State reinsurer remains in good shape at end of hurricane season

Oct 19, 2010

A new round of estimates for the Florida Hurricane Catastrophe Fund conclude that the state-created reinsurer remains on solid financial footing with a little more than a month left in the 2010 hurricane season.

The state-created fund sells low-cost reinsurance to both Citizens Property Insurance Corp. and to private reinsurers. But in recent years the tight financial markets have raised fears that the fund could have a tough time borrowing money in the event of hurricanes.

But an advisory council on Tuesday approved a new round of estimates that remain unchanged from ones approved back in May.

Financial advisors have concluded the fund could borrow up to $16 billion if the state was struck with devastating storms and needed to pay off claims.

The Cat Fund, however, would not need nearly that much to pay off its 2010 obligations. Right now, the reinsurer has total obligations of $18.776 billion. But the fund — between its cash surplus and proceeds from a $3.5 billion bond sale — already has access to $9.41 billion.

“The Cat Fund is sitting in pretty good financial shape with four years, maybe five years with no storms,” said John Forney of Raymond James & Associates, the financial advisor for the reinsurance fund. “We end the 2010 year on a relatively positive note.”

Jack Nicholson, chief operating officer of the Florida Hurricane Catastrophe Fund, said the main fear is not this storm season but what happens if the state is hit by devastating hurricanes two straight years in a row.

“What we are seeing is very positive,” Nicholson said. “The negative is we don’t have solid subsequent season capacity. If you have a large event that wipes you out, where are you the next day?”

The financial health of the fund has been a big concern in recent years due to the instability in the financial markets with a fear that the state would have to turn to the federal government to bail out the state in the event of a major hurricane. Just two years ago the bonding capacity of the fund was $3 billion.

Any bonds issued by the fund would have to be paid back by assessments on most insurance bills. Currently insurance customers in Florida already pay an annual assessment for bonds issued to pay off claims from the 2004 and 2005 storms.

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