Hurricane coverage may fall victim to mortgage crisis and credit crunch

Mortgage crisis has created concerns which can impact houseowners. A.M. Best Company, a credit rating organization working for financial industries has speculated that mortgage crisis & credit crunch can affect ability of coverage of claims by insurers & re-insurers which result from coastal disasters.

A.M. Best Company has issued a special report in which it has been mentioned that investors are showing less appetite towards capital market offerings which are designed for raising cash to meet claims payments in case any major hurricane strikes the coastal regions.

In the report it has also said that insurers are usually exposed to properties foreclosed by lending companies or abandoned because of the crisis in hurricane-prone regions. According to estimates, over one-half million properties exist in costal regions from Maine to Texas & Florida alone has more than 100,000 properties which are in foreclosure.

State-backed insurance pools which exist in some states such as Texas, Florida & Louisiana can be at more risk. Florida's state-backed reinsurer & its largest insurer are dependent on bond sales after any disaster for coverage of any shortfall & they may not be able to pay all claims arising from any major disaster immediately.

Coastal regions had a respite as there have been no major storms for 2 years, so private insurers were able to rebuild surpluses & capital, particularly in states like Florida. Florida Hurricane Catastrophe Fund is trying to find other ways of building its reserves but if FHCF has trouble raising money then insurers can incur credit risk for reinsurance recoverables which are tied to Florida Hurricane Catastrophe Fund & there can be delay in meeting claims payments for policyholders.

A.M. Best Company in its report also warned that it may be required to rely on federal & state funds if state backed insurers are not able to pay claims.