Florida to borrow billions to backstop insurers after hurricanes
(Bloomberg) –Florida is planning to borrow as much as $3.8 billion to infuse a state fund that reimburses property insurers for losses when homes are damaged or destroyed by hurricanes.
The Florida State Board of Administration Finance Corporation expects to sell at least $1.5 billion of municipal bonds to raise money for the Florida Hurricane Catastrophe Fund, according to a securities filing dated Jan. 19. It marks the state’s latest effort to ensure that it can backstop its increasingly fragile insurance industry, which has been grappling with a surge of claims and lawsuits in recent years.
In June, the Florida Insurance Guaranty Association, which handles the claims of insolvent insurers, sold debt for the first time in three decades to help support insurance claims. The state agency faced higher costs after Hurricane Ian in 2022 and a deluge of lawsuits forced property insurers to close.
The latest bond sale wasn’t prompted by a specific hurricane. Proceeds will replenish funds from debt issued in 2020 that will mature in 2025, and give the fund “additional capital at an established interest rate and the ability to access funds quickly in the event of a significant storm event,” said Gina Wilson, chief operating officer of the Florida Hurricane Catastrophe Fund, in an emailed statement.
“This is a want to have, not a need to have,” Ben Watkins, Florida’s director of bond finance, said, adding that the debt sale would not require any assessment on member insurers.
Four years ago, corporation borrowed over $2 billion for the catastrophe fund to take advantage of low interest rates.
The fund’s net position fell $8.2 billion for the fiscal year ended June 30, 2023, according to a report. Since Hurricane Ian in 2022, the fund paid $1.9 billion in reimbursements to insurers for that period, and estimates, based on current reporting by insurers, an additional $8.1 billion in reimbursements will be paid through 2028, the report said. The fund is also still making payments for Hurricanes Irma and Michael, which hit the state in 2017 and 2018, respectively.
Morgan Stanley will act as lead underwriter for the latest bond sale, which is scheduled to price as soon as March, according to the filing. Fitch Ratings Inc. affirmed its AA rating for $3.5 billion of the corporation’s outstanding revenue bonds in July, citing its ability to access emergency assessments and a growing assessable base.
