Florida Hurricane Catastrophe Fund Advisory Council Meeting Report: October 20
Oct 23, 2009
The Florida Hurricane Catastrophe Fund (“FHCF”) Advisory Council (“Council”) met Tuesday, October 20, 2009 in Tallahassee, Florida. To view the complete meeting agenda, click here.
After the approval of amendments to its Handbook, the Council heard an update on the financial markets from John Forney of Raymond James and Associates. Mr. Forney reported that since the previous Advisory Council meeting, the financial markets have dramatically improved and are directly benefiting the FHCF. Credit markets are no longer frozen, interest rates are lower and bonding capacity has increased. He defended the financial condition of the FHCF by noting its strong ability to repay debt.
Currently, the FHCF has approximately $7.9 billion in liquid resources, which includes $4.504 billion in on-hand cash and approximately $3.4 billion in pre-event bond proceeds. Mr. Forney also noted that the FHCF may be able to issue approximately $11 billion in post-event bonds, although this is an estimate based on a range of $5 billion to $20 billion. The Advisory Council approved the bonding estimates.
Richard Smith updated the Council on the FHCF’s portfolio and investment results and reported that the FHCF operating fund has increased by $500 million since May 2009.
FHCF Senior Officer Jack Nicholson discussed the impact of legislative changes on the FHCF capacity. The passage of House Bill 1495 in 2009 paved the way for the eventual elimination of the FHCF Temporary Increase in Coverage Limits layer that was authorized in 2007. HB 1495 also requires an initial cash build-up factor of five percent, with an increase every year until it reaches 25 percent. Dr. Nicholson reported that the FHCF contract year will change in January of 2011.
The total selected capacity of the FHCF is $23.173 billion, which Dr. Nicholson said could require up to $18.669 billion in cash resources and bonds. Based upon these projections, the FHCF estimates that it has a shortfall of approximately $4.173 billion.
Dr. Nicholson further informed the Council that it has approximately $654 million in outstanding obligations from the 2004 and 2005 hurricane seasons. The FHCF has approximately $292 million in resources to pay these claims, so a projected shortfall of $362 million exists. Of note, new and reopened claims have contributed to the increased losses, as well as to commercial liability lawsuits.
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