THE CAT FUND—The Florida Hurricane Catastrophe Fund is a form of state-sponsored reinsurance, which all property insurers are “required” to purchase up to specified limits. It comes at a price usually substantially lower than the global reinsurance market and is also subject to deficit assessments on insurers that are passed on to policyholders, including those of Citizens.
Also as a result of previous hurricanes, the CAT Fund is currently levying an Emergency Assessment of one percent, beginning on January 1, 2007, and continuing for six years. In addition, it could issue another Emergency Assessment for deficits that might occur in 2008. The CAT Fund is also permitted to levy Emergency Assessments of up to six percent annually; subject to an aggregate annual assessment limitation of ten percent.
THE GUARANTY FUND—The Florida Insurance Guaranty Association (commonly called “FIGA” or the “Guaranty Fund”) handles the claims of insolvent property and casualty insurance companies.
For example, in June 2006, the Board of Directors of FIGA certified to the Office of Insurance Regulation (OIR) that losses from the liquidation of the Poe Group of companies (Southern Family Insurance Company, Atlantic Preferred Insurance Company, and Florida Preferred Insurance Company) would exceed FIGA’s balance by more than $200 million and, in fact, would be the largest insolvency in Florida’s history. FIGA requested an assessment of two percent to be levied on insurers, which, like Citizens and the CAT Fund, would be passed on to policyholders. Two other, smaller insurers, Vanguard and Florida Select, also became insolvent. In December 2006, FIGA levied a “Special Assessment” to cover the shortfalls of these insolvencies.
The FIGA assessments, totaling four percent, were approved by the OIR; insurers, which includes Citizens, are now collecting it from policyholders.