With hurricane season on horizon, act now to reduce costs

Florida has a unique opportunity to lower its risk of hurricane taxes and to make it more likely that the Florida Hurricane Catastrophe Fund will be able to pay its claims in a timely manner.

In order to take advantage of this opportunity, the State Board of Administration (SBA), whose members are the governor, chief financial officer and the attorney general, should act quickly and authorize its professional staff to explore the global capital and reinsurance markets to determine whether Florida can economically move some of its hurricane risk out of the state into global financial markets.

As fiduciaries for the state, the SBA should direct the Cat Fund to undertake this prudent action. The SBA will still control the final decision and determine whether this transaction makes economic sense to Florida.

Global investors, such as pension funds and hedge funds, learned during the great recession a few years ago that they should invest a small percentage of their assets in opportunities which do not correlate with the economy. Weather catastrophes fit that criterion, and investors have increasingly sought opportunities in that sector.

As the world’s largest global risk for hurricanes, Florida is ground zero for these investors. And, because of the oversupply of capital, the cost of that capital has decreased tremendously in the past several years. For example, rates online for reinsurance are now…

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