer in case losses from potential hurricanes lead companies to run out of money. The CAT fund is sitting on about 7.25-billion in cash to pay claims. Its administrator, Jack Nicholson, says the jury is still out on whether that’s actually enough money.
“I think we’re doing fair. I’m not going to say good or excellent at this point, because what’s going on with Wall Street, things can change pretty quickly. So, today, we’re in good shape, but if we had a hurricane loss this season, we would more than likely not have to issue any debt for 6-9 months down the road, and it’s hard to predict that far down the road what the financial markets will be.”
The CAT fund can borrow up to another 12-billion in case it runs out of cash, but what it gets depends on how the markets are faring. Meanwhile, the state does have a limit on the amount of damage: the magic number is 15-billion dollars.
“If you were looking at a number, like large a storm we have to have before the CAT fund triggers? It’s about 7.4-billion. How large a storm we need to wipe out the cash balance? That would be about a 15-billion dollar storm, and the probability of that occurring is 5.4-percent. And wiping out the CAT fund is about two – percent.”
The last big hurricanes were in 2004 and 2005, with Francis, Charlie, Ivan and Wilma. Together, they did more than 30-billion dollars in property damage. Right now most people in the state are still paying for those claims in the form of assessments on other insurance policies, which will continue until 2016. And if another hurricane hits and both Citizens and the CAT fund have to borrow more money, those assessments could rise by another 10-percent.
