The Florida Chamber of Commerce today applauds Citizens Property Insurance Corporation for better protecting families and businesses against “hurricane taxes” by transferring more risk to the private reinsurance market. Today’s transfer means Citizens will have approximately $3.1 billion in reinsurance available in the event of a major storm or series of storms during the 2014 hurricane season, and therefore reduce the need for assessments on all insurance policy holders.
While this is great news for insurance policyholders throughout Florida, more can be done to further reduce the risk of hurricane taxes on drivers, businesses, charities, religious institutions, local governments and school boards.
“The Florida Chamber encourages the State Board of Administration (SBA) to authorize staff to explore the global financial markets to transfer risk from Florida’s Hurricane Catastrophe Fund (Cat Fund) out of the state’s border,” said David Hart, Executive Vice President for the Florida Chamber. “While reinsurance rates are among the lowest in many years, and with the unpredictability of a looming hurricane season, the time to act is now.”
To further reduce hurricane taxes, the Florida Chamber encourages the SBA (comprised of the Governor, Chief Financial Officer and Attorney General) to act quickly and authorize its professional staff to explore the global capital and reinsurance markets to determine if Florida can economically move some of its hurricane risk out of the state into global financial markets. As fiduciaries for the state, the SBA should direct the Cat Fund to undertake this prudent action. The SBA will still control the final decision and determine if this transaction makes economic sense to Florida.
Global investors, such as pension funds and hedge funds, learned during the Great Recession a few years ago that they should invest a small percentage of their assets in opportunities which do not correlate with the economy. Weather catastrophes fit that criterion and investors have increasingly sought opportunities in that sector.
“As the world’s largest global risk for hurricanes, Florida is ground zero for these investors,” Hart added. “And, because of the oversupply of capital, the cost of that capital has decreased tremendously in the past several years.”
The Cat Fund has a statutory obligation to provide up to $17 billion of coverage to Florida’s homeowners insurance companies. To the extent that the Cat Fund does not have sufficient cash to pay these claims, the Fund attempts to obtain the rest from the bond market. In three of the past five years, the Cat Fund’s financial advisors have indicated that the Cat Fund would not have the bonding capacity to make up the difference. Therefore, the Florida Chamber has recommended “right-sizing” the Cat Fund over time to a statutory limit of $14 billion, or $3 billion less than currently required.