It has been seven years since Florida got hit with major hurricane damage — enough time to build up a big surplus in the state's high-risk insurance pool, backed up by $10 billion in "catastrophe bonds." But the state has a huge exposure, and bad luck could still drain those reserves.

Huffington Post has this report ("Hurricane Season Begins; Florida Insurance Market Remains Vulnerable: Industry Experts," by David Adams/Reuters): "State insurance officials say the industry is ready to withstand a major storm. 'We are better positioned today than I have seen in 10 years,' Kevin McCarty, who heads the state's Office of Insurance Regulation, told Reuters. Still, industry experts question whether Florida's state-controlled insurance system is able to cope in the long term."

Compared with Texas' dire situation, Florida is sitting pretty. "Due to the lack of recent storms, Citizens [the state-run insurer of last resort] has managed to build up a cash surplus of about $6.6 billion, plus another $1.8 billion in reinsurance," the report says. But Florida has $3 trillion worth of coastal property at risk, and Citizens, which accounts for 21% of the state's residential insurance market, could face a payout of $21 billion from just one big storm.

"Citizens has tried to manage its exposure by issuing catastrophe bonds, which allow insurance companies to transfer risk to private investors," the Reuters story says. "Buyers of so-called cat bonds receive enhanced returns in exchange for the risk that their principal could be wiped out in the event of disasters of a certain kind or size. By the end of this year cat bonds will provide well over $10 billion in coverage to the south-east and Florida, according to John Seo, co-founder at cat bond investor Fermat Capital Management."

Is it enough? Well, if not, Citizens can turn to other state insurers — or to taxpayers — to make up the shortfall. And that's a situation Florida Governor Rick Scott and the Florida legislature don't like. So at the end of May, Scott signed a new law that will encourage homeowners to switch from Citizens to other insurance companies, reducing the state's exposure to bailout costs in case Citizens gets hit with a storm too big for its reserves to cover.

But there's skepticism in Florida about the other private insurance firms being offered as alternatives. Sun-Sentinel columnist Michael Mayo asked pointedly on June 8, "Can insurance upstarts be trusted to replace Citizens?"

"In the past few weeks, just as hurricane season arrived, thousands of South Florida homeowners insured by state-run Citizens have opened mailboxes to find takeover offers by small new companies," writes Mayo. "The so-called 'takeout' letters, mainly from Heritage Property & Casualty (based in St. Petersburg) and Weston Insurance (based in Coral Gables), have left many confused. Bob Smolowitz, of Davie, best summed up the sentiments I've heard from readers when he emailed: 'Who are these guys? And will they have the funds to settle a claim?'"

In fact, Mayo writes, some of the new insurance companies have been in existence for less than a year — and as for capital, their reserves are made up in large part from funds put up by Citizens to get the new firms into the market.

The Sarasota Herald-Tribune weighed in with an editorial throwing doubt on the new insurance companies' reliability ("Citizens Property Insurance: Scott's Stormy Policy"). "On Sunday, the Herald-Tribune's Zac Anderson reported that Florida's private insurers, though flush with profits from rate increases and from seven years without a major hurricane hitting the state, have largely neglected to boost their cash reserves or reduce policyholders' rates," the editors observed. "On Monday, the Tampa Bay Times reported that, in those hurricane-free seven years, six of the 18 companies approved to take over Citizens policies have failed, costing taxpayers $400 million [see "Despite no hurricanes, many 'takeout' insurers fail," by Toluse Olorunnipa"]... To cover the cost of the insolvencies, a state agency, the Florida Insurance Guaranty Association, assessed other insurance companies extra fees. Those costs have been passed on to property owners."

And the Herald-Tribune pointed with concern to another report: the story that state regulators have fined Florida's second-largest insurer, the privately-run Universal Property and Casualty Insurance Co., $1.26 million for anti-consumer policies that include wrongly denying claims and dropping policies without notice ("State regulators fine property insurer $1.26 million," by Zac Anderon).

The editors' pessimistic conclusion? "For now, Florida property owners can only watch as another hurricane season unfolds, wondering whether, if disaster does strike, their insurance policy will deliver as promised."