Test: Florida CAT Fund Posts Internet “Roadshow” for Series 2010A Bond Issue

May 14, 2010



The Florida Hurricane Catastrophe Fund (“Fund”) posted a “NetRoadshow” on the Internet to educate potential buyers about the financial strength of the Fund prior to beginning sales of a $694 million Series 2010A bond issue on May 12.

The proceeds of the tax-exempt bond issue will be to pay off any remaining claims from the 2005 storm season.  So far, the Fund has paid almost $9 billion for claims arising from the hurricane seasons of 2004 and 2005.

The presentation was hosted by John Forney, managing director of Raymond James & Associates, which is a financial advisor to the Fund.  He explained that the Fund is tax-exempt and was created by the Florida Legislature in 1993 to act as a reinsurer for companies selling insurance in Florida.  It is mandatory that all property and casualty companies selling insurance in Florida belong to the Fund.

He gave assurances that the Fund is well managed and in strong financial condition with a current surplus of $9.4 billion in liquid assets and that the bonds would be backed by the surplus, premiums collected and special assessments on all policies issued in the state.

Ash Williams, executive director and chief investment officer for the State Board of Administration (SBA), which administers the Fund, explained that the SBA also manages the state employee retirement fund and other entities and currently has $140 billion in assets.  The SBA is composed of the governor, the chief financial officer and the attorney general.

Jack Nicholson, chief operating officer of the Fund explained that all insurers pay a premium based on their proportionate at-risk exposure.  He said that premiums collected during 2010 are projected to be $1.39 billion.  He further explained that after a storm the insurance companies pay the first $7.142 billion of claims before becoming eligible for reimbursement by the Fund.  The Fund then pays 90 percent of a company’s claims and the company pays a10 percent co-pay.

The Fund pays claims using accumulated premiums, investment earnings and the proceeds of bond issues.

The Fund’s liability is defined by Florida statute and Nicholson estimated that for 2010 the Fund’s maximum liability is projected to be $19.72 billion.  In a “worst case scenario” the Fund is allowed to issue up to $10.7 billion in post-event bonds, he said.

Revenue dedicated to debt service consisted of premiums, special assessments (which can go as high as 6 percent) and earnings on investments.  Also, bond holders must be paid before any losses are paid.  The assessment base is currently $33.3 billion, the Fund has $8.2 billion in investments and $9.44 billion in liquid assets, including floating-rate notes.

The Fund’s bonds are rated double A by all three rating agencies.

Ben Watkins, the Fund’s director of bond finance, said the Fund has the backing of strong statutory authority and “plays an essential role in Florida’s residential insurance market.”

He said the assessment on Florida policy holders was recently raised from 1 to 1.3 percent to ensure the Fund’s ability to pay the debt service for the Series 2010A financing.

J.P. Morgan is the underwriter.  Retail sails of the bonds are to start on May 12, institutional sales start on May 13 and settlement is expected to be May 23.

The presentation was posted for a very limited time, it could not be downloaded no copies of the slides were available.