Start of Hurricane Season Causes Insurance Worries in Florida
At the beginning of this year’s hurricane season, Florida’s state run insurance program is in a stronger position to pay damage claims than in previous years because of six consecutive years without a major storm and because of the high demand for catastrophe bonds among investors. Some Florida officials express concerns that even one highly destructive hurricane could undermine the unusual program and deepen the state’s current economic slump, although forecasters predict another season with lower than average storm activity.
Since Hurricane Andrew swept through the state in 1992, officials have been attempting to restrain increases in insurance costs as private insurers withdraw from the market. Florida’s two large state-run insurers (Florida Citizens and the Florida Hurricane Catastrophe Fund) could have to sell billions of dollars in bonds after a storm, bonds that would be paid off through assessments on property casualty policyholders of all the insurers operating in the state and on many types of insurance.
Critics say that a massive bond sale cannot be depended on since market conditions could change. Sam Miller, executive vice president of the Florida Insurance Council, said that only an unusually destructive storm could interfere with a major bond sale. If such a bond sale was unsuccessful, some insurers could fail. Forecasters at the Colorado State University predict 13 tropical storms, five hurricanes and two major storms for the hurricane season that began June 1.
Florida Worry Season Starts (Wall Street Journal 6/4/12)