Good news just in time for the 2015 hurricane season. For the first time since its 1993 creation, the Florida Hurricane Catastrophe Fund (CAT Fund) has enough liquidity to cover the $17 billion statutory coverage, according to state data released last week. Claims-paying estimates provided to the CAT Fund Advisory Council show the program will have $12.8 billion in cash on hand at the end of 2015. Two years ago, the CAT Fund began transferring risk and now has $4.2 billion in pre-event bonds and private reinsurance – providing the $17 billion capacity to pay claims for the 2015 hurricane season.
The Florida Chamber of Commerce has long-supported transferring risk to the private reinsurance market to aid in the fiscal health of the CAT Fund. However, there’s more work to be done. While the CAT Fund is now in a better position to protect insurers from their initial season of losses, the CAT Fund could still experience trouble if a second season of storms occurs, according to the data.
The claims-paying estimate data released last week also examined the CAT Fund’s capacity for a second season of storms. The report assumes that the CAT Fund would not use the pre-event bonding in the first season, and instead would turn to the market for bonds – leaving the pre-event bonding to finance a second season of storms.
The estimated bonding capacity of the CAT Fund is $7.7 billion, which is down $600 million from the October 2014 estimate. This would allow the CAT Fund to pay only 69 percent of its obligation for the second season, leaving roughly $5 billion in losses uncovered. Post-issued bonds will be paid back through assessments, or “hurricane taxes,” by all property and casualty policyholders, including automobile insurance. Additionally, insurers may experience trouble during a second season of storms due to the lack of capacity for the CAT Fund to pay claims in this season.
To make Florida more competitive, the Florida Chamber has long-supported reducing the size of the CAT Fund – allowing insurers to plan for more than one season of storms. Share your voice. Contact Carolyn Johnson at firstname.lastname@example.org to learn how you can help.