Ike: Allstate’s Day of Reckoning?
September 7, 2008
September 7, 2008
As Hurricane Ike barrels toward South Florida, Americans can be sure they won’t have to endure another catastrophic failure of a hurricane protection system. That’s because South Florida doesn’t have a hurricane protection system. As South Floridians like to say: Ay dios mio! Ike is now scheduled to pass just south of Miami as a Category 4 storm; National Hurricane Center researchers recently concluded that a Cat 4 hitting Miami could cause $70 billion in damage. To use another South Florida-ism: Oy vey!
Dangling into the Gulf like a continental afterthought, Florida has always been Mother Nature’s favorite American target, absorbing eight named storms in 2004 and 2005 alone. The state has gotten better at preparing for hurricanes, with stricter building codes and well-rehearsed evacuation plans. But it’s still dangerously exposed — not only to the elements, but to financial ruin. It’s got the nation’s most dysfunctional property insurance market, a byproduct of life in harm’s way. Fitch’s ratings agency concluded in March that if a big storm hits Florida, “the fragile market could effectively collapse.”
Ike could well be a Gustav-like bust rather than a Katrina-like disaster. But eventually, disaster will visit the peninsula, and it’s still not clear who’s going to pay the tab. “It’s going to be a financial nightmare,” says Cecil Pearce of the American Insurance Association. “Florida is the nation’s basket case.”
It’s not that Florida’s vulnerability is a secret. Florida homeowners pay some of the nation’s highest insurance premiums; in a recent poll, despite a housing crisis, an economic crisis, a water crisis and an environmental crisis, Floridians named those premiums their number-two concern about the state’s future, behind property taxes but ahead of jobs, education, health care and the dying Everglades.
Since Hurricane Andrew put most Florida insurers out of business and scared several national insurers out of the state, the state government has helped to hedge the risk of hurricanes. It provides subsidized insurance to 1.3 million high-risk homeowners who can’t get private policies, an increase of more than 50% in just three years. It also has a Hurricane Catastrophe Fund that provides subsidized reinsurance to the state’s private firms.
But a series of studies have made it clear that if the Big One or even a Pretty Big One strikes, Florida is going to have very serious problems. The state-run insurance firm and the Catastrophe Fund have just a few billion dollars on hand, so a major storm would force both entities to float massive bond issues in an unfavorable market, and to make up their shortfalls through gigantic assessments on policyholders. A House committee recently warned that the state would have “extreme difficulty paying its obligations” after a 100-year storm, and that premiums on nearly every property, car and business could skyrocket. A report for the state Office of Insurance Regulation found that even a 50-year storm would cause extreme financial stress, especially given the current credit crunch.
Industry actuaries say the problem is simple: Florida’s insurance rates, high as they may be, are not high enough for a state with an estimated 25% of America’s high-risk property. Reinsurance rates are soaring, and private insurers like State Farm and Allstate have scaled back in Florida, forcing an additional 500,000 customers into the state pool. “For some areas in Florida, insurance companies could not obtain reinsurance at any price,” Insurance Commissioner Kevin McCarty recently told Congress. And last year, Republican Governor Charlie Crist pushed through reforms to decrease premiums, a politically popular move that will create even more pressure if disaster strikes. “I get the concerns,” Crist recently told me. “But we’re not going to stand for gouging.”
The gouging fears are understandable; McCarty told Congress that some insurers have insisted on 25% profit margins, while using computer models that overstate risk. But no one denies that the risk is real: it’s been 80 years since a major storm hit a major Florida city, but hurricane researchers have calculated that the next one could cause as much as $150 billion worth of damage. And Crist’s reforms, while reducing premiums, included other changes that increased the risk that taxpayers and policyholders will have to bail out the Cat Fund. “The risk was removed from the insurers’ portfolio and is now being supported by the people of Florida,” McCarty explained.
That’s why Crist and just about every other Florida politician is pushing for a national catastrophe insurance fund, which would shift some of that risk to federal taxpayers. But the idea is not so popular with other states, for the obvious reason that other states don’t have as much risk. Florida has spent the last 80 years ignoring its vulnerability, developing its floodplains and shorelines, selling the dream of the Sunshine State to northerners and foreigners. But the day of reckoning will come.
Allstate Profit Plunges in Q2 2008!
September 3, 2008
Allstate Insurance Q2 Profit Plunges on $698 Million in Catastrophe Losses
July 24, 2008 – Revised September 3, 2008
Allstate Corp, the largest publicly traded U.S. home insurer, said on Wednesday net income plunged in the second quarter, hit by the highest level of second-quarter catastrophe losses in its 77-year history.
Catastrophe losses for the quarter rose more than 60 percent to $698 million, fueled by unusually high tornado activity, similar to the first quarter, as well as a surge in wind and hail storms, said Chief Executive Tom Wilson.
After a respite in 2006 and 2007, the United States has been pummeled by natural disasters so far in 2008. Insurance trade group ISO earlier this week said second-quarter catastrophes alone were expected to cost insurers more than $6 billion.
The worst may be yet to come with the third quarter typically the most active period for U.S. catastrophes. Wilson said Allstate had already deployed 3 mobile response units to Texas where the second hurricane of the season, Dolly, came ashore earlier on Wednesday.
Dolly, the second hurricane this year, is stirring concern that the 2008 season could be more active than usual since hurricanes typically form later in the season, which runs through November.
