Florida cushions hurricane insurers
By Mark Skertic
Chicago Tribune
Hurricane Charley left billions of dollars in damage in its wake, but the hit to insurance companies will be lessened by a change in Florida law after the state's last devastating hurricane a dozen years ago.
Associated Press
Once losses are totaled, the storm will rank as the second or third costliest hurricane in the nation's history, according to Fitch Ratings. The Chicago-based analyst estimated the insured losses from the storm at $5 billion to $10 billion.
Dan Mahoney, 72, weathered Hurricane Charley at his mobile home in Punta Gorda, Fla. The hurricane did billions of dollars in damage, which a state fund will help insurers cover.
Those estimates are in line with the findings of Robert Hartwig, chief economist of the Insurance Information Institute. The ultimate cost to insurers "is well within what's manageable for insurance companies," he said.
Other analysts said the losses could reach as high as $14 billion but even if damage estimates increase, insurance companies are not in danger of defaulting.
Unlike when Hurricane Andrew hit in 1992, insurance companies will get some relief from the Florida Hurricane Catastrophe Fund. Created during a special legislative session in 1993, it offers low-cost protection to insurance companies.
After Andrew, some larger insurers, including Northbrook, Ill.-based Allstate Corp., threatened to severely reduce coverage in Florida without the protection from losses such a fund would offer.
In the years since it was formed, the fund has grown into what state officials say is the largest hurricane reinsurance fund in the world.
Depending on their coverage level, companies pay a premium to the state to be protected by the fund. Companies cover the first $4.5 billion in customer losses, with their share determined by how much of the market they have. After that, the state fund pays 90 percent of claims.
Under Florida law, the fund can pay out up to $15 billion this year.
Allstate said it anticipates the fund will reimburse its Florida subsidiaries for 90 percent of their losses for all payments over $286 million, up to an estimated maximum reimbursement of $922 million.
The company paid $33.6 million into the fund during the 2003-2004 fiscal year, Florida estimates.
"The impact (of Charley) is within the range of what they've been expecting for their catastrophe losses so far this year," said Chris Winans, an analyst with Lehman Brothers Inc.
"It isn't even like they've absorbed some kind of a hit that's going to take them out of the range of what you would expect through the first three quarters of the year."
The actual cost of the storm to the company likely will not be known for weeks, said Michael Trevino, Allstate spokesman.
"The type of checks we're writing now are for additional living expenses," he said. "It allows our policyholders the time to find a place to live now while they're sifting through their losses."
The storm hit Florida Friday, killing at least 17 people and leaving tens of thousands homeless.
Winds reached 140 miles an hour as they moved through southwest Florida.
Allstate writes about 11 percent of the homeowners' insurance policies in Florida, according to estimates provided by the Insurance Information Institute. State Farm, based in Bloomington, Ill., is the largest, with about 23 percent of the market.
It's too early to estimate how many claims will be filed, or how much they will total, said Fraser Engerman, State Farm spokes-man.
