By: Mike Seemuth, Daily Business Review
February 12, 2010
Though state regulators are trying to stabilize the price of property insurance for hurricane damage, the outlook for homeowners is as uncertain as the weather.
“There is no question: Florida’s insurance market is in a state of disarray,” professional services firm Towers Watson concluded in a recent report. “Uncertainty about the quality, price and availability of property insurance has left homeowners desperately seeking stability.”
Some state legislators want a more market-based approach to insuring against wind damage. State-run Citizens Property Insurance Corp., the largest property insurer in Florida, has been criticized for charging too little for coverage, discouraging private insurers from doing business in the state.
Two Republican state legislators, Sen. Michael Bennett of Bradenton and Rep. William Proctor of St. Augustine, have sponsored separate bills that would allow private insurers to charge unregulated premiums for residential property coverage. The legislators introduced similar “consumer choice” legislation last year, claiming it would restrain rate increases by encouraging more property insurance companies to compete for Florida business.
The state government’s insurance consumer advocate, Sean M. Shaw, has publicly criticized the proposed “consumer choice” legislation as a deregulatory move that could lead to increased policy premiums, not increased competition among insurers.
“Proponents of deregulation claim it will bring new insurers to the market,” according to a recent report that Shaw co-authored. “However, no insurer has said publicly that they would enter Florida if the property insurance market were deregulated.”
Towers Watson reported that private insurers probably would respond to “consumer choice” legislation by pricing themselves out of areas most vulnerable to hurricanes and selling property coverage in safer areas, shifting high-risk policies to Citizens.
However, Towers Watson also cautioned against allowing a state-run entity to become Florida’s sole provider of property insurance for wind damage: Such action “would dramatically increase Florida’s reliance on funding catastrophes after they occur” through state bond sales, “a questionable arrangement given capital market tightness in the wake of the financial crisis.”
M&A activity not great but better than last year
Business mergers and acquisitions may happen more frequently this year than last, but any increase in M&A activity is likely to be modest.
“This is not going to be a great year for M&A activity, but certainly it’s going to be better than last year,” which was “very, very quiet,” said shareholder Luis Lopez, director of M&A activity at Sunrise-based consulting firm Mergium Partners.
Mergium counted 44 mergers and acquisitions last month involving Florida companies, and “we expect to see improvement throughout the year in those numbers,” Lopez said. His firm consults small and medium-size companies involved in mergers and acquisitions with transaction amounts from $500,000 to $10 million.
The volume of mergers and acquisitions probably will be “significantly improved this year, but still not close to what it was prior to the credit crunch,” said attorney David C. Peck, a Fort Lauderdale-based shareholder of Greenberg Traurig who practices corporate and securities law.
Even a modest amount of mergers and acquisitions this year might be enough to exceed the disappointing level last year. But 2010 has started slowly on the global M&A front. Dealogic, an international consulting company, reported that the worldwide volume of mergers and acquisitions declined by 19 percent last month, compared with January 2008.
Would-be sellers of businesses may hold out for higher prices while awaiting surer signs of sustainable economic recovery.
“There are still lingering concerns about the overall state of the economy and where things are headed, and that’s putting a damper on valuations,” Peck said.
In addition, “financing is still an obstacle,” he said. Buyers are putting more equity and mezzanine debt into M&A deals because “the amount that senior lenders are willing to lend is still restricted from what it used to be. ... You’re seeing deals where the amount of leverage is half or two-thirds of what it would have been prior the credit crunch.”
Budget cuts could hurt state’s economic recruitment program
Business recruitment and retention could wane if the state government makes further cuts in funding for economic development.
“We believe the Legislature understands the value of having a strong economic development program that will continue to grow Florida’s economy,” said Al Latimer, a senior vice president of Enterprise Florida, the state’s principal economic development agency. But “the investment in economic development has been trending down the past couple of years. ... The Legislature has had less money to work with, so most programs have been on a downward trend.”
State lawmakers in 2006 created the Innovation Incentive Program and allocated up to $250 million in annual funding to the program before letting it expire.
“It would be used to attract companies in the life sciences and biotech industries that would create high-wage jobs, and since the economic downturn, those funds have gone away,” Latimer said.
Another state program, the Quick Action Closing Fund, was created to recruit or retain companies paying above-average wages. Its annual funding peaked at $45 million. Gov. Charlie Crist’s proposed state budget would allocate $25 million to the fund for the fiscal year starting July 1.
Latimer described those as “non-core” economic development programs created within the last five years. Instead of trying to revive or expand these programs, he said, Enterprise Florida is focused on convincing state lawmakers to maintain and upgrade “core programs that have been around for a long time.” These include the Qualified Target Industry Tax Refund Program, the Quick Response Training Program and the High Impact Performance Incentive Grant program.
For example, Enterprise Florida wants to lower the criteria for awarding High Impact Performance Incentive grants. HIPI grants from the state government are available to companies that create 100 jobs and invest $100 million in Florida. But “in the current economic climate, there are very few businesses that are making $100 million investments, and the job creation that they’re looking at is a lot smaller,” Latimer said. “So we’re asking that those thresholds be lowered to make us more competitive with other states.”