FILE - Hurricane Andrew damage

An aerial view of damage caused by Hurricane Andrew in 1992.

You’d expect worst-case scenarios to be a regular agenda item for an advisory council appointed to manage the Florida Hurricane Catastrophe Fund (FHCF).

Those expectations were met late last week during the nine-member council’s meeting as part of a good news, bad news presentation by FHCF Chief Operating Officer Anne Bert.

The good news is the FHCF has enough money in its reserves to cover its “maximum potential liability” from Hurricane Irma with $17.3 billion – $300 million more than statutorily mandated – now “available for the subsequent season.”

The bad news is the FHCF may not have enough money should Florida experience a massive storm, such as Hurricane Andrew in 1992, or a series of hurricanes that pounded the state in 2004.

“We certainly faced that in 2006, because we wiped out the CAT Fund in ’04 and ’05,” Bert told the council.

The worst-case scenario is not far-fetched considering the population of the state’s seven most high-risk counties – Miami-Dade, Broward, Palm Beach, Lee, Collier, Charlotte, Monroe – has grown by 58.3 percent since 1990.

One solution endorsed by the council could be allowing the FHCF to sell more reserves in “pre-event” and “post-event” bonds while investing up to $1 billion in capital markets.

The FHCF is a tax‐exempt trust fund created by the Legislature in the wake of Hurricane Andrew in 1993. It is administered by the State Board of Administration, which is comprised of the governor, the state’s chief financial officer and attorney general.

The SBA’s next quarterly meeting is in July, when it will be presented with the proposals introduced Thursday.

The fund is designed to stabilize Florida’s storm-stressed property insurance market. It offers partial reimbursement for residential property insurers’ hurricane losses.

Property insurers must enroll in the program and pay annual reimbursement premiums based on insured values of covered properties.

The fallout from Hurricane Irma illustrates how the FHCF works. The industry-wide loss for Florida property insurers from Irma is estimated at about $8 billion. The fund’s reimbursement liability exceeds $2 billion. Of that, nearly $400 million has been paid with the remaining to be paid out in installments, which insurers prefer.

State statute limits the FHCF’s reimbursement liability to its actual claims‐paying capacity, which depends on bond market conditions for its “pre-event” and “post-event” revenue bonds.

According to a Raymond James analysis presented to the council, three major rating agencies have issued the FHCF top rankings primarily because of its $46.8 billion premium base.

During Thursday’s council meeting, Bert said that bond rating is a hedge against surviving a worst-case scenario storm or storm season.

“The worst [scenario] would be if we didn’t have any ‘pre-event’ bonds,” she said.

The FHCF floats $2.2 billion in “pre-event” bonds and wants to sell $1 billion in risk to the capital markets, which are generally attractive to private reinsurance companies or Wall Street investment firms.

“Interest rates are low right now. There are people looking for yield,” Bert said. “They just are.”

If a worst-case scenario storm, or storm season, were to unfold, a “wipe-out” in reimbursement claims would leave the FHCF with $2.75 billion in liquid assets and the capacity to float $8.2 billion in “post-event” bonds needed to borrow the $6 billion necessary to restore its reserve.

Raymond James maintains the fund could raise $2.8 billion in emergency premium assessments on insurers to pay debt service on “post-event” bonds.

“None of this is free money. We have to pay it back. And we will turn to the policyholders of the state of Florida to help us pay it back,” Bert said. “Hopefully, the market would allow us to do that.”

The FHCF also presented a “Before/After” report documenting lessons learned from Hurricane Andrew’s fallout. Highlights:

• 1992’s Hurricane Andrew, the first major hurricane to hit Florida in 27 years, resulted in losses that greatly exceeded industry expectations: $10 billion in residential losses. At least 10 insurers became insolvent and 44 announced plans to fully or partially withdraw from Florida, placing at least 840,000 policies at risk. The state has created its own “insurer of last resort insurer,” Citizens.

• According to the state’s Office of Insurance Regulation (OIR), the 2004 hurricane season showed FHCF worked as it was intended.

• Today’s Florida property insurance market looks very different from the market of the 1990s. In 1995, the top six property insurers – all major national companies – accounted for 66.5 percent of the market. Now, the top 10 companies, including Citizens, account for a total market share of 51.6 percent with the bulk Florida-based companies and Florida subsidiaries of national companies.

• Looking at the losses that historic storms would cause today: The 1926 Miami hurricane would result in $80 billion in insured losses ($160 billion total losses), nearly twice projected for a repeat of Katrina. A repeat of Andrew would result in $42 billion in insured losses ($84 billion total).