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.
For the 2024 hurricane season, Citizens' probable maximum loss (PML) for a 1-in-100 year event is $17.7 billion, against $15.4 billion in claims-paying resources, which include operating surplus and reinsurance coverage from both the FHCF and private markets. Citizens initially sought $5.5 billion in reinsurance but secured $3.5 billion due to pricing and availability considerations.
Should Citizens face insured losses exceeding its $15.4 billion in claims-paying resources, it would first levy a policyholder surcharge, capped at 15% of direct written premium, potentially raising up to $895 million.
If further funds are necessary, Citizens could issue post-event debt, supported by emergency assessments. These assessments could be levied up to 10% of the $85 billion assessment base to cover additional claims.
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