Florida Hurricane Fund May Come Up Short If Big Storm Hits

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Florida may not have enough money to pay off hurricane insurance claims if a big storm hits this year.

An advisory panel recently concluded that the state may fall nearly $2 billion short of the total needed to cover all of its obligations. The panel is urging Gov. Rick Scott and other state officials to consider borrowing money now to fill the gap.

Lawmakers created the Florida Hurricane Catastrophe Fund after Hurricane Andrew in 1992. It offers insurers reinsurance at prices generally lower than those in the private market. It was designed to help keep private insurers in the state. Every company is required to purchase coverage.

Heading into this storm season, the fund would be liable for about $17.3 billion. It is expected to have more than $8.5 billion in cash reserves by the end of this year, but it would need to borrow the rest if a storm hit.

The new estimates, drawn up in consultation with several Wall Street firms, conclude the state could likely borrow up to $7 billion after a hurricane. That would leave the state $1.757 billion below what it would need if a large storm whipped into the state.

The $7 billion would be paid back with a surcharge placed on every property and auto insurance policy.

The potential gap reinforces view of critics who maintain the fund could wind up being a financial disaster.

And one firm — Goldman Sachs — said Florida likely could borrow no more than $4 billion following a storm. A Goldman Sachs employee told the advisory council that the financial meltdown had eliminated a “whole class of investors” who would have been willing to lend money.

John Forney of Raymond James & Associates and the main financial adviser for the Cat Fund emphasized that even if a storm hit it would likely take some time before the fund would be forced to pay out all of its obligations. “In the worst case scenario, it’s not instantaneous, it’s a matter of months, not weeks,” he said. This past year lawmakers were asked to scale back the size of the fund, a move that would have caused insurance premiums to rise. But the legislation stalled and was not passed. With the new estimates in hand, Scott and members of the Cabinet will be asked to consider borrowing money before a storm hits, to help bolster the Cat Fund’s assets.