Florida Insurers May Be Unprepared For Major Storms, A.M. Best Says.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Feb. 11, 2000

The next major hurricane to hit South Florida could trigger an insurance crisis similar to the one that followed Hurricane Andrew in the early 1990s, A.M. Best Co. says in the latest issue of Best's Viewpoint.

The insurance rating and information company says it is concerned that several Florida-only insurers--heavily reliant on reinsurance and carrying large amounts of the riskiest business in the state--might not survive a single catastrophic event, let alone a second event during the same policy year.

Hurricane Andrew, which struck Florida in 1992, caused $16 billion in insured losses. It caused approximately 10 insurers to become insolvent and numerous national insurers to exit or reduce their Florida-based business. It also led to the creation of the Florida Residential Property &Casualty Joint Underwriting Association, which began writing business in March 1993 to provide additional insurance capacity. The JUA worsened the situation, however, by charging below-market rates, amassing huge catastrophe reserve shortfalls and relying on debt financing to pay claims.

In November 1995, the JUA began a &uot;depopulation&uot; program for private-market insurers to take business out of the JUA. The program included a three-year waiver from JUA assessments and a fee for each policy taken. Over time, incentives have increased, and more &uot;take-out&uot; insurers have joined the program. In 1996, 19 insurers were taking business out of the JUA; by the end of 1999, this amount had nearly doubled.

A.M. Best finds several deficiencies with the recent take-out activities. It details these deficiencies in the Viewpoint article, which can be read on the Internet at www.bestweek.com/reports. Many of the take-out insurers are meagerly capitalized, and the failure of any one will strain the state guaranty fund, with the costs being shared by the surviving insurers. These costs ultimately will be passed to policyholders.

A.M. Best acknowledges that Florida has made progress in protecting homeowners and taxpayers since Andrew. Building and safety codes have been improved, and market-share leaders have mitigated their catastrophe exposure while improving the availability of homeowners insurance in the state.

However, A.M. Best believes few of the take-out companies would survive another Andrew. In fact, the Viewpoint article says, many may be impaired by just one or two less severe storms.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.