Florida Hurricane Catastrophe Fund Publishes Estimated Claims-Paying Capacity As of December 31, 2013
Oct 30, 2013
In a notice issued today, October 30, 2013, the Florida State Board of Administration (“SBA”) announced the estimated borrowing capacity, estimated claims-paying capacity and projected balance of the Florida Hurricane Catastrophe Fund (“FHCF”) as of December 31, 2013, in compliance with the requirements of Section 215.555(4)(c)2., Florida Statutes. These estimates relate to the 2013-2014 FHCF Reimbursement Contract Year.
The FHCF’s projected post-event borrowing capacity estimate is $6.1 billion for October 2013. Given the current state of the financial markets, the borrowing capacity estimate is dependent on many factors, such as: the size of an event or events, the limitations or constraints of the financial markets to absorb potential debt issuances, the time necessary to access such markets, and the existing level of interest rates at the time of issuance.
The FHCF’s estimated borrowing capacity and projected available year-end cash balance (which includes the proceeds of the Series 2013A Pre-Event Bonds) provides the FHCF with a total estimated claims-paying capacity of $17.864 billion over the next 12 months, although the statutory limit is only $17 billion. Greater detail can be obtained in the “October 15, 2013 Claims-Paying Capacity Estimates” Report, which can be found on the FHCF’s Web site at www.sbafla.com/fhcf/ under “Bonding Program.”
The obligation of the SBA for the payment of reimbursable losses is limited in Section 215.555(4)(c)1., Florida Statutes, and shall not exceed the actual claims-paying capacity of the FHCF, and is limited in the statute to no more than $17 billion for this Contract Year. The projected year-end balance available for reimbursement of participating insurers on December 31, 2013, is estimated to be $9.764 billion, which represents the amount of assets available to pay claims, not including any bond proceeds, resulting from Covered Events which may occur during the June 1, 2013 through May 31, 2014 Contract Year.
Given the projected year-end cash balance of $9.764 billion and the additional liquidity provided by the $2 billion of pre-event bonds that were issued in April 2013, the FHCF has a total of $11.764 billion in liquid resources, and would therefore need to issue only $5.236 billion in revenue bonds to fund its $17 billion statutory limit. The SBA recognizes that its good faith estimates are being made while volatile global financial market conditions exist; therefore, changing market conditions can dramatically impact the FHCF’s actual claims-paying capacity either positively or negatively. Current conditions may or may not be the same if and when the SBA determines that it is necessary to issue revenue bonds. Participating insurers who rely on these estimates should recognize the potential impact the financial market can have on the SBA’s claims-paying ability and plan accordingly.
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