Florida seeks U.S. help to back up hurricane catastrophe fund
U.S. Treasury backup for the state hurricane catastrophe fund isn’t an immediate option, but there are other possible ways to shore up the plan.
BY BEATRICE E. GARCIA
A U.S. Treasury backup for the Florida Hurricane Catastrophe Fund isn’t an immediate option, but top state officials are still looking toward Washington for a possible remedy.
The CAT Fund will be the main topic of discussion at Tuesday’s cabinet meeting that will include Gov. Charlie Crist and Chief Financial Officer Alex Sink.
Ash Williams, who heads the State Board of Administration, which oversees the CAT Fund, and Florida Insurance Commissiner Kevin McCarty were in Washington last week, meeting with Federal Reserve Bank officials as well as some members of the Florida delegation and their staff members.
So far, the Treasury has said it doesn’t have the authority to issue a letter of credit to back up the CAT Fund, according to Dan McLaughlin, an aide for Sen. Bill Nelson, D-Fla.
But if legislation is passed giving the Treasury the authority, that could be a remedy for the CAT Fund, McLaughlin added.
A bill introduced in February by Nelson would allow the federal government to make low-interest loans to the state’s CAT Fund if it falls short after a major disaster.
Although a provision is included in this first bill, McLaughlin said the senator plans to introduce another that would allow the Treasury to step in with a letter of credit if needed.
”There’s still time for the passage of our legislation,” said McLaughlin.
Loans from the Federal Reserve Bank or loan guarantees for private-sector loans to the CAT Fund are also options.
Williams said his mission in Washington was to let federal officials know “why we feel a federal role is appropriate at this time.”
The catastrophe fund, as a means of selling lower-priced back up insurance to the property/casualty companies that operate in Florida is still a viable mechanism. But the lack of credit in the financial markets has made the fund’s established way of raising capital impossible.
The CAT Fund would sell bonds to raise the needed money to pay claims after a major hurricane. There’s no way the CAT Fund could sell billions of dollars in bonds in the current credit market, hence the fund’s predicament.
Right now, the fund has nearly $8 billion to cover claims.
If it sells the maximum $29 billion that it’s allowed to provide in reinsurance, it would still have a significant shortfall.
John Forney from Raymond James, the CAT Fund’s financial advisor, will present backup options the CAT Fund might have in the private market.
Last year, the fund bought reinsurance through one of Warren Buffet’s companies, paying nearly $250 million for the coverage.
But Williams said that probably wouldn’t be an option this year since terms in the private market have changed, meaning it would cost more for less coverage.