Michael Moline
The Florida Hurricane Catastrophe Fund has reserves enough to easily cover its Hurricane Irma liabilities — as much as $300 million in excess of its $17 billion statutory liability limit.
But what happens if a major storm — or a swarm of them — wipes out the fund’s assets? It might have to demand emergency assessments of a broad array of policyholders.
Council staff stressed during an advisory council meeting Thursday that they were talking really-bad-case scenarios. But it’s not like it hasn’t happened before, chief operating officer Anne Bert said.
“We certainly faced that in 2006, because we wiped out the CAT Fund in ’04 and ’05,” she said.
“It’s not the worst. The worst would be if we didn’t have any pre-event bonds,” Bert said. Still, “This one’s pretty bad.”
The fund floats those “pre-event” bonds as contingency against disasters.
A wipe-out would leave it with $2.75 billion in liquid assets. It likely could float another $8.2 billion in bonds at that point, but the fund would need to borrow an additional $6 billion-plus to rebuild its reserves.
Those emergency assessments would pay debt service on such “post-event” bonds, Bert said.
“None of this is fee money. We have to pay it back. And we will turn to the policyholders of the state of Florida to help us pay it back,” Bert said.
As for a bond issue, “Hopefully, the market would allow us to do that,” she said.
She referred to the capital market — infusions from private reinsurance companies or Wall Street actors looking for places to park cash.
“Interest rates are low right now. There are people looking for yield,” Bert said. “They just are.”
Back to the present: The fund holds $14 billion in cash, and is looking into selling $1 billion in risk to the capital markets. It controls $2.2 billion in pre-event bonds.
“We’re in great shape,” Bert said.
According to a Raymond James analysis, the three major rating agencies have given the fund their top rankings not least on the strength of its $46.8 billion premium base. The fund could raise $2.8 billion in assessments to cover storm damage during a single contract year.
The industry-wide loss from Irma has been estimated at more than $8 billion. The fund’s share exceeds $2 billion, nearly $400 million of which it has paid thus far. Its client insurers typically prefer to be paid in installments, according to fund staff.
