Gary Fineout: Cat Fund on solid ground for 2010 hurricane season

May 18, 2010

Gary Fineout of The Fine Print published the following on May 18, 2010:

The Fine Print

Florida politics, policy, and plain-spoken analysis by Gary Fineout.

A new round of estimates for the Florida Hurricane Catastrophe Fund show that it should have enough to pay off all of its obligations as it heads into the 2010 hurricane season.

An advisory council for the Cat Fund – which is the state-created reinsurer intended to help bring down Insurance rates –  formally approved the new estimates on Tuesday.

John Forney, the financial advisor for the Cat Fund, said a team of advisors has concluded that the Cat Fund could borrow nearly $16 billion if the state was struck with devastating storms. The Fund already has a projected surplus of $6 billion and it has $3.5 billion in debt that can be used as well.

“The conclusion is the Cat Fund is in great shape,” said Forney.

The idea that the Cat Fund could borrow enough to meet its obligations was bolstered by the recent pricing of roughly $700 million in bonds to pay off claims from 2005 hurricanes. Two rating agencies kept the Cat Fund bond rating at its current level and one rating agency even increased the rating.

The financial health of the Cat Fund has been a big concern in recent years due to the instability in the financial markets with a fear that the state would have to turn to the federal government to bail out the state in the event of a major hurricane. Just two years ago the bonding capacity of the fund was $3 billion.

But any bonds issued by the Cat Fund would have to be paid back by assessments on most Insurance bills.