TALLAHASSEE — Gov. Rick Scott and Cabinet members voted Tuesday to bolster the state’s catastrophic insurance fund with $2.2 billion of added coverage in advance of what forecasters predict will be another quiet hurricane season in Florida.
State financial experts say the cost to a typical policyholder will be “minimal,” or a premium increase of two-thirds of 1 percent or $13.75 a year, including homeowners covered by the state-backed Citizens Property Insurance Corp. But they say the timing is ideal because reinsurance rates are at all-time lows.
“The fund today is at the strongest point it has ever been since its creation in 1993,” said Ash Williams, executive director of the State Board of Administration, which oversees the Florida Hurricane Catastrophe Fund, known as the Cat Fund.
Reinsurers, primarily offshore companies in Bermuda or oversees, sell added layers of coverage to insurance companies to help pay claims after a major hurricane or other catastrophe.
Williams said this is the first time the SBA has recommended the purchase of reinsurance in the private market since 1993. He said the deal will allow the Cat Fund to reach its state-mandated ceiling of $17 billion to cover all storm claims in a single season.
Williams told Scott and the Cabinet that overall year-to-year premium costs will go down by about 0.4 percent because of the repeal in January of a 1.3 percent special assessment on policies to pay claims from storms in 2004 and 2005.
Under a two-part transaction approved Tuesday, the state will buy $1 billion in reinsurance, transferring that risk to the private insurance market, and $1.2 billion in coverage will be secured from the issuance of bonds.
By spreading some of its future risk, the state hopes to avoid having to hit policyholders with higher assessments if a hurricane strikes Florida.
State Insurance Commissioner Kevin McCarty told officials that he did not believe the transaction would result in higher rates.
Joining Scott in the 3-0 vote were Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi, who as SBA trustees must approve state investment decisions. The third Cabinet member, Agriculture Commissioner Adam Putnam, is not a voting trustee.
William Stander of the Florida Property and Casualty Association, representing 13 Florida-based homeowner insurance companies and 1.5 million homeowner policies, said FPCA opposes the purchase of reinsurance as too costly.
Stander noted that the state’s own analysis shows that the cost of buying reinsurance to the state will be $34.5 million more than a pure bond sale. “The purchase of reinsurance is more expensive,” Stander testified.
Other opponents included Jay Neal of the Florida Association for Insurance Reform and Rep. Frank Artiles, R-Miami, who said it makes no sense to raise premiums on policyholders and is unnecessary. “It’s nothing more than corporate welfare. It’s wasteful,” Artiles said.
A hurricane has not made landfall in Florida since 2005.