Sink wants to see national catastrophe fund set up

Jun 23, 2008

Dallas Business Journal–June 20, 2008

Florida’s Chief Financial Officer, Alex Sink, was the guest of honor at a National Association of Industrial and Office Properties function June 16 at Epping Forest Yacht Club. The following are edited excerpts of an interview between Sink and Staff Writer Rachel Witkowski.

In your travels, what are some of the concerns that you’re hearing from business owners?

Business owners are concerned about the economy, of course, and the impact on their businesses. It started out here in Florida with the subprime and foreclosure crisis. It’s beginning to spill over with the high cost of gasoline and with the downsizing of state and local governments. People are tightening their belts, and so the restaurant business is down and retail business is down.

From what you’ve seen in the hurricane predictions, what do you think will happen this year?

I don’t see how we can get past another year without a storm. We have been so incredibly fortunate the last two years not to have a storm because what it has done is enabled our insurance company, Citizens Property Insurance Corp., and our reinsurance company, the Florida Hurricane Catastrophe Fund, to build up reserves. Not enough yet, but we’ve gotten a much better financial footing than we would have if we had four storms two years ago. Because we’ve had two years with no storms, the private market is coming back into our state. I’m hearing commercial property rates are down as much as 30 percent and 40 percent, which is encouraging. We need to get a national catastrophe fund in place, which won’t be the answer. I mean, we’re never going to have cheap insurance rates again, but at least if we got a national program in place we would all know how to valuate what we’re really on the hook for.

But with everything going on nationally, do you foresee it happening any time soon?

Actually, I do, if we elect a Democratic president. Obama’s on record as saying he supports it. There’s a bill already passed in the House and it remains in the Senate. So I think if we have a White House to support it, we can get the votes in the Senate. These national catastrophes happen anywhere and everywhere and this is not a bailing out Florida program. This is about the federal government stepping up in the event of a big catastrophic event and saying, "Yes, we’re going to take care of Americans."

What are you hearing from bankers about their concerns?

The banks that are focused on retail business are keeping a close eye on their customers not getting overleveraged. The bankers and the credit unions really didn’t get involved in subprime lending. They knew better. This was all done by those companies like Countrywide or the companies that were just in the mortgage business. It depends what kind of bank it is. If it was a bank that got really heavily involved in commercial real estate lending, particularly some of the ones down south, they’re going to be challenged.

Do you think it would get to the point where some banks would fail because of the real estate market?

It’s possible. [The banking regulator has] got probably half a dozen banks that he’s keeping his eye on. But we would encourage them probably to find a merger partner, or do some scaling back on branch expansion or scale back on lending. And actually I’m quite pleased and surprised that we haven’t seen any bank failures yet.