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Tampa Bay Times: Cat fund disaster

Wednesday, January 02, 2013

Advocates of expanding or retaining the Florida Hurricane Catastrophe Fund (CAT Fund) at its current level are either misguided or knowingly peddling false coverage.

Allstate’s Florida unit, Castle Key Insurance, serves as a perfect example. It received a 14.9 percent statewide average rate increase, only to receive a “B-minus” rating from A.M. Best — and that is taking into account Castle Key’s expected support from its parent company.

On its own, Castle Key would probably have received nothing higher than a “C” because it is required to purchase much of its reinsurance from the CAT Fund, which its own managers estimate does not have the ability to make good on its promises.

Anywhere else, an A.M. Best rating this low is the “kiss of death” for a primary insurer. Meanwhile, none of the traditional reinsurers that have historically come through after catastrophes in Florida has a rating less than A-minus.

This raises the question: Do advocates of the CAT Fund as it currently stands realize the harm it has done to Florida’s insurance market?

What was once designed to bring stability has become an albatross around insurers’ necks. This could be a reason national, well-known, well-capitalized insurance companies have left and been replaced with small operators, many thinly-capitalized, or worse — Citizens.

Advocates for increasing the Cat Fund and those opposed to right-sizing it so it can actually make good on its promises are misinformed or more concerned with political expediency than with real consumer protection and true stability for Florida’s economy.

Christian R. Cámara is Florida director and a co-founder of the R Street Institute. R Street supports free markets, limited, effective government and responsible environmental stewardship.

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