The Florida Hurricane Catastrophe Fund is in “very good shape,” with $17 billion at hand for almost any conceivable storm scenario in 2016, administrators told the Florida Cabinet Tuesday. Rates are generally going down after 10 years without a hurricane. Great news, right?
But the storm fund is considering a move to spend $66 million offshore and raise costs to Florida homeowners about 3.2 percent higher than they would have been otherwise.
That means buying reinsurance from private companies, a step taken for the first time last year. That was criticized by one legislator as corporate welfare and a gift to Bermuda reinsurers that raises consumer costs with very little chance it would ever be needed. It wasn’t last year.
The chance it would be needed this time around? About 2.5 percent, Cabinet members heard — along with admissions that doing nothing is a perfectly reasonable option. A move to buy reinsurance, if carried out in April, would raise rates 3.2 percent, offsetting about a third of an expected overall 9 percent decrease in CAT Fund rates.
Florida Chief Financial Officer Jeff Atwater said, “I’m comfortable with where we are today.”
Gov. Rick Scott indicated more interest: “If it’s cheap, I like to buy more insurance.”
The CAT Fund is low-cost back-up coverage for insurance companies in the state, and it tends to help keep consumer bills lower. The case for the state fund spending policyholder money with offshore private firms is essentially this: If an extremely rare storm or set of storms hits in any given year, it could avoid a “storm tax” — assessments to home and car insurance customers statewide afterward to bail out the state fund.
But the reinsurance storm tax — the premium consumers must pay for — hits even if no storm does. If the coverage isn’t used in short-term contracts, often one year, it merely takes money out of the state fund that could go into its cash reserves and make it stronger year after storm-free year. A stronger state fund means Florida policyholders have to depend less on foreign reinsurers with unregulated rates that can shoot up as high as the market will bear in a crisis.
Fund officials said they sought guidance on what to do in a spirit of transparency, even as they asserted the right to act without a formal vote from the Cabinet.
A coalition of groups supporting the reinsurance purchase, Stronger Safer Florida, issued a statement:
“Florida is in a very strong financial position due to 10 years without a hurricane. But what happens when one hits? What about more than one? What about the second year? Floridians and Florida businesses cannot be tasked with paying another $6 billion in hurricane taxes when there is an opportunity now for the State Board of Administration to transfer Florida’s risk onto the world. Reinsurance spreads Florida’s hurricane risk outside the state and onto global investors, thus protecting Floridians from hurricane taxes. Florida is the country’s most hurricane-prone state and simply cannot rely on cash on hand and increased debt for properly preparing for a season of hurricanes or a second year of storms. The Cat Fund must fulfill its role as a stabilizing influence for Florida’s property insurance market while properly preparing for the next series of storms to hit the state.”