Modeling firm AIR Worldwide on Wednesday said insured losses from hurricane Dolly were, based on early information, estimated at between $300 million and $1.2 billion.
Tropical storm Fay did significant damage to Florida, and some forecasts call for Hanna, currently forming to the east, to do likewise. In addition, storms Ike and Josephine have already formed, and some forecasts also call for them to pass through Florida
Allstate, which sells insurance to 17 million American households, said net income slid to $25 million, or 5 cents a share, from $1.4 billion, or $2.30 a share, in the year-ago quarter. Operating earnings at the Northbrook, Illinois-based insurer fell about 36 percent to $683 million, or $1.24 a share, short of Wall Street expectations.
Allstate said its standard brand auto policy sales were comparable with the same period a year ago, and homeowner policies fell about 0.8 percent.
Excluding catastrophe claims, the company’s combined ratio was 94.4 percent for the quarter, up from 87.6 percent in the second quarter of 2007.
Since January, Allstate shares have fallen roughly 10 percent, compared with a decline of more than 23 percent in the Standard & Poor’s insurance index.
Allstate Claims from Fay: Preliminary Report from Florida
September 3, 2008
Allstate Claims from Fay: Preliminary Report from Florida
August 29, 2008
Allstate reports 1,443 homeowners’ claims and 701 auto claims as of August 29, 2008. In addition, Allstate is processing 377 NFIP claims.
HANNA SAVANNAH: Another Allstate Nightmare?
September 2, 2008
HANNA SAVANNAH: Another Allstate Nightmare?
SAVANNAH, Ga. – Nervous residents rushed to buy plywood and generators while emergency officials in Georgia, Florida and the Carolinas weighed possible evacuations Tuesday as Tropical Storm Hanna shifted toward a tough-to-predict landfall along the southern Atlantic coast by the end of the week.
Florida Gov. Charlie Crist declared a state of emergency as Hannah, downgraded from hurricane status Tuesday but with ample time to regain strength, began a turn to the northwest from the Bahamas. Emergency officials in Georgia and South Carolina went into 24-hour alert mode.
In Savannah, which hasn’t seen a direct hit from a major hurricane in more than a century, Janey Miley took her 15-year-old daughter to Home Depot at lunchtime Tuesday for an impromptu lesson in hurricane preparedness.
They waited in a busy checkout line with a 5-gallon gas can, a circular saw and 10 sheets of plywood in case they needed to board up the windows of their home on nearby Tybee Island. A steady flow of customers pushed carts stocked with everything from batteries to 5,000-watt generators.
“We’ve never really bought plywood, but it seemed like maybe we’d better do it this time,” said Miley, 43, who had also booked hotel reservations in Columbia, S.C., in case her family needed to evacuate.
The National Hurricane Center predicted Hannah would most likely come ashore as a hurricane between Friday and Saturday somewhere between the east coast of Florida and the North Carolina coast. Forecasts Tuesday showed the storm making landfall near the Georgia-South Carolina border.
Local emergency officials for Savannah and surrounding Chatham County urged residents to have an evacuation plan ready. But no decisions on voluntary or mandatory evacuations were expected before Wednesday.
Ken Davis, spokesman for the Georgia Emergency Management Agency, said Hanna’s unpredictable path made it “a pretty difficult storm” for planners to gauge whether to order evacuations with just a day or two left to decide.
“We’re getting closer and closer to the point where decisions have to be made,” Davis said. “It’s a fine line between calling an evacuation and crying wolf.”
Davis said state officials were looking ahead to the possibility of turning Interstate 16 into a one-way escape route westward out of Savannah.
The highway bore the brunt of 2.5 million people fleeing Georgia, Florida and South Carolina when Hurricane Floyd menaced the coast in 1999.
The Georgia State Patrol has since equipped 115 miles of the interstate with orange-striped control gates, much like railroad crossing arms, that can be dropped at entrance ramps to block cars from traveling east during a one-way evacuation.
In Florida, where Hanna is the third storm to threaten in three weeks, Crist’s emergency declaration allows the state to more easily mobilize employees, law enforcement personnel and other resources. The governor said residents should prepare for possible flash floods and winds up to 111 mph.
The state Emergency Management Division in South Carolina was monitoring Hanna closely around the clock, but spokesman Derrec Becker said it was too early Tuesday to call for residents to flee.
“At this time there is still so much level of uncertainty, what we’re doing right now is simply paying attention to this storm,” Becker said.
Meanwhile, college administrators at Coastal Carolina University in Conway, S.C., and Charleston Southern University watched the storm for a possible call on whether to cancel football games Saturday, coaches at both schools said.
The North Carolina Division of Marine Fisheries asked fishermen to monitor Hanna and two other tropical storms — Ike and Josephine — developing far out in the Atlantic. It said fishermen should remove gear such as nets and crab pots from the coastal waters ahead of storms and check their own safety equipment.
FEMA regional administrator Phil May said the agency will send federal liaisons and disaster response teams to Georgia, South Carolina and North Carolina on Wednesday to prepare for Hanna.
FEMA is already pouring supplies and resources, like search and rescue teams, into the region. And it’s scrambling to move some supplies from the Gulf Coast back toward the Atlantic seaboard.
“We’ll be moving things that may have been in position for Gustav back this way in case of Hanna,” said May, who is based in Atlanta. “There’s a lot of moving parts.”
He said a team dispatched to Florida to deal with the remnants of Tropical Storm Fay will stay there to plan for Ike, which could threaten Florida after Hanna passes.
