Floridians would face about $7.19 billion in post-hurricane taxes to make up the funding shortfalls of state-run Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund should even a 1-in-50-year storm hit the state – a tally that could grow up to $23.9 billion in the case of a much stronger storm – according to new projections submitted to the state Legislature by the Florida Financial Services Commission.

Those figures do represent some progress since 2008, when the state’s insurance programs faced their deepest financial holes. Back then, in the wake of former Gov. Charlie Crist’s market-destroying “reform” legislation, the Cat Fund’s shortfall alone was estimated to be $21.4 billion for a 50-year storm and $25.8 billion for a 100-year storm, compared with $7.15 billion today.

Citizens, which has been slowly building up its private reinsurance protection with a combined $1.75 billion package of traditional and catastrophe bond coverage this year, has seen its assessable shortfalls drop even more dramatically, down just under half to $16.76 billion for a 1-in-250-year storm, just over half to $4.14 billion for a 100-year storm and by more than 90 percent to just $46 million for a 50-year storm.

Despite that progress, the prospects still aren’t very sunny in the Sunshine State. The projections for Citizens, in particular, almost certainly paint an unjustifiably rosy picture. That’s because the Financial Services Commission assumes that, in addition to the $6.38 billion of surplus it is projected to hold at year’s end, Citizens would be able to recover $6.05 billion in reinsurance it would be owed by the Cat Fund itself.

It takes just a glance at the Cat Fund’s projections to see the problem with that assumption. The Cat Fund, which provides $17 billion of mandatory coverage to the Florida residential property insurance market, faces probable maximum losses of $54.93 billion in the event of a 100-year storm or a truly staggering $82.42 billion in the event of a 250-year storm.

But speculating about those larger scenarios is, in a sense, utterly irrelevant, when even a 50-year storm, with a PML of $37.25 billion, would wipe out the fund completely. Even that relatively modest sized storm would require the fund turn to the capital markets to fund its full $7.15 billion shortfall. And as the fund’s own management and advisors have been warning for some time now, that is simply not likely to go well. The Financial Services Commission itself notes in the report that “it is uncertain whether the FHCF could in fact complete a bond issue or series of bond issues of the size necessary to pay all covered losses at assumed interest rates or at any interest rate in a timely manner.”

If long‐term bonding in sufficient amounts is not immediately available, the FHCF would need to explore alternatives, including the levying of emergency assessments with no financing, a staged financing schedule and/or interim financing alternatives. The FHCF statute provides that the FHCF’s liability is limited to the amount it can actually raise from bonding and other available claims payment sources.

To translate that into terms everyone can understand, if the Cat Fund can’t raise the amounts it needs to pay all of its claims, it can, by law, simply shirk that responsibility. And that includes its more than $6 billion responsibility to Citizens.

Bearing those concerns in mind, the worst case scenario for Florida isn’t $7 billion in new taxes, or even $24 billion in new taxes. The worst case scenarios is that state lawmakers aren’t able to find the political spine to pass real reforms before the next storm hits, and takes down the entire insurance market with it.

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