Florida

Seen in the Orlando Sentinel:

Gov. Charlie Crist and the Florida Cabinet had told the state’s risk managers to find potential buyers for as much as $11 billion in bonds that would be needed to pay claims if the state is racked by a Katrina-sized hurricane.  But with financial markets in tatters, state money managers say they’ve struck out.

"The terms that we are getting are just outrageously expensive," said Jack Nicholson, director of the state’s hurricane catastrophe fund.

Translation: The state now will hope for the best.

[If a massive storm were to strike Tampa or Miami] Florida would have to sell bonds to help insurers pay claims. But with about $8 billion in cash and the expectation the state could sell a maximum of $10 billion in bonds, officials fear a possible $11 billion shortfall.

Mother Nature has responded via the National Hurricane Center thusly:

A STRONG TROPICAL WAVE IS LOCATED OVER THE EXTREME EASTERN ATLANTIC
OCEAN NEAR THE WEST COAST OF AFRICA...AND IS ACCOMPANIED BY A BROAD
AREA OF SHOWERS AND THUNDERSTORMS AND PERHAPS A WEAK SURFACE LOW.
ENVIRONMENTAL CONDITIONS COULD ALLOW FOR SOME SLOW DEVELOPMENT OF
THIS SYSTEM DURING THE NEXT COUPLE OF DAYS AS IT MOVES WESTWARD AT
ABOUT 15 TO 20 MPH.

I know.  It’s not that impressive a tropical outlook…but it’s somewhat ironic that the first hiccup in the Atlantic in about a month would come just as Florida decides to cross its fingers again this year.

It looks like someone’s realized that you can’t just wish away the cost of cat cover.  Seen in an Orlando Sentinel blog:

The Cat Fund could face an $11 billion gap between the cash it has on hand and can raise($18 billion), and what it could have to pay following a major disaster this year ($29 billion). And the only options are for Florida itself to buy re-insurance on the open market, or try to set up tax-exempt bonding agreements in advance that a buyer couldn’t refuse to honor after the storm.

Nicholson says the only way to completely cover all the risk Florida has assumed is to buy reinsurance. But since the state is offering this coverage to private companies at a steal to lower rates, Florida would have to pay out the gazoo if it then turns around and buys the same coverage private carriers would otherwise purchase.

In other words, ensuring the state could pay the entire $12 billion in added risk Crist and Florida lawmakers took on in 2006 could cost taxpayers $1.7 billion this year. All Florida will charge in premium to private carriers for the extra state risk is $250 million.

Now, while I will admit that the insurance and reinsurance markets aren’t always as efficient or logical as we would sometimes like to believe, that doesn’t alleviate the fact that the cost of insuring catastrophe risk really is expensive.  Not only do you have to fund the expected loss, but you also have to acknowledge the need to maintain a large pool of assets on hand to pay claims in the event of disaster.  

The folks who provide that cash, generally would like to see expected income for the use of that cash commensurate with the risk they face.  Unless we suddenly become a communist or wholly altruistic society, that is a cold, hard fact of life.

Seen in the Dothan Eagle:

With the Florida panhandle county of Washington deciding Monday to pass on a proposed toll road, organizers say they will continue with the project and are now focusing on their eastern neighbor, Jackson County. [...]

Washington County held two public meetings about the proposed road, and commissioners faced overflow crowds full of residents concerned about eminent domain, the process through which a government entity can take ownership of private land. Other residents were concerned the limited access road would allow traffic to zip through the county without stopping to patronize local merchants.

The commission voted 3-2 against entering into an agreement with the toll road organizers to bring the road through the county.

The map at left should help illustrate why this is a bit of an inconvenience to connector proponents.

As I understand it (and I should disclaim that I live in Connecticut, am interested because of family ties and roadgeekiness, but might not be getting the full story up here in Yankee-land), the thinking has been that a Dothan/I-10 connector would run a bit to the west of Dothan.   The shortest route from such a point to the beach would run through Washington County.

