THe Shreveport Times and KATC-TV are reporting that Louisiana’s homeowners insurer of last resort is facing $1.2 billion in claims. To cover the losses, they’re planning to issue $800-$900 million in bonds (to be repaid by assessments to insurers, passed along to homeowners insureds in the form of up to a 20% rate hike), in addition to a $200 million traditional assessment.
Because they are government-sponsored entities, entities like the LCPI don’t always have to carry the surplus required of private insurers, with the arguable benefit that they don’t have to attract private capital (thereby necessitating profit and risk loadings required by private investors). The downside is when something big happens (like Katrina)…the money to pay the claims has to come from somewhere….