Florida hasn't had a major storm in two years.

Insurance companies have recovered from the losses of the devastating hurricanes of 2004 and 2005, posting profits of about $3.4 billion in the state this year. Premiums have fallen about 12 percent - though less than projected.

And some private insurers are showing interest in serving the state again.

Still, the problems with Florida's home insurance market overshadow the improvements:

Consumer premiums remain high.

The financial burden for repairing the damage caused by a big storm has shifted to Florida taxpayers, the result of what some call questionable public policy.

Also, many private insurers still won't do business in the state because they can't compete with the low rates of state-run Citizens Property Insurance Corp. and in a political environment they consider hostile to the insurance industry.

Some Florida officials, including Chief Financial Officer Alex Sink, say the state needs to forge a new plan to encourage the private market to shoulder more of the risk.

"The insurance companies have not treated their customers very well, but we need the private market in Florida because it's all about spreading risk," Sink said.

Any new strategy would be considered during next spring's legislative session. If lawmakers can't agree to an alternative, Florida homeowners will have to live with the plan Gov. Charlie Crist signed into law this year.

State Expands Citizens

Under pressure to do something about the skyrocketing cost of insurance, state officials were left with two options: Give the insurance companies the ability to charge higher rates so they could pay to rebuild homes after a major hurricane, or deny the industry's request for bigger premiums and put the policies the private market doesn't want in the hands of state-run Citizens.

One plan subscribes to faith in the free-market system and spreads the financial risk among private companies. The other stems the historic surge in premiums but places the responsibility for covering Citizens' increasing exposure on the backs of all Florida taxpayers and policyholders.

The Legislature and Crist, who made lower insurance rates central to his campaign, froze Citizens' rates until 2009, allowing the state-backed company to compete with private insurers. It was Crist's way of putting pressure on the industry to lower its rates.

As a result, Citizens' extraordinary growth accelerated.

Citizens has eclipsed State Farm, Allstate and Nationwide to become Florida's largest property insurer. The company continues to grow by 50,000 to 60,000 policies a month and is expected to have 1.6 million policyholders by year's end. That's more than a quarter of Florida's property insurance market.

"Citizens was never structured to do this," Citizens spokesman Rocky Scott said.

Crist's office did not return calls seeking comment.

Insurer Fills Void Along Coast

Citizens has always enjoyed a significant market share in Florida's high-risk coastal areas, a market private insurers have been reluctant to cover.

Nearly all of Citizens' growth, though, is occurring inland, outside the state-designated wind zone, where wind speeds can reach up to 150 miles per hour.

The number of Citizens policies outside the wind zone has grown 37 percent in the past year.

Citizens, established in 2002 as an insurer of last resort, is required by law to take on policies no other company wants.

For example, the number of Citizens policies in Polk County has increased 332 percent to more than 13,000 since November 2004. In Palm Beach County, Citizens saw a 49 percent growth in policies during the same period. In Miami-Dade County, Citizens recorded a 10 percent increase in policies.

The additional premiums are helping Citizens build its surplus - the cash it has available to pay for disasters - by about $200 million a month, Scott said. But additional premiums mean more liabilities.

The problem is this: Citizens now has $524 billion of exposure and only $3 billion in cash on hand to pay claims.

Citizens' rates aren't high enough to pay for the potential damage in Florida's high-risk coastal areas, which means taxpayers and policyholders far from the coastline would bear much of the cost of repairing damage to Florida's most vulnerable homes. The insurance risk in the state is nearly $2 trillion, the industry estimates.

"The private market would be out of business if you neglected your rates to exposure like that," said Jeff Grady, chief executive of the Florida Association of Insurance Agents. "There's no disputing that the rates are actuarially unsound."

When Citizens runs a deficit because of a high number of claims, state law requires the state's private insurers to offset the loss by paying fees. Those fees are normally passed on to policyholders in the form of a surcharge, forcing all homeowners to subsidize state-run Citizens.

More than 47 percent of Citizens' policyholders live in Palm Beach, Broward, Dade and Monroe counties, areas most vulnerable to a hurricane.

There would be assessments if a hurricane hit these South Florida counties because Citizens is "not geared to handle a major storm," said Bob Milligan, the state's insurance consumer advocate.

Citizens has $14 billion to cover claims if a catastrophic hurricane hits Florida. Citizens said its probable maximum loss from a major hurricane would be $24 billion. But loans and letters of credit account for most of Citizens' $14 billion.

"Other than $3 billion, the rest of that is borrowed," Grady said.

What's more, Citizens has gotten so big and its rates are so low that it is preventing private insurers from expanding in Florida and competing for market share, Grady said.

"We don't think they should be competitive," he said. "It's just fundamentally unsound and a real impediment to the private market ever returning here."

Recent editorials by The Wall Street Journal and USA Today railed against Crist's plan, calling it a socialist scheme and horrendous public policy.

But some Florida homeowners who had their policies canceled even though they never filed a claim feel betrayed by the private sector.

Homeowners Thankful

Transforming Citizens into a competitive force has helped thousands of Florida homeowners, including John and Sally Day of Clearwater.

The couple were dropped by their insurer, Massachusetts Bay. Citizens assumed their homeowners policy when no other company would. The Days are paying a higher premium, but the rate is guaranteed until 2009, and they are pleased with the coverage.

"We had many options with Citizens," Sally Day said. "We paid more because we elected to keep the deductibles within a reasonable range."

In October, state regulators approved a plan to limit Citizens' growth, allowing a few private insurance companies to take 173,000 policies from the state-backed insurer. State officials said private companies' willingness to write the policies is a sign the home insurance market is recovering - slowly.

One of those companies offered the Days coverage, but they declined.

"They didn't have certain coverages, plus they had no guarantee our rate wouldn't increase," Sally Day said. "Citizens guarantees our rate through the expiration of our policy in 2009."

Citizens is on pace to return 230,000 policies to the private market by the end of the year.

"We hope it's a trend," Scott said. "If we keep it up, it's a sign of an improving overall market. That's where we would like for them to be."

Crist's original plan to lower insurance rates centered on a $12 billion expansion of the state's Hurricane Catastrophe Fund, which sells backup coverage to insurance companies at a lower rate than the private market. In return, the insurers were supposed to pass the savings on to customers in the form of lower rates. The plan promised to lower premiums 24 percent on average.

That level of savings never materialized, though, and some companies sought permission to raise rates after using the savings from the Cat Fund to buy more reinsurance, backup coverage for insurers.

Sink has suggested it may be time to undo the Cat Fund expansion because it hasn't led to a meaningful drop in rates and exposes policyholders to more assessments.

Sink said she intends to lobby for insurance reform during next year's legislative session that would reduce the potential for Cat Fund assessments. Her proposal would give the state the authority to set reinsurance levels and pricing options, a measure designed to reduce the state's risk and encourage competition among private insurers.

"My focus for next year's session is on the Cat Fund," Sink said. "I've gotten a lot of encouragement.

"My priority is to reduce the risk the state is bearing," she said. "If we have a big storm, in order to pay our claims, we'll have to borrow the money in the bond market, with the repayment of those bonds coming from pretty heavy assessments."

Sink and executives at Citizens also think the company's rates should be raised to account for the added risk that has accumulated over the past two years.

Meanwhile, Citizens is growing, and its exposure is increasing. Last month, regulators authorized Citizens to offer comprehensive coverage to commercial properties, beginning Jan. 1.

Information from The Associated Press was used in this report. Copy editor Michelle Crawford also contributed to the story. Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com.