Florida’s state-created fund intended to help private insurers pay out claims after a hurricane has billions in the bank as hurricane season starts, indicating it’s capable of withstanding a big storm this year.
New estimates show the Florida Hurricane Catastrophe Fund should have nearly $13 billion available for the Atlantic hurricane season that starts June 1.
“We are very strong at this point and very capable of handling a large event,” said Jack Nicholson, chief operating officer for the fund.
The financial health of the account known as the “Cat Fund” is important to Floridians regardless of where they live because the state can impose a surcharge on most insurance policies to replenish it if it runs out of money. Some critics have called the surcharge a “hurricane tax.”
The amount of money in the fund has grown because Florida hasn’t been hit by a hurricane since Wilma in 2005.
An advisory council for the fund heard from Wall Street firms Thursday on how much money the fund would have to borrow if Florida was hit with a devastating storm this season. The panel approved estimates that show that the fund should be able borrow more than $8 billion – or about twice what would be needed to pay all potential claims.
Nicholson called the fund’s borrowing needs this year the “best situation we have ever been in.”
Florida created the fund after Hurricane Andrew ravaged the state in 1992. It offers insurance companies reinsurance at prices generally lower than those in the private market. It was designed to help keep private insurers from leaving the state. Every company is required to purchase coverage to pay off claims after insurers reach a certain level of damages.
The situation still isn’t perfect: Multiple large storms over a two-year period could leave the fund short of money. Florida was hit with a series of storms in 2004 and 2005. Floridians are still paying extra on their insurance policies to pay off money borrowed in the wake of Hurricane Wilma. That has prompted some state legislators to recommend scaling back the size of the fund, but the bills have been defeated out of fears it would raise homeowner insurance premiums.
Still, this year’s situation is much better than it was during the height of the Great Recession, when convulsions in the financial industry created fears that the fund would not be able to borrow enough money to cover claims from a major storm.
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