The Florida Hurricane Catastrophe Fund Advisory Council reported today there is no potential shortfall in the program’s claims paying capacity for the first time in almost two years.

The advisory council adopted a proposal from Raymond James showing that $16 billion in bonding is very doable.  That plus $6 billion in cash and $3.5 billion in pre-event funding means the Cat Fund could cover its $25.5 billion dollar maximum obligation even if 100 percent of the $8 billion TICL program is sold this year.

“The Cat Fund is in really good shape going into the 2010 hurricane season,” said John Forney of Raymond James, the cat fund’s financial advisor.

This is in sharp contrast to Cat Fund numbers developed in late 2008 when up to a $19 billion shortfall was projected.  It is the first time since then that the advisory council is certifying no shortfall in any Cat Fund program—the $17 billion mandatory program, $8 bill TICL program, and $1 billion small company drop-down program.

Raymond James is estimating the Cat Fund bonding capacity at a minimum of $12 billion and a maximum of $26 billion.  It has chosen $16 billion as the middle ground formal estimate.

The bonding estimate of October 2008 had plummeted to $3 billion when the country’s economic crisis was at its height.  The bonding capacity grew to $8 billion in May 2009 and grew again to $11 bill in October 2009, still leaving shortfalls in the TICL coverage.  Again, today’s bonding estimate is $16 billion which Raymond James presented as a conservative and highly doable bonding goal.

Forney cited the very good terms achieved by the Cat Fund when it sold just under $700 million in the New York markets last week to cover new and reopened claims to cover 2004 and 2005 hurricane seasons.

He said managers were very encouraged with the response they received from investors.
He also cited an upgrade in the Cat Fund rating from Fitch.  The Cat Fund was upgraded from AA minus to AA.

“There is one sort of cloud,” Forney said, and that is a decline in the Cat Fund assessment base.  There has been an 11 percent or 4 billion decline since the $37 billion high water mark in 2006.   “The trend doesn’t look good.  It’s down, down, down,” Forney said.

Raymond James believes it’s the economic recession, noting that the decline in the assessment base mirrors the decline in state sales tax receipts. It also believes that Florida and the country will soon begin to recover from the recession.

Here is a link to the estimating report presented at this morning’s advisory council meeting: pdf pdf FHCF May 2010 Final .