Florida Hurricane Catastrophe Fund’s claims paying ability a concern, says AM Best

AM Best have said in a news release that they continue to be concerned about the Florida Hurricane Catastrophe Fund’s ability to pay claims in the event of a major hurricane. This despite the continuing talk about the best way to shore up the fund, or replace it with private market risk transfer instruments. No progress has been made in those talks and AM Best remain skeptical about the cat funds ability to meet its obligations.

AM Bests’s concerns are largely based on the contingent capital nature of the FHCF’s financial backstop. The rating agency said: “Coverage provided by the FHCF’s mandatory layer will continue to be reduced by 5% in A.M. Best’s assessment of risk-adjusted capitalization. Given the lack of funding regarding the Temporary Increase in Coverage Limits, no credit (100% reduction) will be provided for this layer, as was the case previously. A.M. Best believes that reducing the amount of coverage provided via the FHCF and relating it to the projected borrowing capacity represents a more accurate view of overall risk-adjusted capitalization.”

We’ve written about the FHCF’s problems before and drew similar conclusions.