Florida Hurricane Catastrophe Fund Chief Operating Officer Jack Nicholson Updates Florida Cabinet
Nov 15, 2011
Florida Hurricane Catastrophe Fund (“FHCF”) Chief Operating Officer Dr. Jack Nicholson updated the Florida Cabinet this morning, November 15, 2011, on his organization.
He began his presentation by giving an overview of Florida’s hurricane environment and an overview of the basic structure of the FHCF. He noted that the 1-in-100-year probable maximum loss for the entire state is $55 billion. Additionally, the history and functions of the FHCF were highlighted.
It was noted that currently the FHCF has a potential shortfall of $3.2 billion for the current contract year. This potential shortfall could affect the ratings of insurance companies. If there are no hurricanes during the 2011 season, it is estimated that the projected cash balance of the FHCF for 2012-2013 Contract Year would grow by an additional $1.3 billion.
There was discussion of the current volatility in the bond market. Dr. Nicholson stated that, because of the potential shortfall, the FHCF is selling coverage that does not exist.
Analysis needs to be done of what happens to insurance companies if the FHCF does experience a shortfall. Dr. Nicholson added that, if the FHCF experiences a 20 percent shortfall and is unable to pay claims, there could be seven insurer insolvencies and approximately 1.2 million policies could go into Citizens Property Insurance Corporation.
Dr. Nicholson then discussed his plan to “right size” the FHCF, which would allow it to rely more on cash resources by limiting post-event revenue bonds to $5 to $7 billion. The proposal would also reduce the limits of the FHCF Mandatory Coverage Layer. Participating insurer co-pays, aggregate insurer retention and the cash build-up factor would be increased. The maximum allowable emergency assessments would be reduced. Dr. Nicholson explained that “right sizing” the FHCF would remove instability from the market.
A copy of Dr. Nicholson’s presentation is attached in PDF format.
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