Florida Hurricane Catastrophe Fund Advisory Council Meeting Report: October 18, 2011

The Florida Hurricane Catastrophe Fund (“FHCF”) Advisory Council met yesterday, October 18, 2011. 

The meeting was called to order by Chairman Robert Peduto.

John Forney with Raymond James presented a financial market update, explaining that there has been substantial volatility and activity in the financial markets during the last few months, such as the downgrade of the U.S. credit rating and the European debt crisis.  The United States is in a period of very slow economic growth, but the bond markets and interest rates are good, while banks are flush with cash.

Mr. Forney presented the estimated claims-paying capacity of the FHCF, which has liabilities of $18.4 billion and projects the year-end cash-on-hand to be $7.17 billion.  He added that many considerations are factored into formulating the FHCF bonding capacity, such as how long it would take to raise the money and where the bonds will come from.  Additionally, there is uncertainty in the market as to when the FHCF will need the money and what the financial markets will look like at that time.  Although the FHCF has a high debt rating and strong debt repayment abilities, explained Mr. Forney, the paradigm has changed somewhat and people do not buy bonds like they used to.  Some distress also has been noted in the municipal bond market.

The FHCF bonding capacity estimate is $8 billion, which leaves a shortfall of $3.23 billion.  FHCF Chief Operating Officer Jack Nicholson pointed out that this means that the FHCF claims-paying capacity is $15.17 billion, which means the FHCF has the ability to pay 110 percent of its obligations 96 percent of the time.

The Advisory Council members approved the claims-paying capacity report.

Scott Koedel with Don Meyler Inspections and Annalise Mannix of Fair Insurance Rates in Monroe provided updates on insurer mitigation reinspection programs.  Mr. Koedel noted that some carriers have completed all of their reinspections, while others are just getting started.  He is finding that one-third of the reinspections support the original inspection, while one-third yield minor changes.  For the remainder, the reinspection reveals completely different results than the original inspection. 

Ms. Mannix noted that there is not much consistency among the companies.  Further, the Uniform Mitigation Verification Inspection Form does not recognize Monroe County’s stronger building code.

Dr. Nicholson then addressed the Advisory Council regarding the 2012/2013 FHCF Data Call, noting that it will contain changes for next year in an effort toward simplification. Dr. Nicholson did not elaborate on what these changes would be.

FHCF Management Review Analyst Donna Sirmons reminded the Advisory Council of a Florida Commission on Hurricane Loss Projection Methodology meeting scheduled for October 19 and 20, during which it is expected to approve the 2011 Standards of Acceptability. 

Dr. Nicholson presented the Chief Operating Officer’s Report, noting that the FHCF has been able to close out 2004 claims.  There were $3.862 billion in reported losses and all but $3 million are settled.  For 2005, there are $5.836 billion in reported losses.  The FHCF has paid $5.48 billion in claims with $356 million yet outstanding.  Dr. Nicholson stated that it may take up to a year to close out the 2005 claims, but they are getting closer, and no more bonds will have to be issued.

It is anticipated that the next meeting of the Advisory Council will be held during the week of January 9, 2012. 

To view the meeting materials, including the presentation and claims-paying capacity report, click here.

Should you have any questions or comments, please contact Colodny Fass.

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