Tower Hill Insurance Group Wants $14 Million Refund From Florida Cat Fund

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December 12, 2008 Friday 04:32 PM EST

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Tower Hill Insurance Group Wants $14 Million Refund From Florida Cat Fund

Chad Hemenway

GAINESVILLE, Fla.

The Tower Hill Insurance Group wants their money back from the Florida Hurricane Catastrophe Fund because it said it believes the fund won't be able to reimburse them for reinsurance purchased through the fund.

"It's like if you go into a donut shop and ask for a dozen donuts; you get out to your car and open the box and only find six donuts," said Tower Hill spokesman Don Matz. "You have two choices: You go in and ask for another six donuts or you ask for your money back. Only in this case, there aren't any more donuts."

Tower Hill filed a petition with the state Board of Administration, which administers the fund, asking for a $14 million refund, Matz said.

In October, it was revealed by the catastrophe fund that it is facing a bonding shortfall of between $10 billion and $15 billion. The fund relies on the sale of bonds to come up with the money it needs to reimburse companies who were strongly encouraged by state officials to buy reinsurance through the fund.

However, volatility in the credit markets makes the sale of what could be the one of the largest public debt offerings highly unlikely (BestWire, Oct. 20, 2008). The fund was expanded to $28 billion at the start of the year.

Following the announcement, the ratings of two Tower Hill companies were placed under review with negative implications by A.M. Best Co. In all, seven companies were placed under review because of the concern surrounding the Florida Hurricane Catastrophe Fund's claim-paying capacity (BestWire, Oct. 29, 2008). The company said it would re-evaluate ratings after the hurricane season, which ended Nov. 30.

Matz said five Tower Hill companies in Florida are looking for the $14 million refund, and that estimate is "conservative," he said.

"The cat fund itself said they could only bond about $1 billion to $3 billion and we actually used that high end in our calculations," Matz said. "We may not have selected certain options of reinsurance if we knew they would be a problem. The bottom line is we paid for coverage that simply isn't there."

The requested refund is not sought to be pocketed, Matz said. The Gainesville, Fla.-based insurance group needs to reinvest the money to pay for additional reinsurance.

Officials from the catastrophe fund said it has about $10 billion of liquid assets -- about $2.8 billion in surplus, about $3.5 billion in already borrowed money and $3 billion in bonds financial analysts are confident the fund can sell in today's market (BestWire, Oct. 20, 2008).

Tower Hill Insurance Group companies currently have Best's Financial Strength Ratings of B (Fair).

(By Chad Hemenway, associate editor, BestWeek: [email protected])

December 13, 2008