(Repeats June 1 story with no changes)
By Barbara Liston
ORLANDO, Fla., June 1 Eight hurricane-free years
in Florida and a seller's market in catastrophe bonds have
fortified the state against the cost of major storm damage as
the 2014 Atlantic hurricane season starts June 1.
"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
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 development.
"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 two-year period.
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.
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
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 Peltier.
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 billion.
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 economic factors.
"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," Hartwig said.
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)