I must make this super quick as I have a very busy day ahead. First is this story from the National Underwriter on problems with the Florida Hurricane Catastrophe Fund. I noted a detailed discussion of the Demotech Inc (an insurance rating business) that I hope puts to rest concerns about their methodology and why the market needs agencies willing to rate start up insurers. My hope is Steve and Sup pick up the discussion in comments as the story well illustrates the very real problems with Florida’s insurance market. I don’t blame Gov Crist or Commish McCarty though as the industry has resisted and out right undermined (IMHO) good faith legislative efforts there. Nonetheless the State of Florida is having a hard time bucking recent trends in the credit markets:
The Florida Hurricane Catastrophe Fund, a key reinsurance provider, has a shortfall of $18.5 billion, which could pose problems for some of the state’s recent insurance startups, state officials indicated.
Jack Nicholson, chief operating officer for the state fund, said yesterday, prior to a briefing session with the State Senate Ways and Means Committee, that the fund under legislation approved last year is required to provide $29 billion in reinsurance, but may not be able to meet that obligation under today’s bond market conditions.
In November of last year, Dublin, Ohio-based rating firm of Demotech Inc. put insurers on notice that “the potential inability” of the Florida Hurricane Catastrophe Fund to honor claims adversely affects the ratings of carriers dependent on the reinsurance it provides.
Next up is from the front page of the Sun Herald. Steve will tell you that I took a good bit of heat for voicing the opinion that land buyouts were a great idea back in the fall of 2007. I really scratched my head at the anger the mere mention of the idea generated and quite frankly the image the locals projected at the public hearings was very poor. There is a behind the scenes tie in to the Bay St Louis/FEMA map controversy and the post Katrina annexation of the marshland off Highway 603 commonly known as Shoreline Park. Flooding out with both Ike and Gustav has since taken some of the starch and venom away from the buyout concept. With the amount of higher land that is available in the area there is simply no excuse to not indulge our greener instincts and let marshland be marshland. And besides the duck hunting is excellent. Nowdy hopefully will take it from here as we’ve discussed this a good bit offline:
A federal private property buyout plan that angered many Hancock County residents last year is still alive and moving toward Congress for funding.
The U.S. Corps of Engineers Coastal Improvements Plan has shrunk in size and scope, but a draft released this week shows the corps still plans to spend nearly $1 billion along the Coast.
Included are proposals to spend nearly $400 million to buy flood-prone private land, build a $12 million levee in Harrison County, and relocate the Moss Point municipal government complex at a cost of $8.4 million.
The plan also includes $458.5 million to restore and repair the Mississippi barrier islands, in order to absorb waves and surge that reach the coast in hurricanes. Also included would be added protections to Fort Massachusetts on Ship Island, and repairs to the Ship Island breach, as well as smaller projects.
In Harrison County, the plan calls for construction of a $12.7 million levee to protect Turkey Creek from flooding. In Moss Point, City Hall, the police station, fire station and recreation department would be relocated and rebuilt outside a flood-prone area near the Escatawpa River.
The corps has been working on the coastal plan since 2005, when Congress asked for analysis and design plans after Hurricane Katrina brought havoc to the Coast. When the plan was brought before the public last year, the buyout portion shocked and angered local residents at a public meeting held in Bay St. Louis.
At that time, the corps proposed to buy out as many as 17,000 parcels of private land that is susceptible to floods during hurricanes. The voluntary buyout now has reportedly shrunk to about 2,000 parcels.
This is where I diverge from the opinion leaders in Bay-Waveland.
Local governments and business groups ardently opposed the plan, saying it could kill development in south Hancock County. The furor eventually died down, and local officials said they had heard no more about the Coastal Improvements Plan. But on Tuesday, word spread that the plan, although now smaller, is still intact.
Public comments will now be taken on the draft plan. After that, the plan must go to Congress for authorization and appropriations. A congressional aide told the Sun Herald on Tuesday that the plan likely would be funded as part of a congressional bill, and is not part of President Barack Obama’s economic stimulus package. U.S. Rep. Gene Taylor could not be reached for comment Tuesday night on the Coastal Improvements Plan. But Washington sources said the Bay St. Louis Democrat has insisted the property buyouts remain entirely voluntary, and that the federal government get approval from local governments whose areas would be affected.
Such a requirement could be challenging. The Bay St. Louis City Council strongly opposed the 2008 buyout announcement.
Bay St Louis opposes the buyout because they annexed the marshland more commonly known as Shoreline Park and want the property tax revenue from that area. With the exception of two neighborhoods this area was very low income before the storm which makes sense as the land was very cheap due to it being low. The NFIP has taken care of the notion this area will experience meaningful rebuilding because flood premiums on houses in the marsh are very expensive and beyond the reach of the overwhelming majority of the pre Katrina residents. The City is taking the path of least resistance favoring it’s and other short term local economic interests which is understandable.
For my part I wonder about the opportunity cost of being short sighted and yes I think blanket opposition to buying out flood prone areas is short sighted. I’ve mentioned before offline an idea I heard just after the storm of a land exchange bank where people in the area could sell out their land at market prices. People with low lying land wishing to remain in the area could exchange their parcel at value plus or minus “boot” for another one at a higher elevation contained in the bank. The “exchange” transactions could be structured so that forward or reverse 1031 exchanges would be possible to eliminate the income tax ramifications for those wishing to remain in the area. Again if we think out of the box the sky is the limit.
2 thoughts on “Some stories I’m following this morning”
I really wonder if Allstate has reflected on its books the trouble it holds with its reinsurance provider Willow Re. It might need to buy reinsurance for the Willow Re coverage?
Florida has problems but I find it good they are trying to come up with solutions.
An $18.5B shortfall is real money. These new carriers picking up the SF business do not have the resources of SF. The market is in much worse condition without SF. I think the gov and his crowd know this, but will not level with the good citizens of FL.
Pray for an uneventful storm season in FL.
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