Market Downfall Affects State Catastrophe Fund

TALLAHASSEE — There was good and bad news for the state's Hurricane Catastrophe Fund Tuesday.

The fund that reimburses insurance companies facing extraordinary claims following a hurricane has more mostly liquid assets – totaling about $10 billion – than ever before.

However, the fund has greatly expanded in the past few years, making it potentially more dependent on bonding if a Katrina-like hurricane should hit Florida. And a vastly fluctuating market makes bonding more difficult. In fact, it's so difficult that the fund is $15 billion short of it's theoretical worst-case obligation of $28 billion. That would be a highly unlikely, monster storm.

After a hurricane, advisers estimate that the fund's bonding capability stands at $1.5 billion over a six-month period and $3 billion over a 12-month period. This means the fund's total reimbursement capacity is estimated at $11.876 billion over a six-month period and $13.286 billion over a year-long period.

The fund currently has a balance of more than $2 billion, plus assets of $10 billion in various securities, some of which are not immediately available because of maturity dates.

“That ($10 billion) takes it a long way. That gives the CAT fund some breathing room,” said John Forney, a financial adviser to the fund from Raymond James and Associates.

Financial advisers to the fund said at Tuesday's meeting that it would be in good shape to handle minor events because of its liquid resources. A report issued at the meeting said that the resources available to the fund, “would provide a time cushion before bonding was required after a large event.”

Bigger events that would make the CAT fund reliant on bonding might not be so easy.

Advisers told the fund's advisory council Tuesday that the fund has an excellent credit rating and stood a “good fighting chance” if the big one came and the fund had to issue bonds in order to reimburse companies who have been forced to pay out huge claims.

The advisory council is required to meet twice a year – at the beginning and toward the end of the hurricane season – to discuss the fund's bonding capability.

Jack Nicholson, chief operating officer of the CAT fund, said there is a lot of talk about the “big event” but maintained that the fund was still strong.

“We are in a very strong position to do things…probably the strongest position we've ever been in today, cash-wise,” Nicholson said.

Advisers stressed that the numbers discussed Tuesday were only estimates and that their numbers were as up-to-date as possible. However, given the major fluctuations occurring daily in the market, these estimates could change greatly if the market faces another extreme downturn or upswing.

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