Florida Insurance Council Concern About FHCF Voiced
Oct 23, 2008
National Underwriter--October 22, 2008
BY MATT BRADY
The Florida Insurance Council has sounded a warning to state lawmakers about the Florida Hurricane Catastrophe Fund’s condition after officials said it would be unable to pay all losses if a catastrophic storm hit.
At a meeting last week the FHCF advisory board acknowledged the fund’s reimbursement capacity would come up short by between $10 billion and $15 billion in the event of a maximum loss year.
The fund in an effort to avoid such a possibility has made an arrangement with Warren Buffett’s Berkshire Hathaway in which the fund paid for a guarantee that Berkshire would buy $4 billion in bonds if the fund’s losses exceeded $25 billion.
FHCF was created to protect and advance the state’s interest in maintaining insurance capacity in Florida by providing reimbursements to insurers for a portion of their catastrophic hurricane losses.
FHCF Chief Operating Officer Jack Nicholson expressed confidence that any near-term expenses can be paid.
“Our current cash resources can take us a long way,” he said at the meeting. “The fund currently has adequate resources, funding and liquidity to meet any existing bonding obligations.”
But information provided by the Council noted just how vulnerable the state could be, and how fortunate it has been. Had Hurricane Ike, which ended up making landfall in Texas, turned and slammed into Florida, the Council noted, the damages likely would have left the catastrophe fund, and by extension the taxpayers, facing a shortfall of several billion dollars.
“We need to have a cat fund that we can count on,” said Sam Miller, the Council’s executive vice president. “If they’ve acknowledged that they can’t deliver, then we need to find out at what level they can deliver and that needs to be the cat fund law.”
Those answers, Mr. Miller said, may very likely come from the state legislature during its session next spring.
The law that expanded the FHCF’s liability to $28 billion is set to expire after next year’s storm season, and he said that lawmakers are likely to take up the issue before then.
Additionally, said Mr. Miller, the fund’s Advisory Council will release another public estimate of its fund and ability to cover projected losses. While that document will likely not be released until after the legislative session, Mr. Miller said lawmakers will be able to glean some idea of the fund’s ability to pay and assess the state of the bond market from which those payments would come.
If the fund cannot say publicly that it would be able to cover a total loss, he said, “there’s going to be a lot of pressure from a lot of sources” to examine the fund.