Rating revisions due to financial troubles with state’s Cat Fund
Florida home insurers could soon be seeing revisions made to their ratings as A.M. Best, one of the largest rating firms in the world, announces that it will be reviewing the state’s insurance companies due to the financial troubles of the Florida Hurricane Catastrophe Fund. The Cat Fund, as it is called, is meant to provide insurance companies with $17 billion in reinsurance coverage each hurricane season. With two consecutive years of powerful natural disasters behind it, the Cat Fund has been faced with problematic financial challenges that are threatening its ability to provide insurers with the reinsurance they need.
Insurers may be unable to meet their obligations due to problems with Cat Fund
A.M. Best believes that some insurance companies may have trouble meeting their obligations because of the troubled state of the Cat Fund. The firm will re-evaluate the ratings of Florida’s insurance companies in an effort to provide more accuracy in the industry for investors and other concerned parties. The ratings of companies will depend heavily on their ability to protect themselves and their customers from risks associated with natural disasters. Rating criteria will be influenced by the financial stability of the Cat Fund.
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Cat Fund may fall $3 billion short of necessary reinsurance coverage
According to Goldman Sachs, a multinational investment bank and securities firm, Florida’s Cat Fund is only capable of providing $2 to $4 billion in bonds this year, which could translate into a $3 billion shortfall in the reinsurance it can provide to insurers. The bank’s estimates have been echoed by Cat Fund officials, who have warned that the program may not be able to live up to its obligations this year.
Rating evaluation to begin within weeks
A.M. Best suggests that reducing the reinsurance coverage offered by the Cat Fund and using this information to forecast the amount of money insurance companies or state organizations will need to borrow would allow for more accuracy in risk assessment. The firm is expected to begin its evaluation of insurance companies within the coming weeks and may have revised ratings published shortly thereafter.