Supporters of uncapped rates for new Citizens insurance customers have complained about the "hyperventilating" media coverage the plan has received, but insist such moves are necessary to protect Floridians from something really bad - assessments.
It's a popular refrain. Potential post-storm charges for customers of Citizens and other insurance companies have been called everything from a "hurricane tax" to a "ticking time bomb." Gov. Rick Scott, business groups, for-profit insurers and their allies in the legislature have sounded repeated warnings. They cast Citizens, the state's insurer of last resort, as a dangerous and shaky risk to the whole state.
Yet if the hurricane season that starts Friday brings a nightmarish replay of 2004 - a relentless Florida battering from such hurricanes as Frances, Ivan and Jeanne - the assessments Citizens expects to charge might surprise some people.
Reserves on hand of more than $5.6 billion exceed the projected maximum loss to the company of about $4.3 billion, according to company documents and interviews.
How about a rerun of the devastating winds of Wilma and the rest of the 2005 season?
All right, but what about the worst storm to hit Florida in modern times, Hurricane Andrew in 1992? What if a once-in-50-years storm smashes into the state on the 20th anniversary of Andrew's strike?
An Andrew sequel would not be good, but Citizens expects no emergency assessments, said Chief Financial Officer Sharon Binnun, who grew up in Palm Beach County.
"The good news, if we have an Andrew, we do not think we have any emergency assessments or any post-event bonding needs," Binnun said. "That's the best we've been. We are in a better financial position due to six years of no storms."
Citizens might need so-called "regular" assessments after such a rare storm, she said. On a $2,000 homeowners policy, Citizens customers in coastal areas - generally east of Interstate 95 - would pay an assessment of $300.
As of July 1, the regular assessment for customers of other insurers with a $2,000 policy would be $40.
The expected maximum loss to Citizens for a storm as rare as Andrew was pegged at $14.65 billion last fall, records presented to a Florida Senate panel show. The company has about a 23.5 percent share of the state's policies that include wind coverage.
Binnun said formal projections for 2012 were still being prepared as this story went to press, but a storm taking Andrew's path this summer would generate probable maximum losses for Citizens of about $15.7 billion.
Citizens entered 2012 figuring it has $19.5 billion in total claims-paying resources including its own reserves and the Florida Hurricane Catastrophe Fund backing it up, Binnun said.
It's possible the assessment risk might even be slightly lower by August, the month when Andrew hit 20 years ago. The company's surplus is expected to grow to about $6 billion by the end of 2012.
Also, Citizens is cutting its risk this year with programs that exclude porches, decks and outbuildings and no longer cover homes valued at more than $1 million. The changes are not yet being figured into projections, Binnun said. But the modifications, phased in as policies renew this year, are eventually expected to trim $1 billion off the company's risk picture.
Assessment details for a once-in-100-years storm in 2012 were not available, Citizens officials said.
Citizens reserves might be even higher except that the company has spent approximately $280 million to buy $1.5 billion of private reinsurance in moves questioned by some company board members.
Private reinsurance is often more than twice as expensive as coverage provided by the state's Cat Fund. Goldman Sachs is the senior underwriter in bond deals where fees and costs run 19.1 percent, Citizens officials said.
What's the advantage? The "a-word" comes up again. On May 1, Citizens board Chairman Carlos Lacasa declared it "a historic day in the state of Florida in reducing the potential for assessments on all Florida policyholders after a catastrophic event."
Board member Tom Lynch of Delray Beach, who runs an insurance agency, voted against the reinsurance plan. He said he would rather put the money in reserves to pay claims than buy expensive reinsurance that would not kick in unless losses exceed $6.3 billion. If the reinsurance is not needed when the contract expires, the $280 million spent to buy it just stays in the pockets of private reinsurers. Reserves remain available year after year until needed.
"My theory is it just didn't make sense," Lynch said.
Forecasts have called for a slightly lower-than-usual overall risk of hurricanes this year, though of course no one can guarantee one or more significant storms won't hit Florida.
50% rate hike possible
Whatever the risk, the threat of assessments has remained a popular reason for a series