Alabama Buys Hurricane Policy

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Alabama will pay $800,000 annually for three years to an insurance company as a hedge against heavy damage to state property on the coast from a major hurricane.

Under the deal that took effect last month, global insurer Swiss Re will pay the state $5 million if a Category 3 or 4 hurricane with winds between 111 mph and 155 mph hits the Alabama coast. It will pay $10 million if a Category 5 hurricane with winds in excess of 156 mph storms ashore.

State Finance Department officials told the Press-Register in Mobile that the money would be used to cover all or part of the deductible that the state would pay on its traditional coverage of state property, such as parks, schools and other government buildings.

Alabama has a $10 million deductible for each named storm, Finance Department attorney Richard Cater told the Mobile paper.

Swiss Re said Alabama is the first U.S. state government to buy such insurance, known as “parametric insurance,” but it has sold similar policies to governments in Mexico and the Caribbean.

“Swiss Re has provided these solutions across the globe to multiple governments, but has just recently begun this dialogue in the U.S.,” said Nikhil da Victoria Lobo, a vice president for Swiss Re. “The state of Alabama initiated discussions with Swiss Re.”

State Finance Director Bill Newton said Friday that Swiss Re was not the only company offering proposals when the state put out a request. He said the policy was developed based on an anlysis of storms hitting Alabama and damages to state property in the past.

Swiss Re is the company that former Alabama Insurance Commissioner Walter Bell joined in 2008 when he left his state post to become chairman of the holding company for Swiss Re’s north American business. But da Victoria Lobo and Cater both said Bell was not involved in negotiating the contract.

Swiss Re officials told the Press-Register that the policy allows the state to get paid quickly and avoid unpredictable expenses.