Florida Hurricane Catastrophe Fund

The Florida Hurricane Catastrophe Fund (FHCF), the fund that provides a reinsurance like reimbursement for a portion of residential property insurers’ hurricane losses, lacks the necessary liquid assets to pay out without needing to issue post-event bonds, likely backed by assessments, if a repeat storm loss of the magnitude of hurricane Ian were to occur.

With another Special Session of the Florida legislative set for later this month, Governor of the state Ron DeSantis has been outspoken on two key issues, one being reinsurance capital supply, the other the insurer of last resort Florida Citizens.

The Florida Hurricane Catastrophe Fund’s (FHCF) actuaries are projecting a $10 billion loss for the Fund after hurricane Ian, with this significant support going to impacted insurance carriers as reinsurance recoveries.

Proposals to lower the aggregate retention point of the Florida Hurricane Catastrophe Fund (FHCF) are facing opposition, as concerns are raised over the condition that a major hurricane loss event would leave the Fund in, if it exhausted earlier.

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.

The Florida Hurricane Catastrophe Fund (FHCF) has decided not to renew its reinsurance program in 2020, citing reduced reinsurance market capital levels and in response to the firming marketplace.

The Florida insurance market is in a state of flux, as strains from recent years have begun to drive ratings assessments and a situation where capitalisation is key, leading to a number of carrier disposals and a likelihood that both reinsurance capital and private debt will become more in-demand.

Demotech, Inc. has issued a warning that some Florida insurance carriers are facing serious challenges, with a number expected to be downgraded, while others could enter run-off if they cannot successfully negotiate a way forwards or attract the necessary capital.

The Florida Hurricane Catastrophe Fund (FHCF) has renewed its reinsurance program at a slightly smaller size of $920 million, but with flat pricing and insurance-linked securities (ILS) players taking a slightly larger share in 2019.

Reinsurance pricing for catastrophic events should take into account the impact that recently enacted legislative reforms in Florida will have, although right now just how much they will reduce loss and loss adjustment costs in the state remains to be seen.