01 February 2007

Florida Doubles Down

A couple of weeks ago, I mentioned an effort by the new governor of Florida to manipulate the market for hurricane insurance in that state by mandating that a greater share of the risk be borne by Florida taxpayers. That scheme is now law, prompting the RiskProf blog to ask, "When Did Florida Elect Hugo Chavez for Governor?":
In addition, the law allows the Florida state run catastrophe reinsurance fund to sell lower levels of reinsurance to the private market. This puts the state at greater risk as it now is the risk bearer in the primary market (through Citizens) and in the reinsurance market (though the cat fund).

However that wasn’t enough for [Florida Governor Charlie] Crist. Today he signed an executive order prohibiting insurers from dropping customers or attempting to raise rates through the regulatory process. While not a complete taking of contract rights, this seems to be an unusual attack on contract rights that sound more like it comes from a Socialist rather than a Republican.

Today’s Washington Post . . . mentions that both S&P and Fitch have downgraded the state’s hurricane bonds because of fears that the state will be issuing more of them — and that it is more likely that the state will hit its statutory bonding capacity. The downgrades don’t come without a cost either as they essentially cost the state more in bond interest rates. So Florida is increasing the incentive for homeowners to buy from the state by lowering Citizen’s rates while it also lowers private market rates by selling at below market reinsurance. Pretty soon it will corner the market on homeowners risk. Good luck with that!

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