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Fay unlikely to cause havoc with insurance

By Tom Zucco, Times Staff Writer
In print: Tuesday, August 19, 2008

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It's all about the trigger.

How much storm damage can Florida take before the state has to start tacking additional charges to everyone's insurance bill? It happened twice before, after eight hurricanes raked the state in 2004-05, and we're still paying for those.

But officials from the Florida Hurricane Catastrophe Fund (or CAT Fund) and Citizens Property Insurance, the two state entities most likely to need assessments, say Tropical Storm Fay shouldn't come close to triggering an assessment if it stays south of Tampa Bay.

The CAT Fund, which provides backup coverage to most insurance companies in the state, can take losses of about $10.5-billion before it would have to begin assessments.

And Citizens, the largest property insurer in the state, could take losses up to $1.425-billion in its coastal account and $7.1-billion in its personal lines and commercial accounts before it would begin assessments on its own policyholders. Losses would have to top $9.9-billion before the insurer would have to assess policyholders outside of Citizens.

It's not likely any of those three events will occur.

"When I see a storm like this, my first reaction is it (Fay) wouldn't trigger assessments unless it goes right through Tampa Bay as a Category 2," said CAT Fund director Jack Nicholson. "Unless there's a direct hit."

That happened in 2005, when hurricanes Dennis, Katrina and Wilma struck Florida and caused about $10.3-billion worth of insured losses. The CAT Fund showed a deficit of about $625-million, and to make up the shortfall, the fund had to assess all Florida policyholders 1 percent of their premium through 2012.

Like insurance companies, the CAT Fund depends on investments to maintain and build the reserves it will need to help pay future claims. But with the recent contraction in the financial markets, that has not been easy.

"We've really never been stronger in terms of cash," Nicholson said, "but we've never been weaker in terms of our access to the financial markets."

Still, what worries Nicholson most is the next large event. "That's where the real questions come in."