April 9: An ill wind blows

The lede:

Well, here comes hurricane season. As usual Colorado State predicts a worse-than-average hurricane season. To impress your boss, remember 15/8/4. There are 15 named storms predicted, with eight becoming hurricanes, and four going Category 3 or worse. Some probabilities by state and county here. The lazy cynic in me wonders whether CSU predictions do better than a random drawing from a Poisson distribution. Can anyone find me a study that examines that?

As the inevitable approaches, Florida politicians play ostrich, according to Florida Tax Watch.

The state’s largest property insurer, Citizens Property, and the Florida Hurricane Cat Fund are both state entities. If the Big One – a 1-in-100 PML storm – hits, neither has sufficient surplus. That’s not all bad, since as state-run enterprises, they can dun policyholders after the fact.

The problem is the size of the assessment. According to Florida Tax Watch, they would borrow $35 billion after the storm and have to assess policyholders for the bond payment. That’s about $10 billion more than the current state debt. Generally the bond market doesn’t like to see you increase borrowings by 140% overnight.

The assessment would be so big because, well, rates are too low. That’s hard for Floridians (avg. premium statewide: $6,000+) to take, but a 2007 study indicated that all insurers should charge $15 billion HO premium. The actual premium was about $9 million. In other words, premiums needed to be about 67% higher.

The full Tax Watch report is here. It’s murky, and the numbers don’t gibe as well as I would like. More current data would have helped, too. But it addresses a real problem.

Now Florida has done some things right. It is slowly cutting exposures in the cat fund, and has pledged to bring Citizens’ rates to an actuarially sound level, though no annual increase can top 10%. But Charlie Crist has a tough election campaign, so he’s talking tough.

Meanwhile, triage continues.



One thought on “April 9: An ill wind blows

  1. […] good is the hurricane forecast? A couple of months ago I wondered whether the Colorado State University hurricane forecast was better than drawing a number from a […]

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