"Florida is in its best position in a decade," said Robert Hartwig,
president of the Insurance Information Institute.
Yet the nation's riskiest state for storm damage opens the
6-month-long hurricane season against a backdrop of new condominium
towers piling new risk along the vulnerable South Florida coast.
This year Florida stands to benefit from an El Niño weather pattern
which forecasters think will hold the number of storms near or below
average. However, with images still fresh of coastal devastation in
the New York area from Hurricane Sandy in 2012, forecasters caution
that it only takes one major storm to make for a disastrous season.
The condo boom is testament to the insatiable appetite for coastal
living. More than 200 new residential towers a short distance from
Atlantic waters have been proposed for south Florida since the
middle of 2011, according to a report by CondoVultures, a
Miami-based real estate consulting firm.
At least 50 new high-rises have already broken ground or been
completed since 2011.
"The reality is, on balance, the state is in a worse position in
terms of sensible decisions about building and putting things in
harm's way in the coastal area," said Charles Lee, director of
advocacy for the Florida Audubon Society.
Smartersafer.org, a national coalition of fiscal conservatives,
environmentalists, housing organizations and insurers, on Thursday
called for a national mitigation strategy that discourages high-risk
"Simply rebuilding isn't enough. We need to start approaching
disasters with a focus on preventing losses rather than simply
trying to recover from them," said Jimi Grande, vice president of
the National Association of Mutual Insurance Companies, and a member
of the coalition.
Because of its size and geographical position sticking out into the
warm waters where the Caribbean meets the Atlantic, Florida is a
uniquely risky insurance market. Almost 80 per cent of its insured
residential and commercial property - valued at about $3 trillion -
lies in coastal areas vulnerable to both wind damage and flooding,
according to risk modeling experts.
The last hurricane to hit Florida was Wilma in 2005, which was the
end of a string of five major hurricanes to wallop the state over a
The calm since those storms has allowed Florida's Hurricane
Catastrophe Fund, designed to help private insurers pay claims, to
build its reserves to $13 billion.
[to top of second column]
The state-run Citizens Property Insurance Corp. - intended as an
insurer of last resort but in practice the largest residential
carrier in the state - begins the season with a $7.6 billion
State policy calls for reducing Citizens' portfolio through rate
hikes and tightening coverage limits. Rates for 2014 rose by an
average of 6.6 percent, with some coastal policyholders seeing hikes
close to the 10 percent cap, said Citizens spokesman Michael
The company reduced its 2014 exposure by 40 percent from its 2012
peak. By off-loading policies onto a recovering private market,
Citizens cut its numbers to 940,000 and its exposure to under $300
To backstop its cash surplus, Citizens took advantage of a surge of
interest in catastrophe bonds from pension and hedge funds and other
non-traditional capital seeking higher yield investments in a
low-interest era, as well as investments uncorrelated to standard
"What the Federal Reserve does in terms of impacting interest rates,
or whether the situation in the Ukraine makes stock markets go up or
down, the cat bonds are completely independent of all of that,"
The competition from an influx of cat bond investors since 2006 cut
Citizens' re-insurance costs by more than half, allowing the company
to nearly double its coverage to $3.1 billion, Peltier said.
"Capital market investors are now bearing some of the risk rather
than the citizens of the state of Florida or the Florida Hurricane
Catastrophe Fund," Hartwig said.
(Editing by David Adams and Sandra Maler)
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