BRADENTON, Fla. - The Florida Hurricane Catastrophe Fund plans to finance a portion of its liquidity needs by issuing $1.2 billion in taxable municipal bonds.
The State Board of Administration, headed by Gov. Rick Scott, Attorney General Pam Bondi and Chief Financial Officer Jeff Atwater, approved moving forward with the financing April 14.
In addition to issuing bonds, the Cat Fund for the first time ever will take out a $1 billion reinsurance policy, which transfers that amount of its own risk to another insurer.
SBA director Ash Williams said the "blended" plan - using bond proceeds and reinsurance - provides the best mix of low-cost borrowing to cover the $17 billion the Cat Fund promises to pay in coverage to Florida property insurers if needed during the upcoming six-month hurricane season, which starts June 1.
The recommendation to use a risk-transfer plan, which means the Cat Fund's own claims would be borne by investors in the reinsurance market, is based on historically low pricing partly because $35 billion in new capital has become available in that market during the past year, Williams said.
Three speakers, most associated with the private insurance market, urged the SBA not to allow the Cat Fund to use reinsurance.
The opponents said the Cat Fund's plan to use reinsurance would cost more than issuing $2.2 billion in bonds, that using reinsurance amounts to corporate welfare for the largely Bermuda-based reinsurance market, and that costs would go up for private insurers needing to purchase their own reinsurance.
State Insurance Commissioner Kevin McCarty said he did not believe that prices for reinsurance would be impacted if the Cat Fund purchased $1 billion in coverage.
As a nonprofit, state-run entity, the fund can issue taxable bonds to use as liquidity, and tax-exempt bonds to pay claims after a hurricane. The pre-event bond proceeds will be reinvested until needed to pay claims.
The State Board of Administration Finance Corp. will issue the $1.2 billion of bonds for the Cat Fund.
The financial advisor is Raymond James & Associates Inc.
JPMorgan will be the book-runner for the upcoming deal. Morgan Stanley & Co. and Wells Fargo Bank NA will be senior managers.
Nabors, Giblin & Nickerson PA is bond counsel.