Florida's continued lucky streak when it comes to dodging hurricane is helping a key state fund reach its best financial shape ever in the two decades it has been in place.
The state-created fund known as the Florida Hurricane Catastrophe Fund should have $17.4 billion available for the Atlantic hurricane season that starts June 1. This marks the first time ever that the fund has more money than it would need to pay out if storms racked the state.
The financial health of the account nicknamed the "Cat Fund" is important to Floridians regardless of where they live. The state can impose a surcharge on most insurance policies, including auto insurance policies, to replenish the fund if it runs out of money. Some critics have called the surcharge a "hurricane tax."
Kapil Bhatia, a financial adviser for the fund who works for Raymond James and Associates, said the news about the fund was "very positive" for the state's insurance market and for the state's economy. Raymond James prepared a report on the fund's financial strength for an advisory council that oversees the fund.
The fund was created after Hurricane Andrew ravaged a densely populated area of South Florida in 1992. It offers insurance companies backup coverage at prices usually lower than those in the private market. It was designed to help keep private insurers from leaving Florida. Every company selling homeowners insurance in the state is required to purchase coverage which it can tap into after insurers reach a certain level of damages.
Twice a year the state relies on Wall Street firms and financial advisers to calculate how much money the fund needs, and how much it could borrow in the event of a catastrophic storm. The latest estimates, which were approved by the fund's advisory council on Thursday, show that it should have $400 million more than its obligations for this year. The fund could also borrow up to $7.5 billion after a hurricane hit.
Anne Bert, the acting chief operating officer, said this would give the fund "flexibility" in case it wanted to save some of its cash for the next hurricane season. Florida was hit by eight storms over a two year period in 2004 and 2005.
The main reason the fund balance has grown is because Florida hasn't been directly hit by a hurricane since Wilma lumbered across the state 11 years ago.
The fund has also purchased $1 billion of backup insurance, or reinsurance as it known, to help cover any losses. This has drawn scrutiny from some critics who say this could drive up prices for private insurers also seeking reinsurance. Those private insurers could then pass that cost on to homeowners, although state officials have downplayed the risk saying that reinsurance prices are at a historic low.