(Bloomberg) -- More frequent Atlantic hurricanes threaten to increase property damages in Florida — forcing the state-backed reinsurance provider to sell more debt to meet coverage demands.
Should a major storm make landfall in the state and cause losses on par with Hurricane Ian — which is estimated to have cost $9.5 billion — that would eclipse the roughly $7 billion in projected reserves for the Florida Hurricane Catastrophe Fund, according to a report by Moody’s Ratings.
“The fund would use its $6.9 billion in reserves first, then may access debt proceeds in tranches to match expected payout,” Moody’s analysts led by Denise Rappmund wrote in a report. The fund has the ability to issue debt to absorb claims up to its $17 billion liability cap in a single season, according to Moody’s.
Regarding the possibility of borrowing in the event of a large hurricane, Ben Watkins, the state’s director of bond finance said “we are in that position every year,” speaking in an interview. “We are very comfortable with the financial position that we’re in with substantial accumulated reserves and the liquidity financings on top of that.”
The fund serves a crucial role in Florida’s insurance market, which is more reliant than any other state on reinsurance. Nearly 40% of premiums are ceded to reinsurers in Florida, whereas most other states have a ratio of 20% or less, according to Moody’s.
While Florida has capacity to support more borrowing, more frequent storms could become “challenging” and force the catastrophe fund to rely on paying claims with debt, the report said.
Florida’s catastrophe fund is a tax-exempt state trust fund that provides reimbursements to residential property insurance companies. It’s controlled by the State Board of Administration, and participation is mandatory for all insurance companies doing business in Florida.
Earlier this month, Moody’s placed the rating for the fund, as well as Citizens Property Insurance Corporation, Florida’s insurer of last resort, and the Florida Insurance Guaranty Association, which handles the claims of insolvent insurers, under review for possible upgrade.
The ratings company cited “close financial and governance relationship between the State of Florida and its state sponsored insurance entities” as a reason for the action.
©2024 Bloomberg L.P.
