Florida Cat Fund Looks to Issue $2 Billion in Pre-Event Bonds

By | April 17, 2013

Florida’s state-run property reinsurance facility is preparing to issue $2 billion in revenue bonds to ensure it has enough money on hand to quickly pay insurers’ claims in the event of a major hurricane.

The Florida Hurricane Catastrophe Fund has been working since May 2012 on the bond issuance, which is designed to shore-up the fund’s ability to meet its statutory obligations to insurers by increasing its short-term liquidity.

The Cat Fund by law is charged with providing property insurers with $17 billion in total reinsurance coverage follow a major storm. Currently, the fund has $9.8 billion in cash, but would need another $7.2 billion in bonds to meet its $17 billion obligation.

In recent years, however, there have been concerns whether the fund could actually issue that level of debt, especially right after a major hurricane when other entities such as the Citizens Property Insurance Corp. might also be seeking funds in the capital markets.

Cat Fund Executive Director Jack Nicholson said issuing the $2 billion in bonds is designed to give the fund more flexibility in both paying insurers’ claims and raising money in the bond market.

Nicholson said that after a major storm, insurers would need Cat Fund reimbursements far sooner than it could raise in the bond market. The $2 billion in pre-event bonds, he said, would help pay those insurers that otherwise might go insolvent.

“We want to prepare for a large event when we have to pay claims in three to six months,” said Nicholson.

In addition, said Nicholson, the $2 billion in pre-event bonds would make raising money after a storm more manageable than its current projected level of $7.2 billion.

The largest municipal bond issuance ever made was by the State of California, which issued $6.5 billion in bonds in 2009. In 2007, the Cat Fund issued $3.5 billion in bonds, which were paid of in October 2012.

“If we can shave $2 billion off from $7.2 billion to $5.2 billion we will be a lot better off,” said Nicholson.

Was this article valuable?

Here are more articles you may enjoy.