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Florida Bolsters Hurricane Coffers

In the midst of what is predicted to be a severe hurricane season, Citizens Property Insurance Corp., Florida's state-run property insurer, has strengthened its financial...
July 26, 2011

In the midst of what is predicted to be a severe hurricane season, Citizens Property Insurance Corp., Florida's state-run property insurer, has strengthened its financial position through one of the largest municipal bond offerings so far in the U.S. this year. Some experts question whether the $900 million bond deal, which closed in mid-July, will provide Citizens with sufficient capital to pay claims if the state is hit by major storms.

More than a dozen insurers of last resort in hurricane-prone states, including Louisiana and Mississippi, are believed to be vulnerable to major storms. Most of these insurers have expanded rapidly over the last decade as private insurers have withdrawn from the market in states where hurricane risks are high. Private insurers criticize regulators and lawmakers for not allowing them to charge rates to fully cover hurricane risks.

Florida's Citizens has been the largest insurer in Florida since 2006 and now provides coverage to approximately 1.3 million residences and businesses, representing a 26 percent market share. Citizens' exposure totals $406 billion, and its premium volume places it among the nation's 10 largest homeowner insurers. Robert Hartwig, president of the Insurance Information Institute, says that the bond sale during hurricane season calls attention to the problem of Citizens' charging rates that are too low. Hartwig said, "In the worst-case scenario, Florida becomes Greece, with hurricanes exhausting its resources, forcing more and more borrowing on less and less attractive terms."

Read more on Florida's hurricane fund: Florida Bolsters Hurricane Reserves (Wall Street Journal 7/22/11)