Insurance Claims And Issues

Bond Insurance on Auction-Rate Bonds, Too?

   Among the revelations emerging from the financial fiasco is that Insurance Companies reportedly have "issued policies guaranteeing so-called auction-rate bonds."  Mike Boehm, "Mortgage Crisis Hits Cultural Institutions" (Los Angeles Times Online, Friday, March 21, 2008).   Issuers of auction-rate bonds for construction projects in particular, are listed in the linked newspaper report as including the Los Angeles County Museum of Art, the Orange County [California] Performing Artscenter, and the Natural History Museum of Los Angeles County.

   One of the Insurance Companies that used to issue Bond Insurance Policies for "auction-rate bonds" is reportedly the now imperiled Financial Guaranty Insurance Company.  "With the bond insurance no longer ironclad, investors are demanding higher interest -- if they are willing to bid at all," it is reported in the newspaper article.

   These troubles are leading Bond Issuers "to restructure the bonds or find bankers to vouch for them in lieu of the now-suspect bond insurers."  One restructuring method currently being explored is negotiating with banks to back these construction Bonds with letters of credit.

   Another financial alternative reportedly is to seek out County, State and other Government bodies which may have an interest in investing in these outstanding construction Bonds.  For example, Los Angeles County is reportedly in such negotiations right now with the  Los Angeles County Museum of Art and the Natural History Museum of Los Angeles County, both of which are governed separately from the Government of Los Angeles County.

   In the meantime, other "cultural institutions" are moving forward with construction projects for which funding was obtained by issuing "unaffected fixed-rate bonds."

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"Review Insurance Policies Now" Says Orlando Newspaper.

   Good advice with related links in this newspaper article published in the Orlando Sentinel, February 22, 2008, by Greg Groeller, "Review Insurance Policies Now".  Every Policyholder and their Agents and Brokers holding every kind of Insurance Policy can benefit from following the good advice published by this linked newspaper article.

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Late Loan Payments, Fewer Jobs And ... Insurance Claims More Likely.

    Late loan payments and as a result, an increasing number of defaults on all sorts of loans in the future, are major problems spreading from home payments and the prospect of ever-increasing mortgage foreclosures, to automobile loans and home equity loans.  See Jeannine Aversa, "Late Loan Payments Jump" p. C3, col. 1 (Associated Press Report published in The Orlando Sentinel, Central Florida Business, Fri., January 4, 2008).  Claims on Mortgage Insurance Policies are very likely to become increasingly greater as real estate foreclosures increase.   Credit Insurance Policies of all types increasingly seem subject to the same likely fate.

    The United States economy is also producing fewer jobs of any kind than in recent months, while the unemployment rate is increasing.  These twin factors have a potentially huge impact on future Insurance Claims.  The latest jobs numbers at the time of this post are for the month just past which at this time is December, 2007 and those numbers are, respectively, 18,000 newly made jobs of any kind, with a simultaneous unemployment rate reported at 5%.  See Peter S. Goodman & Michael M. Grynbaum, "Unemployment Sounds Warning About Economy" p. A1, col. 6 (New York Times Nat'l Ed., Sat., January 5, 2008):

As fewer jobs are created, spending power could dry up.  Faced with declining business, employers could further trim payrolls.  As unemployment grows, more homeowners could fall behind on mortgages, leading to more losses at banks, and more layoffs.

The overall figure of 18,000 newly made jobs masks a major increase of 93,000 jobs in the service industries, including the Insurance industry.  See "U.S. Economy:  Job Growth at Weakest Pace Since 2003 (Update 3)" by Bob Willis & Joe Richter (Bloomberg.com, Fri., January 4, 2008).  (Payroll counts are apparently decreased by job losses, such as a reported December decrease of 31,000 in factory payrolls reported in the same article, thus leading to an overall payroll increase of 18,000 in December.)      

    Take out the take by the American Bankers Association on these developments.  That ABA (not referring to the American Bar Association, the other ABA if you will) sponsors insurance products for its members, including automatic mutual ownership of a Reinsurance Corporation for various Lines of Insurance including Directors and Officers Liability Insurance, Financial Bond Insurance, and Employment Practices Liability Insurance.  Its views on these developments are thus instructive on Insurance implications.

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Hurricane Insurance Coverage Fears Set Florida Roof Costs Soaring.

     By October 1, 2007, the Florida Building Commission was required by the Florida Legislature to adopt and develop a couple of sets of requirements by rule, "which take immediate effect" and which shall be incorporated into the next edition of the Florida Building Code.  At least one purpose, and likely the dominant if not the only purpose, was to encourage mitigation or prevention of future Hurricane Damages and resulting Catastrophe Claims.  More solid structures, particularly homes, should reduce Hurricane Claims and in turn, Homeowners Insurance premiums and Property Insurance premiums -- where such Coverage is available.  See previous posts on this Web Log for information about developments which affect both premiums and availability of Coverage for Hurricane and other Catastrophe Claims.

     Here are some of the important new requirements imposed by the Legislature in Florida Statute Section 553.844, entitled, "Windstorm Loss Mitigation; Requirements for Roofs and Opening Protection."                  

     Single-family residential structures, unlimited by value of the structure, are in one group.  Not all single-family residential structures are addressed by the legislation, however.  The requirements apply to (1) single-family residential structures that are (2) built on site, (3) "constructed prior to the implementation of the Florida Building Code [Fla. Stat. § 553.73, 'Florida Building Code', was first enacted in 1974]", and (4) undergoing a "roof replacement".  When those things come together, then the new roof has to incorporate and comply with:

"Secondary water barriers for roofs and standards relating to secondary water barriers." 
                                       * * *
"Strengthening or correcting roof-decking attachments and fasteners during reroofing".

         

     Another set of requirements applies to certain -- but not all -- buildings with "an insured value of $300,000 or more" or that have "a just valuation for the structure for purposes of ad valorem taxation of $300,000 or more," and which receive a "roof replacement".  Such buildings must add "[p]rescriptive techniques for improvement of roof-to-wall connections" when the roof is replaced.

     The executive director of the Florida Roofing, Sheet Metal & Air Conditioning Contractors Association, Inc. is quoted as the source in a newspaper report for an estimate that water-barrier requirements applicable to the first group of site-built single-family homes above, would add between $1,600.00 and $4,000.00 to reroof a home with a 4,000-square-foot roof.

     Additional costs to reroof a single-family residential building on the coast, i.e., in the second group above, would according to the same source add at least about $5,000.00 to a three-bedroom home, for example, in Volusia or Brevard County, Florida.  (The second group above does not appear to be limited to single-family residential buildings under the statute.)  Here is a link to the newspaper report published in the Orlando Sentinel on Friday, October 5, 2007:  Robin Benedick, "New Hurricane-Safety Law is Raising the Roof on Costs"  Page A1, Col. 3 (Orlando Sentinel, Friday, October 5, 2007).  The newspaper report was originally published in the South Florida (Ft. Lauderdale) Sun-Sentinel:  Robin Benedick, "Cost of Replacing Roof Goes Sky High Under New Law" (Sun-Sentinel.com, Thursday, October 4, 2007).

     The next Hurricane Damage Claims in Florida will tell the tale of whether Insurance Coverage will be more widely available, or at a higher or lower premium, as a result of these "mitigation" or damage-prevention efforts.  Until then, roofing contractors are apparently not happy as a result of these efforts.

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