Florida's FHCF runs low post-Ian, still near empty 2024-5

The Florida Hurricane Catastrophe Fund (FHCF), Florida's state-backed property catastrophe reinsurer, will likely end the year in better shape than initially feared post-Hurricane Ian, but still at a major shortfall to its claims-paying cap both in the current year and beyond.

The fund will end the current year with $4.2 billion in liquidity and could draw down $3.5 billion in prior pre-event financing, to leave a $9.3 billion gap to the fund's statutory maximum liability of $17 billion, the fund and its auditors said in a semi-annual report.

That shortfall to the liability cap could expand to as much as $15.4 billion for the 2024-25 contract year in the unlikely event of maxing out this year, estimates from the fund's auditors indicate. The fund would enter that contract year with a mere $1.6 billion in liquidity estimated on hand and no other facilities in place.

The near-term sums are more forgiving than what had been estimated six months prior when Hurricane Ian's hit was still being cast in a wide range of $6 to $13 billion and the end-period cash sum was estimated lower at $3.7 billion.

As of the October report, the FHCF’s projected ultimate incurred loss estimates are $10 billion from Hurricane Ian and a mere $30 million from 2023's Hurricane Idalia.

FHCF thus becomes highly dependent on post-event financing should claims skyrocket to the statutory maximum.

The current year marks the first time in years that the fund would burn through its current-year financing capacity and even have to draw against future period borrowing capacity just to cover current year maximum liabilities.

A panel of investment bankers estimated FHCF's borrowing capacity at an average of $7.8 billion for the coming 12 months and $6.9 billion for the following year.

With market conditions looking volatile, estimates of borrowing capacity varied widely. JP Morgan and Morgan Stanley offered ranges pushing into double digits; Bank of America and Citi were decisively more mid-single digit. Only Wells Fargo offered an estimate range covering the ultimately average of the five.

The FHCF would be in position to levy annual assessments of as much as $4.36 billion for losses from hurricanes occurring in one contract year and as much as $7.26 billion for losses from hurricanes occurring over all contract years, what auditors consider "more than sufficient to support the estimated borrowing capacity for the FHCF".

The FHCF covers up to 90% of $17 billion above a $9.1 billion retention. Cedants, all mandatorily in the programme, can set their own co-payment levels to several pre-set notches. The hardening reinsurance market and reduced reinsurance capacity in the Florida market has pushed the FHCF’s average coverage for 2023 to approximately 87.4%, the fund said.