If you like playing the odds, here's a number to remember: 5.3 percent.
That's what a recently-concluded overview of the Florida Hurricane Catastrophe Fund pegs as the probability this hurricane season that the state-created reinsurance fund would exhaust all of its financial resources.
In other words, there about a 5 percent chance that the Cat Fund goes broke, creating a financial crisis in the state and forcing the fund to use its broad power to place assessments on insurance policies in order to pay off bonds that would be needed.
The health of the Cat Fund is worth noting in a week when for a few minutes it looked like Florida was about to get pounded again by storms. Its exposure was increased back in 2007 by the Legislature and Gov. Charlie Crist as a way to deal with rising insurance rates.
There is some good news about the Cat Fund. The combination of a new law and movement in the marketplace has actually greatly reduced the projected shortfall that exists in the fund. If a major storm were to hit Florida, the fund could have losses up to $7.1 billion that it could have trouble paying off right away. But this is sharply down from earlier this year when that shortfall was a whopping $18.5 billion.
The reasons for the drop? One was that state lawmakers scaled back the exposure of the Cat Fund by $2 billion. Under a comprehensive insurance package signed into law by Crist the top layer of the Cat Fund will be gradually eliminated by 2014.
The other reason for the drop was that many insurers in Florida - including State Farm Florida, USAA and Allstate Floridian - opted against purchasing coverage from the so-called Temporary Increase in Coverage Limit portion of the Cat Fund. This layer is optional to begin with but the new insurance law gave insurers more leeway to pass along rate hikes associated with buying reinsurance outside of this layer.
While there was $10 billion of capacity available in this higher layer, only $5.5 billion was purchased. Of that total, $3.5 billion of coverage was bought by Citizens Property Insurance Corp.
Now it is worth noting that all of the TICL layer falls within the Cat Fund $7.1 billion shortfall. That means that Citizens and a handful of other domestic carriers concluded it was worth the odds to purchase public reinsurance than to go out into the private market.
Citizens officials gave several reason for their logic, including it would be easier if only one state-created entity was forced to borrow money following a large storm and that the Cat Fund has the ability to stagger its assessments on insurance policies over several years while Citizens must charge a one-time assessment.