BRADENTON, Fla. Despite questions about the legitimacy of property insurance damage claims, Florida's top elected officials yesterday approved the sale of $625 million of fixed-rate revenue bonds by the Florida Hurricane Catastrophe Fund Finance Corp.
Bond proceeds will be used to pay reopened claims from hurricanes that hit the state three years ago and that drew questions from Gov. Charlie Crist and Alex Sink, Florida's elected chief financial officer, who are members of the State Board of Administration, which oversees the so-called Cat Fund.
SBA interim executive director Bob Milligan acknowledged that many discussions have been held about why there are so many reopened claims from past storms. He also said a task force on Monday reported there have been approximately 10,000 reopened claims, of which some 7,000 were attributed to Hurricane Wilma.
Wilma hit Oct. 24, 2005, and was a Category 3 hurricane with winds up to 130 miles per hour that first struck Collier County on the southwest coast, then took an unusually long six hours to cross the state, and exited on the east coast near Palm Beach.
Sink noted that the bonds would require an additional two years of assessments an added expense she called "a tax on insurance policies that businesses and homeowners are already paying."
In June 2006, the Cat Fund sold $1.35 billion of fixed-rate revenue bonds to pay claims from 2005 hurricanes that were secured by a 1% assessment on Floridians' property insurance policies over six years. Those bonds begin maturing this year through 2012 at yields of 3.77% this year, 3.84% in 2010, and 3.95% in 2012, according to bond documents.
"It certainly concerns me that here we are three years later issuing more debt and levying more assessments on our homeowners," said Sink, who noted that one Florida homeowner told her that he was paying six different assessments on his policies.
Crist asked why it was so urgent to authorize the bonds sale.
The Cat Fund has about $158 million left to pay claims and a contractual obligation to pay additional claims, according to Milligan, who is a retired lieutenant general.
"When the CFO of our state, and yourself Gen. Milligan, indicate there may be illegitimate claims it makes it difficult for me to vote in the affirmative," the governor said.
While Sink and Crist voted to authorize the bond sale, they ordered a follow-up report on the legitimacy of the reopened claims.
Citi, Goldman, Sachs & Co., JPMorgan, and Lehman Brothers will serve as co-senior managers for the Series 2008 revenue bonds. Raymond James & Associates Inc. is the Cat Fund's financial adviser.
Nabors, Giblin & Nickerson PA will serve as bond counsel on the transaction while Bryant Miller Olive PA will be disclosure counsel.
Documents from yesterday's SBA meeting state that ratings for the 2008A offering will be obtained from the three major rating agencies. The documents also indicate that the bonds will be sold in July after an extensive pre-marketing period.
The board has called a special meeting next Tuesday to discuss recommended financial products to implement a $3 billion or more liquidity plan for the current hurricane season that began June 1. The liquidity will be used, if necessary, to pay claims.
The nonprofit, state-run Cat Fund provides low-cost reinsurance to private insurance companies and the state-run Citizens Property Insurance Corp. The Cat Fund was created in the early 1990s to help stabilize the property insurance industry in Florida because private insurers were either drastically cutting back on underwriting capacity or leaving the state altogether to reduce their exposure to hurricane claims.