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FHCF Projects Short-Term Deficiency

FHCF Projects Short-Term Deficiency

The Florida Hurricane Catastrophe Fund adopted its most recent bonding estimate this week and announced that it could fall $1.5 billion short of meeting its total outstanding reimbursement commitments in the first 12 months following a substantial hurricane.  Over 24 months, however, the FHCF projects that it would be able to fully reimburse insurers for the limits of their contracts.

The latest estimate is consistent with, and slightly better than, the FHCF’s estimate from earlier this year.  It also marks a significant improvement over the FHCF’s low-water mark in recent years when its cash on hand was less and bond market conditions were less favorable.

One key public policy consideration continuing to affect the FHCF is the allocation of its capacity between initial season coverage and subsequent season coverage.  If the FHCF encounters an event exhausting its single-season capacity, it is likely to have less than $5 billion available to pay reimbursements in a subsequent season.  This substantial decline in the FHCF’s capacity would occur at a time when global reinsurance markets might be disrupted and private market reinsurance prices likely would be increasing.  Earlier this year, the FHCF proposed legislation that would have reduced the size of the FHCF.  However, the changes were too abrupt and drew significant opposition.  The FHCF continues to support a “right-sizing” proposal and is expected to pursue similar but less abrupt changes in 2013.