SW FL Real Estate Ramblings

This is going to be a mixture of thoughts so hang on.......
Wow, the snowbirds are back!  I mean, aunt Mert from MA is on the road and in the way!  Already!
Weather has become that perfect 80's hi and 60 low with no humidity.

• The SW FL media extols the virtues of foreclosure reductions due to the recent lender moratorium.  All that does is set up a glut in Dec. and Jan.  What I have also seen is a dramatic decrease in scheduled closing because the title companies (not very good) doing the closing are too nervous about what lenders are or have been involved on the property.
• We are seeing increased activity in the "pre-season" though.  That is encouraging.  However, we continue to see closings dominated by the low end - bank owned - fire sale properties.  I constantly see condos that were $200k, 4 yrs ago selling for 75k now.
• On the opposite end of the spectrum, I spoke w/ a person that looked on the internet at maps to determine where they wanted to buy.  Then, they looked at street level maps and views of homes when they had narrowed their search. They picked out the exact home on the exact lot location where they wanted to be, looked up the owner (on the internet) and called them.  The home wasn't for sale but within 2 weeks it was under contract between the 2 parties.  Amazing!
• The economy isn't getting any better here in SW FL. The seasonal residents return is always a great boost for the economy but now we wait to see if they are going to spend money or just be here and be "hunkered down" like the permanent residents.
• I recently met a man in another city that has absolutely perfected the task of being a buyers representative as a relocation agency.  They have been at it for 25 yrs. and have the entire system figured out.  It is a great idea and can easily be duplicated except, not here.  The reason is:  no employers here.  This agency works with employers and genuinely works with them and on their behalf.  In SW FL the #1 employer is Lee Memorial Health Systems.   The #2 is the school system and #3 is the county.  So much for that concept in SW FL.
• Do you see the irony in the Govt. establishing a committee to figure out how to stop waste and abuse of the stimulus funds?  Their first meeting is being held at the Ritz in Scottsdale, AZ!  I think that defines it don't you?
• The "debt panel" recommendation to eliminate the interest deduction from home mortgages is typical of an entity like that, isn't it?  That won't fly.  We all know it.  But, it would appear rational people could come up with something better than that!  Do you find it interesting that the same panel used a "budget baseline" figure that is higher than any budget in history?  Oh well....  I do not believe their mortgage interest deduction elimination idea will ever have wings.  But, don't you see, when they give you that kind of scare tactic, their next unbelievable recommendation won't seem so harsh, comparatively.
• We are getting capitalist economy lessons from China?  Oh good.
• Citizen's, the state of FL's "last resort" insurer (that has become the largest insurer in the state) has added another unbelievable nail to the coffin of the real estate and property insurance industry.  Are you ready?  Their board voted unanimously to enact 10 yr old legislation that requires them to reduce the land mass of the area where they will insure "wind/hurricane" only policies.By doing so, they will cancel 195,000 wind only policies.  You do understand that these people have a "wind only" policy from Citizen's because no private insurer will insure them?  So, those people will either be self insured or be forced to cancel their current (private insurer) homeowner policy and buy the entire "multi-peril" policy through Citzens' (they have deemed that would be fine) for much greater premium.  That actually contradicts the core concept of why Citizen's should exist!  Brilliant! 
• One of the 7 major points of commitment by the soon to be new Governor of FL is to dramatically change Citizen's back into what it was intended to be.  We shall see, won't we?
• I think I currently have the best single family home property listing in SW FL.  Check it out.

That's what I think.  What do you think?

Florida Property & Reinsurance

There has actually been a really good article published about the state of the FL property insurance market as related to reinsurance. Now, reinsurance is actually what makes everything “go”. And, the author has taken great pain to obtain as much accurate information as possible. If you would like to read the article, click here.
What is sadly interesting is the info. obtained is presented to be earthshaking but it really isn’t. It isn’t even new information to those that have knowledge of how this process works. Here is the way the process works:

•  The insurer makes contractual agreements with insurance companies that insure the risk taken by the primary insurance company. Hence, the name “reinsurance”.
•  These reinsurance companies accept a percent share of the risk taken by the primary insurer. The primary insurer may have a dozen reinsurers all taking a percent share of the risk taken by the primary insurer. In FL, the primary insurer keeps only about 10% of the risk accepted.
• The reinsurer charges the primary insurer a proportionate share of the premium obtained from the insured, for the risk they take.
• For example, if a reinsurer takes 12% of the risk, they want a similar portion of the determined premium for that risk.
• Of course, this is not on an individual policy basis. Rather, it is on the entire book of business (by line of business) of the primary insurer.
• The theory is: If the primary insurer has a high loss ratio, their reinsurers all share in that loss. Everyone is hit but none are completely decimated.

