The Florida Hurricane Catastrophe Fund, working with its Financial Services Team, is developing options to present to the State Board of Administration for claims financing this hurricane season if the FHCF is unable to timely secure necessary bonding in the troubled New York financial markets. A special SBA meeting scheduled for Tuesday, June 17, was postponed because details of the alternative were not finalized.

The Financial Services Team consists of Aon, Guy Carpenter and US RE. In a June 6 memo, it proposed three "Reinsurance and Risk Finance Options:" an annual aggregate reinsurance layer $5 billion in excess of the Cat Fund's mandatory layer;  an annual aggregate reinsurance layer of  $5 billion in excess of the mandatory layer, with an agreement to repay 50 percent of any losses ceded within three years; and a revenue bond "put" option allowing the FHCF to issue bonds to reinsurers at the then current market vbalue without an interest rate step-up.

These options were discussed by the Advisory Council June 9, but no recommendation made. Cat Fund officers have been meeting behind closed doors, apparently with the strategy team and aides to the SBA trustees - Governor Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollom.

As John Forney of Raymond James noted in his own June 6 memo, the Cat Fund enters the 2008 hurricane season "with larger usable cash resources than it has ever had  before - over $8 billion - and a multi-year claims-paying capacity of over $55 billion."

"A storm causing residential insured losses of over $15 billion would be required before any bonding would be needed," Forney noted - a storm that would rank only behind Hurricane Andrew and Hurricane Katrina in insured losses. If bonding is required, the Cat Fund's senior manging underwriter team believes "that even in the currently difficult market environment, the FHCF could raise at least $10 billion in the bond markets in the first several months after an event."

"Despite this strong financial picture presented by the FHCF, concerns remain about its ability to meet its maximum potential obligations in an extreme storm event. For the 2008 storm season, this maximum obligation...could be over $29 billion. The resources described above, including the estimated amount of bonding accessible with reasonable certainty...come to about $18 billion...there is the potential for up to an $11 billion temporary financing shortfall that could cause reimbursement payments to be delayed."

We hope to have more details soon on the specific proposal or proposals to be presented to the SBA. In the meantime, here are background materials distributed to the Cat Fund Advisory Council, including the two memos cited above.

Nicholson Powerpoint for June 9 Advisory Council Meeting

Nicholson Powerpoint for June 9 Advisory Council Meeting

RJA FHCF Hurricane Season Funding Update

RJA FHCF Hurricane Season Funding Update

FHCF Reinsurance Assessment Findings

FHCF Reinsurance Assessment Findings

FST Reinsurance & Risk Financing Options