Storm Losses Increase FHCF Reliance on Bonding
The Florida Hurricane Catastrophe Fund (FHCF) projects that it would be able to meet its maximum single-season reimbursement obligation of $17 billion if the need arises. However, hurricane losses in recent years have reduced the FHCF’s available cash, increasing its anticipated reliance on post-event bonding.
For the 2023-24 FHCF contract year, the insurance industry retains an initial aggregate $9.1 billion in hurricane losses. The FHCF’s maximum obligation to all insurers then is $17 billion. To reimburse insurers at this level, the FHCF first would rely on its projected $4.2 billion liquid fund balance. The FHCF also has $3.5 billion in pre-event note proceeds available. This would leave the FHCF with a post-event borrowing need of $9.3 billion.
Twice each year, the FHCF estimates the amount of post-event bonds it could issue 0-12 months and 12-24 months after a triggering event. Most recently, the FHCF determined it could issue $7.8 billion in bonds within 12 months of an event. This would leave $1.5 billion in bonds to be issued 12-24 months after an event, which is within the FHCF’s estimated ability. The FHCF likely would need to levy an assessment of approximately 1% – 1.8% depending on the duration and the interest rate.
Although the FHCF continues to anticipate meeting its maximum contracted single-season obligations, the most significant impact on the Florida market would be felt in a subsequent season. Under current conditions, one or more events depleting the FHCF in an initial season would result in the FHCF’s having only about $7 billion in capacity available for a subsequent season. This would leave a $10 billion shortfall in expected capacity available to insurers and create considerable strain on the market. Fortunately, as the 2023-24 hurricane season nears its end, the FHCF stands to benefit from accumulating another year’s premiums and potentially future improvements in the interest rate environment.