Florida Pairs Luck, Market Desperation in $2 Billion Reinsurance Plan

The fact that the state of Florida has not be hit by a major Hurricane in nearly a decade — and that the market for windstorm is in a price nosedive while reinsurers are battling for business — is enticing state leaders to “explore” private market alternatives for the Florida Hurricane Catastrophe Fund (FHCF).

“We never had the stars line up in this way, and we could get an extraordinary good value on transferring risk,” said Ash Williams, executive director and chief investment officer for  Florida’s State Board of Administration (SBA) at a meeting Tuesday. “Reinsurers are hungry for new business, and especially for AA credit.”

The FHCF was given authorization to explore “risk transfer” and pre-event financing of up to $2.2 billion during a meeting of the Florida Cabinet, which includes Governor Rick Scott, Attorney General Pam Bondi and state CFO Jeff Atwater.

The SBA oversees the operations of the catastrophe fund.

“The idea here is to potentially take advantage of historically low reinsurance rates coupled with the fact the the hurricane catastrophe fund is in the strongest financial position it has ever been in,” Williams told the Cabinet. “[That] means that the attachment point for any risk transfer product that we might find attractive would be higher than it otherwise might be, meaning the probability of it being attached would be lower and the cost would be cheaper.”

Williams added that the FHCF will use one of the state’s existing reinsurance brokers to approach the market to determine “what it would cost and whether there is value there”

“Costs are lower and global reinsurance capacity has never been higher,” Williams added.

It has been nine year since Florida has been hit by a major hurricane, a record for the Sunshine State and a significant contributor to lower windstorm prices. At the same time a flood of new capital from hedge funds has entered the hurricane risk market expanding capacity and competition.

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