TALLAHASSEE, Fla. (Jan. 16, 2013) – The R Street Institute welcomed news that the Florida Hurricane Catastrophe Fund is working on a plan to buy private reinsurance, reducing the odds that it would need to assess post-storm hurricane taxes in the event of a major storm.

Under a proposal Cat Fund Chief Operating Officer Jack Nicholson is preparing to present to the State Board of Administration, the fund would buy up to $1.5 billion in private reinsurance for the 2014 hurricane season, which would kick in if Cat Fund exhausts its $11 billion of cash on hand. Nicholson discussed the proposal during a Jan. 16 panel discussion at the Florida Chamber of Commerce’s Annual Insurance Summit in Orlando.

The reinsurance layer, which is expected to consist of a combination of collateralized reinsurance and a catastrophe bond, would displace funding the Cat Fund otherwise would have to borrow through bonds, which would eventually be paid off by assessments on nearly every insurance policy in the state.

“We are happy to see the Cat Fund look to take advantage of the current low prices for reinsurance to shift risk off the backs of Florida policyholders and taxpayers,” R Street Florida Director Christian Cámara said. “Florida Citizens has already shown the benefits to be gained by tapping private reinsurance, as it has been able to grow its surplus and reduce its reliance on the Cat Fund, in part, by expanding its private risk transfers to $1.85 billion, up from just over a half-billion in 2011. We encourage the SBA to explore similar financing for the Cat Fund.”

The proposal, which Nicholson said he hopes to bring to market in February or early March, would need to be approved by the SBA’s trustees, comprised of Gov. Rick Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi.

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