Disaster fund might dry up

Sentinel Staff Writer

Even though it will reimburse insurance companies an estimated $1 billion for their losses from Hurricane Charley, the Florida Hurricane Catastrophe Fund should have no trouble covering whatever claims arise from Hurricane Frances, industry and state officials said Thursday.

But that good news comes with a caveat: If the devastation from Frances lives up to many experts' expectations, the state's 10-year-old "Cat Fund" not only will be sucked dry of its remaining $5 billion in cash, it will have to issue bonds to raise as much as $9 billion to replenish its kitty.

If that happens, the tax-exempt bonds will be financed with special assessments on all Floridians' property and casualty insurance policies, with the exception of workers' compensation and medical malpractice plans.

Such assessments would amount to about 2 percent of a policyholder's insurance premium and would continue annually for anywhere from three to 30 years, said Jack Nicholson, president of the Florida Catastrophe Fund Finance Corp.

That's not the only special assessment that could await Florida homeowners, particularly if Hurricane Frances roars through South Florida.

The state-run Citizens Property Insurance Corp., insurer of last resort for Floridians with high-risk properties, estimates its losses from Charley at about $925 million. Citizens can cover that amount with its cash on hand, but if Frances results in a "significant hit" to Dade, Broward or Palm Beach counties -- where the bulk of Citizens' policies are written -- policyholders statewide will have to chip in to keep the company afloat, said Bob Lotane, spokesman for Florida's Office of Insurance Regulation.

Unlike the Cat Fund assessment, the Citizens assessment would apply only to residential and commercial property insurance. Lotane would not speculate on how much such assessments would be, but Sam Miller, spokesman for the Florida Insurance Council, an industry group, doubted it would be higher than the 2 percent Cat Fund assessment.

Both the Cat Fund and Citizens were established after Hurricane Andrew devastated South Florida in 1992. The costliest natural disaster in U.S. history, it resulted in more than $15 billion in insured losses. A number of insurance companies went belly-up after Andrew, and a number of others threatened to pull out of Florida if the state didn't do something to help the industry handle such disasters. The Cat Fund is designed to protect insurance companies from catastrophic losses such as those inflicted by Andrew. Citizens provides insurance for property owners in hurricane-prone areas when conventional insurers won't provide coverage.

Miller said the two programs have made it possible for the insurance industry to remain effective despite having to deal with two major hurricanes less than a month apart. No other state could do that, he said. "Then again, no other state had Hurricane Andrew to force it to take these steps," he added.

Miller cautioned that any discussion of policyholder assessments arising from Charley and Frances was speculative at this point and based on worst-case scenarios.

"We can handle at least another couple of Charleys. We still have billions and billions [of dollars] in the system," he said.

Even with the prospect of two Category 4 hurricanes hitting the same state within the span of 22 days, Miller said, "all [insurance] claims will be paid."

Harry Wessel can be reached at hwessel@orlandosentinel.com or 407-420-5506.

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