The Florida Hurricane Catastrophe Fund (FHCF) is facing losses of up to $6 billion due to the impacts of hurricane Irma, according to actuarial estimates, with the loss being contained within the FHCF’s funding and not significant enough to trigger its reinsurance program.
The FHCF’s consulting actuary Paragon Strategic Solutions has estimated that the Florida cat fund will likely face losses in a range from $3 billion to $6 billion from hurricane Irma, saying that a conservative point estimate would be $5.1 billion.
Despite these hurricane losses the FHCF believes it will end the year in the black and Irma is not expected to negatively affect its ability to recapitalise and secure funding in the future.
However, the FHCF’s loss estimate is preliminary and there is significant uncertainty regarding the final ultimate loss amount. The fund has not yet established its reserve for hurricane Irma either, as it will need notification from participating insurers to help it identify its own losses.
After taking into consideration the hurricane Irma loss estimate of $5.1 billion, the FHCF still has estimated claims‐paying capacity of $21.5 billion, which is $9.6 billion above the remaining statutory limit of $11.9 billion.
At this time it looks like hurricane Irma won’t be too much of a hit to the FHCF and it should be able to recover and also add some more capital in time for the 2018 hurricane season.
At this time it’s not clear whether the impacts of hurricane Irma could push the FHCF to look for a larger risk transfer and reinsurance program for 2018, which it will be due to renew at the mid-year 2018 reinsurance renewals.
Although the adminstrators of the FHCF told Artemis that any risk transfer or reinsurance purchase for 2018 would be dependent on market conditions and pricing.
With ILS and catastrophe bond pricing likely to be among the most efficient in 2018, given the appetite and ability of catastrophe bond investors to maintain lower rates than reinsurers that have experienced hits to capital, there is perhaps more of a chance that an FHCF cat bond could be considered, which would be a positive step in the evolution of its use of risk transfer.