Please send all media inquiries to Christian Ulvert at email@example.com
Florida Nurses Association Endorses Gelber for Attorney General
Sep 25, 2010
Republican Senator Villalobos Endorses Gelber for Attorney General
Sep 24, 2010
Florida Professional Firefighters Endorse Gelber for Attorney General
Sep 21, 2010
Florida Alliance for Retired Americans Endorses Gelber for Attorney General
Sep 20, 2010
Florida PBA Endorses Gelber for Attorney General
Sep 10, 2010
View All Endorsements...
Thanks Doesn't Seem Sufficient
Nov 4, 2010
ICYMI: Karl Rove's RSLC Attempts to Hijack Elections from Voters
Oct 26, 2010
Release: New Ad Highlights Consensus from Florida Newspapers: Gelber is Clearly Better Qualified
Oct 25, 2010
Release: Bondi Turns to National Special Interests to Fuel Her Campaign
Oct 25, 2010
Statement: Gelber Comments on Sentencing of Sarasota Ponzi Schemer Arthur Nadel
Oct 22, 2010
View All Releases...
Legislature's redistricting handiwork destined for courts
Jan 16, 2012
Bill Nelson's Survival Strategy
Jan 11, 2012
Dan Gelber on exceptionalism and the old Marco Rubio
Sep 6, 2011
Who will take on Rick Scott? Charlie Crist? Alex Sink? Jeremy Ring? Rod Smith? Dan Gelber?
Jun 14, 2011
Gelber pining for Jeb Bush
May 31, 2011
View All Articles...
Is state's insurance deal win-win for a billionaire?
Jul 31, 2008
Paige St. John
TALLAHASSEE -- As many Floridians face job losses, foreclosures and exorbitant gas prices in a tumbling economy, Florida leaders this week struck a lucrative deal with the richest man in America.
And while Warren Buffett has secured another financial windfall, critics say it could be a lose-lose deal for the state.
Under the agreement -- approved by Gov. Charlie Crist and Chief Financial Officer Alex Sink on Tuesday -- the state will pay $224 million to Buffett's company, Berkshire Hathaway, in exchange for the promise to lend the state $4 billion if Florida is struck by a major hurricane this year. If the state does not need to borrow the money, then Buffett pockets the $224 million.
If a major storm hits the state, Buffett keeps the $224 million and then lends Florida $4 billion at a 6.5 percent interest rate. Attorney General Bill McCollum called it a bad deal. He argued that the chances of a major storm hitting Florida were about 3 percent, and that if such a hit happened the state could rely on low-interest loans from the federal government to shore up its insurance market.
"I can't justify spending in my own mind $224 million," McCollum said.
Crist and Sink defended the plan, saying it was necessary to arrange the loan to make sure the state had the money on hand if hit by a big storm.
Sink, who had criticized the plan earlier, said she was swayed by the "enormous amount of difficulty" the state recently had in trying to secure a $625 million bond deal to pay off losses from the 2005 hurricane season. Nonetheless, the state secured the $625 million loan at 4.5 percent -- well below Buffett's rate -- and just slightly higher than what bond analysts expected.
Crist, too, said he was uneasy about the Buffett deal, but said it was necessary to guard against a financial catastrophe.
"The kind of things that keep you awake at night as governor are what might come to our state and the risk that might occur," he said.
Other critics contend the Buffett deal is another knock against the state's bold but risky decision in 2007 to provide up to $29 billion in a state catastrophe fund designed to revive the state's ailing property insurance market.
Rep. Dennis Ross, R-Lakeland, who has long contended the state has taken on too much risk and undercut the private insurance market, said the Buffett deal underscores that point.
"It's not a prudent investment for the state," Ross said. "I don't support it. I just think it's unfortunate that we're playing games with the future of the citizens of the state of Florida."
Ross said the state's aggressive entry into the insurance market in an effort to hold down insurance rates has driven out the private companies while substantially increasing the state's own risk, which ultimately would have to be paid off by either higher insurance rates or other public funds.
"I'm just so frustrated that we've let our leadership play this game with the taxpayers and the consumers," Ross said. "It's not an easy issue to resolve. But it's one where we've got to try competition."
Lawmakers who support the Buffett decision also say it underscores the instability in Florida's property insurance market.
"The problem that Florida has right now is that we have a windstorm insurance policy that really only works if there are no windstorms," said Rep. Dan Gelber, D-Miami Beach.
Although he supports the Buffett deal as a way to spread the risk and prepare the state for a worst-case scenario, Gelber said the state could have done a better job of lessening the risk at the high end of the state catastrophe fund -- which was also a proposal pushed unsuccessfully by CFO Sink during the legislative session this year.
"Everybody is gambling; we are gambling that we don't have a major storm," he said. "Mr. Buffett is gambling that he can make money off us by not having a major storm."
And it may be good gamble for Buffett since the odds in any given year that Florida will hold Berkshire Hathaway to its end of the deal are small.
There is a 3.13 percent chance any of the money would be needed, and only a 1.64 percent chance all of it would be required.
The fund's underwriting managers -- Goldman Sachs, J.P. Morgan, Lehman Brothers and Citi -- say they are reasonably certain that between existing reserves and new bond sales they could raise enough money on their own to pay for an $18 billion hurricane.
The problem is that the Cat Fund has sold reinsurance for up to $29 billion in losses.
Cat Fund managers themselves lost confidence they could sell all the bonds needed, as fast as needed, in 2007 when the crumbling mortgage market threw local government investment pools managed by the state into jeopardy.
Cat Fund Director Jack Nicholson recalled sharing a New York taxi with fund advisor John Forney of Raymond James. Looking out the window, he asked if the state could, right there and then, sell bonds to pay hurricane claims.
"No," Forney replied, Nicholson later told fund advisers.
Those Cat Fund advisers, a group of businessmen that includes reinsurance executives -- competitors to the fund, mounted their own campaign this year to question the fund's ability to pay under the worst circumstances.
Among their most vocal supporters are the Reinsurance Association of America and the Association of Bermuda Reinsurers, who unsuccessfully lobbied the Legislature this spring to shrink the fund.
They seize on a long-understood but seldom-mentioned fact about the fund: If it cannot raise the money to pay insurers, those insurers are simply out of luck. Insurers, not taxpayers, would have to find alternative funding to pay hurricane claims, a possibility that has given rise to yet another layer of insurance for insurance, backup policies to cover the fund.
The $224 million bill for Florida's backup plan will not be passed to insurers, making it a further subsidy for coverage insurers buy from the state at rates already a fraction of the private market.
The fund toyed with buying reinsurance itself, but rejected the high-priced offers that came back from Bermuda.
Because fund reserves have never been used to pay such a bill -- their use is restricted -- state fund managers were still negotiating with Berkshire Hathaway on Wednesday to make sure the financial giant could not back out of its $4 billion promise if the funding source is later found to be illegal.
The final contract could be ready for signatures as early as Friday, an SBA spokesman said.
The check to Berkshire Hathaway moves the nonprofit fund that much closer to another assessment on state consumers. To cover 2005 hurricane losses, Floridians already must pay a 1 percent assessment on their home, vehicle, fire and theft policies for the next six years.
Florida tried to sell the most recent chunk of that debt -- $625 million in bonds -- last week just as Treasury Bill rates were climbing. The timing forced the state to accept interest rates as high as 4.5 percent.