Reinsurance coverage for the Florida Hurricane Catastrophe Fund will not be purchased for the upcoming hurricane season after overseers of the fund evaluated the market and found a lack of private capital availability.
In a statement, John Kuczwanski, manager of External Affairs for the Florida State Board of Administration, which administers the FHCF, said the current environment has made it so capital is “less abundant than in prior years,” but says the fund is adequately capitalized for the upcoming season.
Prior to the beginning of each hurricane season, FHCF reviews its financial condition and evaluates all available opportunities in the global risk transfer and financial markets that may assist in maximizing the FHCF’s claims-paying capacity, Kuczwanski said.
Since 2015, he noted there has been “an abundance of private capital and significant risk transfer capacity, which allowed the FHCF to participate in the reinsurance market without reducing the amount of capacity available to direct writers in the Florida market.”
However, in the current environment, capital has become more restrictive. After evaluation of this market, and in collaboration with FHCF consultants, the SBA decided not to participate in a private reinsurance placement this year. The SBA will reevaluate risk transfer within its capital structure next year.
The FHCF’s reinsurance contract for 2019-2020 totaled $920 million attached at $10.5 billion, according to Kuczwanski.
“The FHCF is in a strong financial position with $12.3 billion in liquid resources available to pay claims for the upcoming hurricane season and will seek other opportunities to optimize its capital structure and maximize its claims-paying capacity,” he said.
Reinsurance capacity and increasing rates has been a concern for the Florida insurance market as insurers approached the June 1 reinsurance renewal date. Florida’s state-run insurer of last resort Citizens Property Insurance Corp. opted not to place a $200 million cat bond for its Coastal Market accounts because of “irrational” pricing in the capital markets, Citizens President and CEO Barry Gilway said in a recent Insurance Journal webinar.
AM Best stated earlier this year that reinsurance rates could rise as much as 15% for Florida insurers, while KBW said average rate increases of 20%, or higher for some companies, were expected.
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