The Florida Hurricane Catastrophe Fund’s (FHCF) ultimate loss from 2017’s hurricane Irma has continued to creep higher in 2020, rising from $6 billion booked at the end of 2019 to $6.5 billion as of October 2020.
At the same time, the FHCF’s ultimate loss from 2018’s hurricane Michael has not inflated at all over this period, with the total sitting static at $1.45 billion.
Creeping hurricane Irma losses have dented the FHCF’s funding, with its fund balance falling back to a lower-level than was seen pre-Irma, at $11.4 billion.
Including other sources of financing, the FHCF still easily meets its statutory funding target of $17 billion, with bonding capacity taking it far above that, on top of which the 2020 hurricane season has been kind to the cat fund so far.
Especially since the FHCF stepped back from the reinsurance market this year, as it didn’t renew any private market risk transfer for the current hurricane season.
A lack of capacity for Florida hurricane risk was a driver in the FHCF’s decision to forego renewing its reinsurance for 2020, as too was the pricing.
But really, the cat fund did not want to use up valuable reinsurance capacity that was needed by direct Florida property insurers this year, as the availability of capacity was seen as more limited than in prior years when the FHCF has bought up to a $1 billion reinsurance program.
The creeping loss that is hurricane Irma is one of the drivers of pricing in the market for reinsurance focused on Florida property risks.
News that it continues to creep into 2020 is further exacerbating the demand for higher rates and is expected to mean some more firming of renewals in 2021.
Still the FHCF is actively looking for a new reinsurance broker at this time, with a tender process ongoing and set to complete by the middle of this month.
The FHCF is asking for a reinsurance broker to come prepared to assist it with capital markets risk transfer if needed, saying that Florida statute means it can enter into catastrophe bonds, reinsurance sidecars, industry loss warranties (ILW’s), or other financial contracts that can transfer hurricane insurance risks to the capital markets.
In previous years, the FHCF has not found the capital markets to be an attractive enough alternative for it to pursue a catastrophe bond.
But, in 2021 there is every chance that traditional reinsurance rates remain in a state of firming, while insurance-linked securities (ILS) capacity may be on the rise by the mid-year renewals, which could serve to make the cat bond market a venue that the FHCF could secure reinsurance without overly affecting the amount of capacity available for the Florida domestic insurance market.
Back onto hurricane Irma and the FHCF provided a glimpse of just how severe the loss creep and inflation has been with this storm, revealing that its Irma ultimate loss was just $3.75 billion back at the end of 2018, meaning it has risen by over 73% since that date.