The state board that oversees the fund designed to pay homeowner claims in the event of a catastrophic hurricane searched this week for ways to reduce its risk with hurricane season only months away.
The Board of Administration, comprised of Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, sifted through several presentations aimed at reducing its liability if a major storm or several small destructive ones hit Florida this year. The hurricane season runs between June 1 and Nov. 30.
The three officials agreed that the state depends too heavily on the Florida Hurricane Catastrophe Fund, commonly called the “cat” fund. The catastrophe fund sells backup coverage to private insurers who can tap it when they don’t have enough money on hand to pay all their claims. When the fund comes up short, assessments are tacked on to other premiums.
“There’s no single bullet here,” Sink said, adding that new insurers moving into the Florida market need to be encouraged to make investments.
“This exposure is ugly and too much in my opinion,” she added. “The only person who has liquidity is the federal government.”
She said if AIG, the banks and car manufacturers can be bailed out, so can Florida.
“Why not $20 billion to help Florida get over a hump if we get in a situation where there is not ready cash available,” Sink said.
John Forney of Raymond James and Associates, a private adviser to the fund managers the past decade, said there is a 6 percent chance that a storm as big or larger than Hurricane Andrew in 1992 or Hurricane Katrina in 2005 would hit, potentially leaving Florida billions of dollars short of being able to quickly pay claims.
“Floridians aren’t going to like it if we have a one in 100 year storm when they see what kind of assessments will be tacked on their insurance bills,” Sink said.
In the short term, the state may once again look for investors to share in their risk.
Florida paid $224 million to Warren Buffet’s Berkshire Hathaway Inc. last year for a guarantee that the state could borrow up to $4 billion if needed to help cover losses by its emergency hurricane insurance fund. This year the cost would likely be considerably more.
“None of these products are going to be cheap,” Sink said. “(And) this year’s the market’s a lot tougher.”
And more expensive.
“It could be twice the cost,” said Jack Nicholson, who manages the catastrophe fund. “We will turn every stone over.”
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