The potential for shortfall assessments levied by the Florida Hurricane Catastrophe Fund and Florida's Citizens Property Insurance Corp. are estimated this year at the lowest levels since at least 2008, according to a report by the state's Financial Services Commission.The reduced assessment potential is the result of a dearth of major hurricane losses in Florida in the past seven years, the report said. That means Citizens and the FHCF have built up cash reserves and surplus to pay claims.
"Nonetheless, both would need to rely on their various assessment and/or post-event bonding capabilities to pay claims if ... storms of sufficient size impacted Florida," the report said.
Citizens has an estimated 2013 year-end policyholder surplus of $6.3 billion, which is up from its 2012 year-end surplus of $6 billion and up from a statutory surplus of $5.1 billion in 2010, according to Citizens information. The FHCF has a projected 2013 year-end balance of $9.9 billion, up from a 2007 year-end balance of $2.1 billion, according to the Financial Services Commission.
This year's FHCF assessable shortfall is pegged at $7.2 billion for 50-, 100- and 250-year probable maximum loss, which is down from the 2008 figures of $25.8 billion for 100- and 250-year PMLs and $21.4 billion for a 50-year PML. Citizens figures have also decreased from 2008, with the 250-year PML dropping 42.3% to $16.8 billion; the 100-year PML dropping 61.5% to $4.1 billion; and the 50-year PML dropping 97% to $46 million.
"As long as there is a potential shortfall in the cat fund, the cat fund needs to be examined," said Sam Miller, executive vice president of the Florida Insurance Council. "And certainly as long as Citizens is an insurer of choice instead of last resort and has any potential for assessments at all, it is not where it needs to be."
Turning to financial markets after a catastrophe might not be a viable option, the report noted. The FHCF and Citizens might have trouble completing a post-event bond large enough to cover all its losses because of financial market changes that followed the financial crisis of a few years ago, the report said.
Citizens has been working to secure financing ahead of time in the form of cat bonds. Last year, Citizens sponsored a $750 million cat bond. Citizens is now pursuing a capital markets risk transfer of $250 million, according to board meeting documents.
Florida lawmakers last year considered reforms to the FHCF, but the legislation died in the Senate. For this year's legislative session, resurrection of reforms to the fund don't seem likely, said Michael Carlson, executive director of the Personal Insurance Federation of Florida. He said the Senate doesn't appear to have an appetite for significant reforms and the House has not proposed any significant property legislation this year. "I remained concerned the cat fund could make good on its pledge," Carlson said.
The top five writers of homeowners insurance in 2011 in Florida were: Citizens, with market share of 19.93%; State Farm Group, with 10.78%; Universal Insurance Holdings Group, with 8.34%; Tower Hill Group, with 6.42%; and USAA Group, with 4.6%, according to BestLink.