Failure for connector proponents to secure right of way in the county would mean that the ultimate alignment will be a bit longer than would otherwise be necessary.

Personally, I find the concerns about business drying up in the county a little short-sighted. 

True, today Washington County gets a bit of a tourist traffic flow, from folks taking the “back way” through Enterprise and Bonifay to the beach, and it’s likely that some of those smaller businesses will suffer if traffic is moving through on a tollway.

However, if a new controlled-access highway is going to be built — be it a freeway or a tollway — it stands to reason that much of the traffic now sneaking through Washington County will shift to the new road.

If the new road passes through the county, there’s some opportunity to develop new businesses and services to take advantage of the increased traffic.   But if the road goes elsewhere…so do the development opportunities.

I’m sure that Florida insurance buyers are “happy” to see this news from the Orlando Sentinel:

Floridians will pay an extra $1 on top of every $100 of insurance premium for an additional two years under a plan approved Tuesday by Gov. Charlie Crist and the Cabinet to pay off claims still lingering from the 2005 hurricane season.

Crist and the Cabinet agreed to authorize the sale of as much as $625 million in bonds this summer, mostly to cover costs stemming from Hurricane Wilma, which had been initially expected to do little damage to Florida but ultimately rang up $11 billion in rebuilding costs. Wilma has become one of the state’s costliest storms on record.

Jack Nicholson, manager of the state’s Catastrophic Fund, said there are still 7,819 claims outstanding from Wilma and the state currently has only $187 million to cover these costs.

Let’s see….it’s the Florida model for state underwriting of cat risk that we’re supposed to be emulating through a federal cat reinsurance program, right?

There’s a reason that insurers accumulate such large warchests of capital — so that when disaster strikes, the claims can be paid and the insurer can continue to operate.

If sufficient capital isn’t on hand after disaster…well, it’s going to come from somewhere.

However, this mention of Wilma reminds me that it was an odd storm.  It did far more damage in south Florida than it “should” have.  In particular, I remember the claims files on several of the new, mostly-glass towers on/near the beach, where it almost seemed like either the materials didn’t perform as well as advertised, or someone failed to consider the wind-tunnel effect created by the construction of so many towers.

Also, I remember the claimants being significantly more aggressive than claimants in the 2004 storms, or Katrina and Rita….

Let’s hear it for the free market! Seen at Business Insurance:

Florida property catastrophe reinsurance rates will likely fall by 15% on average during mid-year renewals, according to a report released by Guy Carpenter & Co. L.L.C.  [...]

The sharpest price decreases include 18% to 25% reductions for the higher layers of reinsurance, attaching above the Florida Hurricane Catastrophe Fund, according to the report.

Lower layers of reinsurance, below the FHCF, are declining by 7% to 10%, while private reinsurance layers usually placed alongside the FHCF are decreasing by 12% to 15%, compared with June 1, 2007, renewals, according to the report.

I know that a lot of reinsurance departments at property insurers are looking forward to a bit of relief, given the softer market and a couple of relatively quiet years in North America. (Yes, it’s been a bad tornado season , but such storms don’t generally impact cat reinsurance industrywide.)

I expect that regulators in certain states will also welcome the news that primary insurers will see a little relief.  I do wonder, however, if regulators will remember that it’s difficult to reduce rates when increases requested in part due to increased reinsurance expense weren’t fully granted in the first place.

Seen in the New York Times:

Democratic Party lawyers have determined that no more than half the delegates from Florida and Michigan can be seated at the party’s August convention, dealing a blow to Senator Hillary Rodham Clinton’s efforts to seat the full delegations from those states.[...]

In asking that the full delegations from these states be seated, Mrs. Clinton hopes to narrow Senator Barack Obama’s delegate edge and make the case that by including the votes from these states, she will have more of the popular vote in the nominating contests, an assertion that has come under some dispute. But the legal analysis, based on party rules and contained in a 38-page memo to the committee, says the committee can either seat only 50 percent of the delegates or seat them all but give them only half a vote, which amounts to the same thing.

