State Board of Administration Report: Florida Hurricane Catastrophe Fund Finances Improved But Shortfall Potential Remains
Sep 2, 2009
The Florida State Board of Administration (“SBA”) held its regularly scheduled quarterly meeting on September 1, 2009, during which the SBA Board of Trustees heard reports on state financial investments. An update on Florida Hurricane Catastrophe Fund (“FHCF”) capacity from FHCF Senior Officer Dr. Jack Nicholson was included.
Dr. Nicholson reported that the financial condition of the Florida Hurricane Catastrophe Fund (“FHCF”)is better than last year, with approximately $11.5 billion in reserve for this hurricane season. This is largely attributable to improving financial markets, the option for insurers to purchase a lower amount of FHCF coverage and the decline of FHCF coverage purchased by insurers. However, the FHCF remains about $7.2 billion short of its total statutory obligations, Dr. Nicholson said.
He also explained in detail that, while the Florida Legislature reduced the FHCF Temporary Increase in Coverage Layer limit from $12 billion to $10 billion, only $5.6 billion was actually purchased by 73 insurers.
Additionally, Dr. Nicholson reported that 25 companies qualified for and purchased the $10 million in drop down coverage available to select companies from the FHCF immediately below the Mandatory Layer.
Dr. Nicholson added that FHCF bond estimates have improved by $5 billion, and that it has more cash on hand due to the “cash build-up” factor implemented by the 2009 Florida Legislature.
In response to a question by Florida Chief Financial Officer Alex Sink, Dr. Nicholson explained that he believed insurers did not purchase all the available coverage offered by the FHCF because they did not believe the FHCF would be able to bond adequately to fulfill its entire statutory obligation.
Governor Charlie Crist was careful to point out that, in the event of a hurricane, insurers must reach their retention before accessing the FHCF.
To view the complete meeting agenda and materials, click here.
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