After the devastating hurricanes of last year, Florida and the Gulf Coast states are turning to the municipal bond market to guarantee that their insurers of last resort are solvent for another potentially damaging storm season.
Florida is building on moves it made after previous hurricanes tore through the state. In 2002, it created the Citizens Property Insurance Corp. to provide insurance for homeowners who could not get it from the private sector. It also set up the Hurricane Catastrophe Fund to provide reinsurance for private insurers and the CPIC.
CPIC first sold debt in 2004; the Cat Fund is planning its first deal this month. Altogether, the two Florida insurers will sell nearly $3 billion in tax-exempt bonds backed by assessments on property insurance policies in the state. The proceeds will be used to repay the funds for money spent on claims from the 2004 and 2005 hurricane seasons. The insurers will also be coming to market with $5 billion more in taxable short-term debt later in the year--to pay claims they expect from 2006's hurricane season.
Other states are now following suit. Louisiana's Citizens Property Insurance Corp. in April sold $1 billion in bonds to pay claims related to Hurricanes Katrina and Rita. In Texas, officials went looking for legislative authority for the 34-year-old Texas Windstorm Insurance Association to sell $800 million in bonds--should that association need cash to pay claims if a big storm hits the Lone Star State.
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