FHCF Turns Attention to Second Season Capacity
The Florida Hurricane Catastrophe Fund (FHCF) has accumulated significant claims-paying resources in recent years. Hurricane Irma is not projected to significantly reverse the FHCF’s balance of on-hand liquid resources that arose when Florida went about ten years without a hurricane. This means that as we enter the 2018 hurricane season, the FHCF is well positioned to meet its statutory limit of $17 billion through a combination of cash on hand, pre-event notes, and possibly purchasing $1.0 billion in reinsurance. Most notably, the FHCF has a little over $14 billion in cash on hand.
The FHCF projects to be able to issue about $8.2 billion in post-event notes. This isn’t likely to be needed in an initial season, but it will be critical in determining the amount the FHCF can pay in a subsequent season if the FHCF is exhausted this year. The FHCF expects that if the fund is exhausted this year, the combination of the cash it collects next year and its bonding capacity of $8.2 billion still would leave it about $6.3 billion short of the $17.0 billion statutory limit.
The Florida insurance market clearly has benefitted from the FHCF’s solid claims-paying position, and this will continue in the 2018 season. The key public policy consideration at this point is how to enhance the stability of the FHCF, and the broader market, in case one or more events in an initial hurricane season deplete the fund for subsequent seasons and insurers simultaneously are faced with the potential of reduced capacity and/or increased pricing in global reinsurance markets.