Letting Michigan and Florida delegates cast half-votes, the same sort of penalty that’s being imposed by the GOP for the states’ decision to have their primaries so ridiculously early, is actually the most sensible compromise in my mind, if only because it’s half way between “the rules are the rules” and the strategic folly of not seating the delegations from two potentially large swing states.

The rules committee is meeting Saturday, and the pundits think a decision will be made that day.  Personally, I think it would be more strategically appropriate to withhold a ruling until late next week — after the final primaries have been held, and undeclared superdelegates have an opportunity to chime in.

The way Obama’s been collecting superdelegates recently, if the rules committee postponed their decision, it’s entirely possible that the outcome of the primary season could be cleanly settled, without having to touch the question of Florida and Michigan.   If that were the case, any decision could be rendered moot, allowing for easier compromise.

With the potential of a 31 May ruling…well, the Dems have a shot at looking more like their nominee is being determined by party bigwigs in the (admittedly semi-transparent) back room….an image the D’s should be shying away from, unless they really are trying to snatch defeat from the jaws of victory.

That “snap” you heard Friday was the worsening of Allstate agents’ whiplash.  From the AP:

Allstate Corp.’s subsidiaries can resume selling new car insurance and other policies in Florida after the insurer turned over documents showing how it sets homeowners rates, the state said Friday.

Insurance Commissioner Kevin McCarty lifted the suspension because he said Allstate has handed in documents that regulators demanded along with an affidavit that all the information sought was included.

Hopefully, with Tallahassee reportedly satisfied, this act of the drama should be resolved…for now at least.

Meanwhile…just six weeks remain until the start of Atlantic storm season ‘08.

In the wake of the vigor the Clinton political machine has been putting into Hillary’s campaign since Indiana, I’ve been wondering “why”?    I’ve seen various pundits talking about different scenarios in which Hillary could stage a come-from-behind coup…but I haven’t yet seen a nice, clean description of how it might occur.

So, borrowing data from RealClearPolitics, RedState (which I might frequently disagree with, but their projections on the remaining primaries pass the sniff test), and Wikipedia, I’ve put together the following table:

Read the rest of this page →

Seen on the newswires:

A Florida court Wednesday reaffirmed the state’s ban on Allstate Corp. issuing new insurance policies in the state and denied the insurer a rehearing in the case.

Florida’s insurance commissioner said the First District Court of Appeal lifted a stay on the suspension of the license that had been in effect while Allstate appealed the state regulator’s actions.

“As a result, the suspension now is back in effect,” the office of Insurance Commissioner Kevin McCarty said in a statement.

So, have any Allstate agents in Florida been treated for whiplash, arising from all this on-again/off-again teeter-tottering in the Allstate-Florida mutual lovefest?

You may recall that this all got started back in January, when the Florida OIR sought to give Allstate an extra-thorough proctology exam over Allstate’s cat management philosophy, including a request for mountains of documentation.   The commissioner believes that Allstate is hiding something from the regulators’ gloved hands…and suspensions and legal squabbles have ensued.

While I can empathize with Allstate’s paranoia here…I was brought up to believe that sometimes you just have to relax and do what is demanded by the regulators, even when it seems silly or persecuting, if you want to do business in the the regulators’ jurisdiction.

Of course, you do have to wonder if the prospects in other lines of business really is worth this level of discomfort.

I should have passed this along earlier, but I’ve have a couple of projects at the day job hitting a boiling point.   Anyway, seen on the AP wire, a story regarding minor property insurance reform in Florida:

The bill also is tougher on insurers. It doubles maximum fines for insurers that violate state law. By abolishing arbitration panels it also makes it harder for insurers to hike rates after being denied those increases by state regulators. And it requires insurers to use models approved by the state when setting rates.

Moreover it extends by one year, to January 2010, a provision from last year’s insurance bill that requires insurers to get state approval before raising property insurance rates. Insurers must also notify regulators 90 days before they can drop more than 10,000 homeowner policies in one year.

Yeah, that’s going to invite new capital into the Florida insurance market.