TALLAHASSEE, Fla. – The Florida Hurricane Catastrophe Fund, a state program that provides critical backup coverage to property insurers, is estimated to have $10 billion in losses from Hurricane Ian, officials said Wednesday.
The program commonly known as the “Cat Fund” will be able to handle Ian’s financial hit, though it will go into the 2023 hurricane season with reduced amounts of cash.
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“We feel very confident that we can cover our obligations from Ian because going into this year we had a very healthy cash balance,” Gina Wilson, the fund’s chief operating officer, said during a meeting of the Florida Hurricane Catastrophe Fund Advisory Council.
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The Cat Fund provides relatively inexpensive reinsurance to carriers as a way to help stabilize the property insurance market. Carriers also buy private reinsurance, which serves as backup coverage to help pay claims in situations such as hurricanes.
Under state law, the maximum potential liability of the Cat Fund this year is $17 billion. The fund went into the hurricane season with $15.8 billion in cash and proceeds of what are known as “pre-event” bonds.
Estimates of overall industry losses from Hurricane Ian have varied but are in the tens of billions of dollars. The firm Raymond James, which serves as a financial adviser to the Cat Fund, presented a report Wednesday that said a consulting actuary estimated the Cat Fund’s share of losses at $4 billion to $12 billion and projected a “conservative point estimate of $10 billion.”
“There is significant uncertainty regarding the ultimate loss amount. as losses are just beginning to develop,” the report said. “Estimates are based on the output of models and are subject to significant uncertainty; therefore, there is no guarantee that actual losses will fall within the projected range.”
But Wilson said the fund has received initial information that at least 82 companies expect to get Cat Fund reimbursements, with 28 drawing their maximum amounts. By comparison, she said, nine carriers received maximum amounts after Hurricane Irma in 2017.
Ian made landfall Sept. 28 in Lee and Charlotte counties as a Category 4 storm before crossing the state. Data posted on the Florida Office of Insurance Regulation website Wednesday said 410,251 residential property damage claims had been reported from the storm.
While the Cat Fund expects to be able to handle Ian losses, it will go into the 2023 hurricane season with substantially less money than it otherwise would have expected.
The Raymond James report said the fund is projected to have “liquid resources” of about $7.4 billion. That includes a projected $2.3 billion in cash left at the end of this year, $1.6 billion in premiums paid by carriers and investment income and $3.5 billion in pre-event bond proceeds. If necessary, the report said, the fund also would be able to issue up to $8.4 billion in bonds after a storm.
Even before Hurricane Ian, the private reinsurance market was tight in Florida, contributing to widespread financial problems for insurers. Lawmakers during a May special legislative session approved spending $2 billion on a program to provide another “layer” of reinsurance coverage to carriers.
But Ian has raised concerns that private reinsurance will become more costly and harder to find for carriers. As an example, the reinsurance giant Swiss Re last week estimated its claims from Ian at $1.3 billion.
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