Senate Policy and Steering Committee on Ways and Means Meeting Report: February 9
Feb 10, 2009
On Monday, February 9, 2009, the Florida Senate Policy and Steering Committee on Ways and Means (“Committee”) heard testimony regarding the Florida Hurricane Catastrophe Fund’s (“FHCF”) financial condition from FHCF Senior Officer Jack Nicholson and John Forney, FHCF Financial Advisor. To view the complete meeting packet, click here. The FHCF presentation begins on page 21.
Mr. Nicholson began his testimony by summarizing the FHCF’s history, highlighting that it has saved consumers a substantial amount of money since its creation. He continued by explaining the FHCF’s structure and funding sources. The FHCF is funded through premium payments by insurers, the purchase of financial products and the ability to bond.
Mr. Nicholson, however, explained that, because of the bond market’s poor condition, the FHCF’s financial advisors do not believe it will be able to access enough capital to fulfill shortfalls of $14.7 billion for the 2008-2009 contract year and $18.45 billion for the 2009-2010 contract year.
Mr. Forney offered three basic options to address this shortfall:
- Lower the amount of FHCF coverage offered
- Purchase financial products to fill the gap
- Look to the federal government to enhance the FHCF’s credit or buy FHCF bonds
Mr. Forney reminded that the FHCF has a “financial services team” to evaluate the purchase of financial products.
The Committee asked Mr. Nicholson and Mr. Forney a series of questions regarding the FHCF shortfall’s effect on Floridians. Mr. Nicholson explained that when an insurance claim is made, it is paid by the insurer, which is then reimbursed by the FHCF. If the FHCF cannot reimburse insurers, Floridians could experience a delay in claims payments at a certain point.
Committee Chairman J.D. Alexander stated his belief that the FHCF shortfall is one of the most serious budget problems facing the State this year.
The Committee called Deputy Insurance Commissioner Belinda Miller to testify. Committee members questioned Ms. Miller about the solvency of insurers relying on the FHCF for coverage. Ms. Miller stated that the Florida Office of Insurance Regulation gives companies full credit for FHCF coverage, which allows them to be deemed as solvent. Ms. Miller emphasized that an extraordinary catastrophic event would have to occur in order to trigger a level of payment that could not be covered by the FHCF’s funding.
Senator Alexander inquired about a letter from the rating agency Demotech stating concerns that the FHCF’s inability to pay claims may cause downgrades in many newer insurer’s ratings. Ms. Miller stated that, based on the letter issued by Demotech, companies should begin making arrangements for alternative sources of liquidity.
The meeting was then adjourned.
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