‘AA-’ rating for the FHCF Finance Corporation's $625m revs
Fitch has assigned an 'AA-' rating to Florida Hurricane Catastrophe Fund (FHCF) Finance Corporation’s $625m series 2008A revenues bonds.
The rating is based on the breadth and stability of the revenue streams that constitute the pledged security, the strong debt service coverage the pledged revenues provide, and the capped reimbursement liability of the FHCF.
Fitch also affirms the 'AA-' rating on FHCF Finance Corp's outstanding 2006A bonds and 2007A floating-rate notes, as well as the 'AA-/F1+' rating on its outstanding 2006B extendible floating-rate notes. The Rating Outlook is stable.
The series 2008A bonds are being issued on a tax-exempt basis to reimburse insurers for additional loss development incurred during the 2005 hurricane season. The bonds are issued on parity with the 2006A, 2006B, and 2007A securities, and are secured by emergency assessments and earnings thereon, reimbursement premiums and earnings thereon, and investment earnings on proceeds of parity obligations, including the 2008A bonds. The 2008A bonds are also secured by the 2008A net proceeds, prior to being spent. The FHCF corpus is not pledged.
The FHCF was created in 1993 as a tax-exempt state trust fund and is administered by the State Board of Administration of Florida. The FHCF functions like a reinsurer, reimbursing insurers after their hurricane-related residential property insurance losses have reached their retention limit. The FHCF's obligations under its reimbursement contracts are limited to the extent of its fund balance plus its maximum bonding capacity or a predetermined amount adjusted each year, whichever is less. Total 2008 hurricane season exposure is estimated at approximately $29bn.
To pay claims and debt service on its bonds, the FHCF has the authority to levy emergency assessments on a broad base of direct property and casualty insurance premiums written within the state. The assessment base, which totaled $36.65bn in 2007, has grown at a compound annual growth rate of 8.11% since 1990 and covers most lines of insurance, including auto, homeowners, and commercial property insurance. Emergency assessments are limited to 6% of direct premium written for losses in any single contract year and 10% in aggregate.
The assessment base is currently being assessed at 1%, with the FHCF Finance Corp's debt expected to be fully paid by 2014. An additional bonds test of 1.25 times (x) annual debt service from all revenues, which includes reimbursement premiums and investment income as well as emergency assessments, and the 10% cap on assessments keeps the FHCF from becoming overleveraged and maintains the assessment at an affordable level for ratepayers. The single-season exposure limit, albeit high at $29bn, assures the future viability of the FHCF as a reinsurance provider even in the case of the most extreme catastrophic event.