FHCF Projects Shortfall
The Florida Hurricane Catastrophe Fund has released the October update of its fund balance. These projections take into account the FHCF’s cash on hand and its expected ability to issue bonds. For the current FHCF contract year, the FHCF has $18.4 billion in aggregate potential reimbursement obligations. However, the FHCF projects a $3.2 billion potential shortfall in trying to reach that amount. This is based on a maximum bonding estimate of $8 billion, which is the maximum amount the FHCF would expect to be able to issue in bonds during the first 12 months after landfall. This would leave a shortfall not only in the FHCF’s optional coverages but also for a portion of its mandatory layer. It is important to note that the FHCF could continue to issue bonds in subsequent years, and when taking into account that potential additional capacity the FHCF would be more likely to be able to fully reimburse insurers.
The FHCF has proposed changes for the 2012 legislative session that would reduce its size and increase the likelihood it would be able to fully reimburse insurers even in lackluster bond market conditions. However, these changes might have impacts on insurers’ capacity for writing in Florida and on their rate needs if they must replace the shrinking FHCF with coverage in the private reinsurance market.