In less than four years, Citizens Property Insurance went from being a temporary fix for Florida's troubled insurance market to the state's largest insurer of homes, condos and apartments.

Along the way, it has paid out nearly $5.9 billion in 313,237 claims from eight hurricanes. It ramped up operations to handle catastrophes practically as the storms raged. Its staff has gone from fewer than 100 to more than 1,000. And it took on some 300,000 policies practically overnight when three insurers failed two years ago.

BIG BREAK

Citizens -- and all insurers working in Florida -- got a big break in the past two years because no hurricane made a direct hit on the state.

The question now: Is Citizens, with nearly 1.3 million policyholders, prepared to handle what 2008 may bring?

Bruce Douglas, Citizens' outgoing chairman of its board of governors, and Scott Wallace, its president, say the company is ready to deal with a major storm.

"We're expecting the worst, but we're hoping for the best, " says Douglas.

Citizens has established an operations center in Jacksonville to handle storm claims, it has nearly 5,000 adjusters under contract and it has money in the bank -- that's cash and borrowed funds. It has bought private backup insurance to reduce some of its windstorm losses.

Still, some policyholders are wary.

After being dropped by USAA, Richard Francis ended up with Citizens for his home in Anna Maria, near Bradenton. Citizens' rate was lower than what he was offered by the sole private carrier willing to write him a windstorm policy.

"I am presently insured by Citizens, but envision a nightmare in trying to -- God forbid -- ever submit a claim" to the company, Francis says.

No doubt, Citizens has learned from its mistakes. In late 2004 and early 2005, it was bogged down by mismanagement, especially of its claims operations. Allegations of self-dealing and conflicts of interest plagued the actions of former top officials.

Since then, various task forces and oversight committees have dissected the company's operations. It now has a conflict-of-interest policy in place, and executives and new hires are better screened.

A big factor in handling claims for any insurer is having the cash on hand to cut checks right after a big storm so its policyholders can begin repairs.

Citizens is counting on having $4.1 billion in surplus by year-end to pay claims. That's hard cash.

It also has arranged lines of credit, sold notes and set up agreements with investors to buy bonds totalling another $4.2 billion that the insurer could tap. Of the total, $2.5 billion would cover Citizen's riskiest policies -- those in the wind pool area, generally east of Interstate 95 in South Florida.

Citizens also has back-up insurance from the Florida Hurricane Catastrophe Fund. It has $7.4 billion in reinsurance for its windstorm policies and another $4.3 billion for its multiperil and commercial policies, which include condo and homeowners associations.

The Florida CAT fund provides 96 percent of Citizens' reinsurance.

SUBPRIME CONNECTION

Citizens itself is managing its borrowed money for now, rather than giving it to Wall Street money managers to invest. The return on these invested funds is greater than the interest Citizens must pay on the debt, so the insurer is in a good position.

However, the meltdown of the sub-prime mortgage market caught the insurer flat-footed last summer and threw off its usual financing and investment strategy.

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