The problem appears to be in understanding the reinsurer role.

1. They have large stockpiles of cash to back their accepted risk.

2. But, they keep their cash and, in fact, have it invested elsewhere making them additional money.

3. Unless there are huge losses on what they reinsure, they never actually lose possession of all their cash and investments.

4. And, at the end of the reinsurance year, if there are no catastrophic losses, they have made huge profits for monies owed them from these primary insurers for the obligations they provided the primary reinsurance.

5. You see, the reinsurer risks money – but doesn’t give it up unless a catastrophe occurs – keeps the money invested while it is theoretically at risk – then earning more money from their successful reinsurance agreements with primary insurers that did not have catastrophic losses.

This is a perfect example of remembering the golden rule.  Those who have the gold make the rules!

Makes sense, right? Yes, these folks are the only ones in the right “end” of the insurance business. Now you know.
So, we go on with all the people from D.C. to the local reporters that are appalled that all this money from primary U.S. insurers is going “off shore”. I have news for all, it always has been!
Almost all reinsurers are domiciled outside the U.S.  They are predominantly European companies and companies with operations in Bermuda and the Caymans.
And, it isn’t just pertaining to the property market in FL. It is virtually all U.S. risk of all kinds. Even the Federally backed U.S. (operated with taxpayer money) crop insurance program is all reinsured overseas.

All the real insurance money and reinsurance companies have always been overseas. Yes, always. This is not a new idea.

All the real risk for insurable interest in the entire U.S. is, and always has been, held overseas.

The majority of all the hurricane loss risk in 2004-2005 was borne by the reinsurers overseas. Irregardless of what the insurers told the press about their losses and the amount of their losses, that money came from their reinsurers pockets.

Now enter the Fed. into this picture.

The Fed wants to make a big splash out of this and tax all the primary insurers on all the money they send to reinsurers offshore. Oh good! So, where do they think that shortfall will come from? You guessed it. It will come from the consumer in increased premium to cover the tax cost of reinsurance premiums for the primary insurer. Do you think the reinsurer is going to lower their charge just because the U.S. Govt. wants additional tax on money that isn’t profit? No, you don’t.

Now you know the real picture about reinsurers. The context of this rambling is all predicated on the FL property markets but the scenario is the same irregardless of the state and or the type of risk insured.  Now, the FL property insurance markets have serious problems but reinsurance is not necessarily the big problem.  Yes, FL has the highest ratio of catastrophe risk of any state in the U.S.  And, that causes reinsurance consternation.  However, other major problems are more problematic to the FL property markets.  Maybe those will be topics for another of these ramblings on another day.

What do you think?

Sinkhole Claims

Will Floridians, who already provide monetary support to a state-backed property insurer, and a catastrophe fund, (both in the form of assessments) support another public insurance entity for sinkhole coverage?


We are developing a very real problem with “sinkhole” claims in this state. And, it will likely jeopardize the property insurance market much more than the hurricane risk!

The sinkhole insurance fund concept, has been recommended in two academic studies as a possible solution to rising claims.

One primary reinsurance broker (name withheld) is reporting that two-thirds of the state's 55 domestic property insurers are losing money in another year with no storms.

Citizens has had to pay almost $100 million in sinkhole claims . The state's catastrophe fund had to request an additional $700 million in bonds five years after the Hurricane Wilma to cover reopened claims.
The following is my opinion: The current FL law is outrageous to allow hurricane claims to be reported up to 5 yrs. after the event. This allows attorney’s and public adjusters to open or reopen “make up” claims that is driving this market into a major “wreck” for people in an unbelievably bad economy to seek monetary gain. This sinkhole situation is developing, by these same entities, as the time has expired to report claims from prior hurricanes. Again, that is my opinion only.

This state or the OIR must do one of two things:

1) Remove sink hole coverage as an automatic coverage in all property policies – then, allow it to be added back at an additional charge or and more preferably;

2) Enact legislation that is very succinct regarding the criteria that must be met before an attorney, public adjuster, insured or other legal representative can report a sink hole claim.

Currently, Citizen’s declares they are receiving about 400 reported sinkhole claims per month! That is outrageous and isn’t happening. That is why I say there must be finite criteria to meet before arbitrarily turning in a sinkhole claim. According to insurer officials, the insurer is currently forced to spend about $10k on each reported claim just to be allowed to say “no” on an initial reported claim. I believe a sinkhole claim is obvious. But, these wild numbers of claims being reported are evidently being reported on a hope that it will create a payment to the insured for some bogus crack in concrete somewhere on the property.

That's what I think.  What do you think?