The two things that are different are: Number one, the global markets came back to us. They saw a year of no storms; they realized that we took $12 billion off the table. Fortunately for our commercial market, those rates have come down 40 to 50 percent. Last year when we met with Lloyd's we saw that they were looking for markets. So it said to me, "Let's go shopping. Let's see what's out there. Maybe we have an opportunity to reduce our exposure."

Number two item is the state of the credit markets, and our capacity to even bond at the $20 billion level. That's a big question mark. That's why you're seeing today these issues being raised by many people — even in the Legislature — recognizing we have an issue that needs to be dealt with. We've signed a contract with these insurance companies that we're going to provide reinsurance, and when they come with their claims, they expect the people of Florida to write them their checks. As disappointed as I am that the proposal I set forth last year did not get passed — I think it should have, because the expectation was that there would be very minimal if any increase in residential rates as a result of passage of taking off the $3 billion layer — it didn't happen. But it got the conversation going. I think the table has been set this year to readdress the exposure in the Cat Fund.

[The issues are] the two issues I talked about — the ability of the private market to provide some liquidity there, and the credit market issues – plus the issue of not wanting to go back and do another Warren Buffet-style deal. And the big elephant in the room is that the $12 billion layer sunsets. So, like it or not, the Legislature has to deal with this. I don't believe they are going to let $12 billion just go back to lala land, because it will have, I would predict, double-digit impact on rates.

We are now talking to our staff about what kind of proposal I might present. We want to talk to the Bermuda reinsurers. They write the most reinsurance for residential. We want to go back and get our intelligence and determine what we think the markets are. We want to find that balance of reducing that exposure — whether we do it up the side or across the top — and having a reasonable impact upon residential rates. So maybe it's a kind of Ken Pruitt "glide path." Maybe we reduce it by $3 million a year for the next four years. We need to have a longer-term view of what our policy around this TICL [Temporary Increase in Coverage Limit] layer is. Then you get back to the mandatory layer. I feel that the mandatory layer is something that is appropriate. It is basically $10 billion of exposure. We haven't had a major storm in three years. We will have an equity buildup of several billion by the end of this year. The more years we go with no storms, the better off we will be. The Cat Fund has operated well for lo these many years, and I think it's one step at a time.

Q. Sam Miller of FIC has stated that eventually carriers will have to buy reinsurance in the private market, and if they do, they will have to be able to pass those costs along.

A. What I have heard from the insurance companies is, "OK, Florida, you reduce the TICL layer, and we have to go out and make that up in the private market and we need to be able to reincorporate it in our rates." Well, I think that's fair. Their concern is that the commissioner will just say, "No, give it for free." If they have to go out and [spend more in the private market], I think it's legitimate to reincorporate that in their rate base. But they have to be totally transparent. We have to be honest with the residential policyholders.

We should not be making policy for the Cat Fund at 11:00 at night on the last day of session. We should be working on it right now, surveying the market, going shopping, figuring out the capacity. It's like the federal reserve. In times when there's not much capacity out there and it would cause rates to jack up, that's the time for government to step in and say, "We're going to write reinsurance."

But at times when there's a lot of liquidity and we think we can go shopping and maybe negotiate some good deals, then we tell the companies, "OK, this is what the state's program for this year is going to be, so that you have the maximum ability to drive the hardest bargain you possibly can."

If we wait every year until May 30, when the last possible time to buy reinsurance is due, then they've got you. It's dumb. My original proposal was to have another elected body in the Cabinet; have us make the decisions about what the program was going to be for the Cat Fund at a time when it offers us the most flexibility, which will result in the most reasonable rates possible.

Q. Do you think your proposal failed, at least partly, because it was an election year?

A. Certainly. What we heard was that everybody kind of finked out on the plan because they were told, "You better not support that, because your opponent will say you voted to raise insurance rates."

Q. Well, 2009 is not an election year.

A. Right. It will be a much better environment to get things done. [Whatever the plan is] must be put up against the questions, "To what extent are you complementing, and not replacing, the private market?" and "Can we fulfill our contractual obligations when the time comes?"

We live in this political world of 10-second sound bites. And you can't deal with these complex insurance policy issues in sound bites. It takes careful analysis and thought.

Florida is a hurricane-prone state. We all know that. We are not ever going to have cheap insurance. This is not part of the equation. Now, we can't have it be outrageously expensive either. So there is that issue of, "Where is that middle ground?"

Q. Can you discuss the assessment issue?

A. I've had some indication that Florida TaxWatch would be willing to do a study of the impact of the assessments. One of the issues we've had is we can't articulate what the assessments mean to the average homeowner, so we're hoping that TaxWatch will undertake a study so that the public can understand. We know it's a billion and a half per year for 30 years if we have to bond out $20 billion, but what does that really mean to the homeowner of a $2,000 policy?

If we had to bond out $20 billion today we'd be in Washington, just like the big banks are. It's a terrible situation to be in. But take your pick — you're going to go to the federal government, or tell Florida residents to expect an increase in insurance rates, year by year.

Q. But at some point, don't we have to tell everybody they have to bite the bullet, and we are going to raise rates? Who has the power and authority to do that?

A. The Governor and Legislature, as far as I can tell. All I can do is lay out the options and help evaluate them.

Q. Citizens is another challenge. It keeps getting bigger, and agents continue to complain about service. Agents also say there is a market now, and their carriers want to write business.

A. One of the issues we have to confront is that we have spawned these Florida domestic companies, and they have provided a very important release valve. The predictions originally were that Citizens would be at about 50 percent market share. But they've been sitting there at about 30 percent. They've been kind of Steady Eddie. So that's good.

Let me tell you what I'm worried about with the take-out polices. We know that Citizens' rates are actuarially unsound; as much as 40 to 50 percent for their coastal policies. And all of Florida is subsidizing Citizens' rates.

To me, the missing link there is you've got these private entity companies trying to build an insurance business, and they've got to be taking policies out of Citizens that are being written at actuarially unsound rates. That concerns me from a financial standpoint. That's another place where we need to have a conversation in our state. "How much is it fair for us to be subsidizing the Citizens' policyholder?" If we want to subsidize rates by 40 percent, then we should all say that's OK and that's what we do, and we all understand the risk we bear when a storm comes along. Or, do we want to say, "OK, we're willing to subsidize business owners to another 10 to 15 percent"? If we're going to do that, then you've got to tell those Citizens' policyholders, "We're not going to jack your rates up by 80 percent today, but over the course of the next few years, this is what your insurance premiums will be doing to close this gap to make it more fair to everybody. So prepare your budgets accordingly."

Q. Can you comment on the Citizens' rate freeze?

A. I said last year that I was opposed to extending the rate freeze. Citizens needs to operate like a well-run functioning business. Transparency and governance issues have been a big issue with me. They are a big public company. The Mission Task Force is moving along. We're following that closely. Whatever changes we make have to be done with an eye on the pocketbook of the Florida homeowner.

Q. Do you think Insurance Commissioner Kevin McCarty is too hard line [on rates]?

A. These Florida domestic companies that are coming up, we have to support them and let them grow their business. And they've got to be able to write business at a rate that enables them to be financially sound. If we don't, then we have a big storm come along, and they're going to end up in FIGA, and we're going to be paying for all of those assessments as well.

I put a lot of trust in the job of the insurance commissioner, which is to ensure that we have a healthy insurance market, that we have a lot of people writing insurance, that the ones doing it are doing so in a financially responsible way.