Florida Hurricane Funds Seeks $693 Million for Reopened 2005 Claims

May 12, 2010

The Florida Hurricane Catastrophe Fund is to begin selling $693 million in tax-exempt bonds to help repay insurers for new and reopened claims from 2005 storms.

The bonds are secured in part by emergency assessments levied on property/ casualty insurance policies. The current 1.0 percent emergency assessment rate will be increased to 1.3 percent to pay for the latest bond.

Fitch Ratings raised its credit score on the bonds from AA— to AA. Fitch said the rating upgrade reflects changes in statutes and regulations that have reduced the FHCF’s exposure and enhanced its ability to further grow its fund balance.

The fund provides reinsurance on hurricane claims for private property insurers in the storm-prone state.

Fitch said the FHCF’s credit has been negatively affected by legislative actions in the past, especially after the 2004 and 2005 hurricanes when statutory changes significantly increased the exposure of the FHCF. But most of those changes have since either been reversed or expired. Additionally, although significant claims have continued to be paid for the 2004 and 2005 hurricanes, the FHCF has had no claims from hurricanes that have hit after 2005, allowing it to significantly rebuild its resources, according to Fitch.

Fitch noted that unusually severe hurricane activity could deplete the FHCF’s claims-paying resources, necessitating additional borrowing and/or prompting further legislative changes to the program.

Recently passed insurance legislation, SB2044, contains a provision to address the problem of 2005 claims being reopened by requiring that all claims be filed within three years following a storm. Gov. Charlie Crist is deciding whether to sign the bill.

The hurricane fund last sold bonds– $628 million– in 2008.

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