Losses from storm risks could cut into Florida state reinsurer's funds

Losses from storm risks could cut into Florida state reinsurer’s funds – Moody’s | Insurance Business Australia

Reinsurance

Losses from storm risks could cut into Florida state reinsurer’s funds – Moody’s

Projected reserves could be insufficient to cover further losses

Reinsurance

By
Kenneth Araullo

Florida’s state-backed reinsurance provider, the Florida Hurricane Catastrophe Fund (FHCF), may need to issue additional debt to meet coverage demands if a major hurricane makes landfall, similar to Hurricane Ian, which caused an estimated $9.5 billion in losses.

According to Moody’s Ratings, the FHCF’s projected reserves of $6.9 billion would be insufficient to cover such losses, with the fund currently holding $3.25 billion in pre-event debt proceeds for potential claims.

The fund has the capacity to issue more debt and utilize its assessment authority, potentially reaching its statutory capped liability of $17 billion in a single hurricane season.

Moody’s placed the ratings of the FHCF, Citizens Property Insurance Corporation, and the Florida Insurance Guaranty Association under review for a possible upgrade. This review reflects the close financial and governance ties between these entities and the state of Florida.

Citizens Property Insurance Corporation, the state’s insurer of last resort, relies significantly on reinsurance from the FHCF. While Citizens’ resources are not at historic highs, they are deemed adequate to cover estimated claims for a 1-in-80 year storm event. In comparison, a hurricane comparable to Ian is categorized as a 1-in-25 year event.

Legislation passed in 2022 has improved Citizens’ financial position by merging its three account lines—personal, commercial, and coastal. This consolidation pools resources, reducing the likelihood that any single line will need additional debt financing.