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To: ~digs who wrote (20564)	8/17/2004 6:42:12 PM
From: Bucky Katt	Respond to of 48461

They have a very defined & limited risk. The rest of the story will floor you> Insurers' losses limited in Florida Hurricane fund set up by state to protect firms By Mark Skertic Tribune staff reporter Published August 17, 2004 Mopping up the mess from Hurricane Charley will cost the nation's insurance companies billions of dollars. But the damage to their bottom lines won't be as bad as it could have been because of a change in Florida law made more than a dozen years ago after the last big hurricane blew through the state. Once the losses are totaled, Charley will rank as the second- or third-costliest hurricane in U.S. history, according to Fitch Ratings. The Chicago-based analyst estimated the insured losses from the storm at $5 billion to $10 billion. Other analysts say losses could reach $14 billion. But even if damage estimates go that high, insurance companies are not in danger of defaulting. One reason why: They will get some relief from the Florida Hurricane Catastrophe Fund, created in the wake of Hurricane Andrew to provide low-cost protection to insurance companies. After Andrew pounded Florida in 1992, some larger insurers, including Northbrook-based Allstate Corp., threatened to cut coverage in that state if they didn't get some financial protection. Since the fund began, it has grown into the largest hurricane reinsurance fund in the world. The fund works this way: Insurance companies doing business in Florida pay a premium to the state for a kind of insurance protection of their own--a limit on damages. The cost of that state-provided protection for insurers shows up in customers' bills. But seen another way, those premiums would be higher if the state protection didn't exist. Under fund rules, insurance companies must cover the first $4.5 billion in customer losses. Each company's share of that total is largely determined by how many policies they write. After the $4.5 billion threshold is reached, the state fund pays 90 percent of claims. Under Florida law, the fund can pay out up to $15 billion this year. Analysts say that level appears more than adequate to cover losses from Charley. Charley's costs have yet to be determined. And it's unclear what damages another hurricane this season could inflict on Florida. But Charley apparently won't deplete the fund. Allstate said it anticipates that the fund will reimburse its Florida subsidiaries for 90 percent of their losses for all payments over $286 million, up to an estimated maximum reimbursement of $922 million. The company paid $33.6 million into the fund during the state's most recent budget year, Florida estimates. "The impact [of Charley] is within the range of what they've been expecting for their catastrophe losses so far this year," said Chris Winans, an analyst with Lehman Brothers Holdings Inc. "It isn't even like they've absorbed some kind of a hit that's going to take them out of the range of what you would expect through the first three quarters of the year." Allstate's cost from the storm likely will not be known for weeks, said company spokesman Michael Trevino. "The type of checks we're writing now are for additional living expenses," he said. "It allows our policyholders the time to find a place to live now while they're sifting through their losses." The storm killed 17 people and left tens of thousands homeless. Winds reached 140 m.p.h. as the storm struck Florida's southwest coast. Allstate writes about 11 percent of homeowner's insurance policies in Florida, according to estimates by the Insurance Information Institute. State Farm, based in Bloomington, Ill., is the largest in Florida, with about 23 percent of the market. It's too early to estimate how many claims will be filed or how much they will total, said Fraser Engerman, a State Farm spokesman. "We're not making any projections on what we expect," he said. "There are many areas, particularly in the severely impacted areas in the Port Charlotte area and others, that we simply are not receiving claims from yet because people are not being allowed back into their homes. It's still not safe for them to go back in." As property owners continue cleaning up from Charley, it's unlikely that insurance bills will soon skyrocket to cover the payouts made in the wake of the storm, said Bruce Zaccanti, a partner with Ernst & Young's Insurance & Risk Management Advisory Services. "There's an assumption that losses are going to occur over time," he said. "So there's a balancing over time." - - - Leading insurers State Farm and Allstate may be hit the hardest with homeowner claims as a result of damage by Hurricane Charley. Hurricane Charley Florida, 2004 Preliminary damage estimate: $10 billion Market share for Florida in 2003 State Farm: 23.4% Allstate: 11.4% Hurricane Andrew Southeast Fla. and La., 1992 Damage: $35 billion Market share for Florida in 1992 State Farm: 27.9% Allstate: 18.7% Hurricane Hugo S. Carolina, 1989 Damage: $9.7 billion Market share for S. Carolina in 1989 State Farm: 20.0% Allstate: 14.2% Note: Damage amounts have been adjusted for inflation chicagotribune.com