Key Takeaways
- Hurricane Milton is the second major hurricane to make landfall in the State of Florida this year, with 51 counties placed under the pre-emptive disaster declaration that authorizes the Federal Emergency Management Agency to coordinate all disaster relief efforts and provide assistance to individuals in need.
- Florida (AAA/Stable) entered hurricane season with exceptionally high reserves totaling approximately 33.4% of operating revenue. In addition, it has a well-embedded emergency response apparatus to support short-term localized needs and enhance rebuilding efforts.
- The scale of damage remains highly uncertain from hurricanes Milton and Helene, but it could be substantial, leading to significant insured losses that are likely to place near-term pressure on the state's statutorily created entities: Citizens Property Insurance Corp. (not rated), Florida Hurricane Catastrophe Fund (AA/Stable), and Florida Insurance Guaranty Assn. (A/Stable [FIGA]).
- We continue monitoring how these events will affect Florida's general credit and insurance landscape, and if these entities will need to take additional measures (e.g., draws on pre-event bond proceeds, levying assessments, or new debt issuance) to help stabilize the property insurance market.
S&P Global Ratings continues monitoring developments during and in the immediate aftermath of Hurricane Milton. However, we believe Florida has bolstered reserves and liquidity in part, in preparation for these extreme events. Furthermore, management's advanced planning underpins our view that state agencies and local governments will work together in the recovery.
Florida also has long-standing mechanisms in place to help stabilize the property insurance market in light of its inherent exposure to natural disasters. In our view, these statutorily created entities retain significant capacity to levy assessments to augment liquidity if necessary. However, the frequency of higher-cost events could strain individuals' insurance premiums, resulting in increasing unaffordability over time.
State of Florida
The state has demonstrated fiscal resilience to repeated significant weather events and has a track record of building reserves across cycles to account for potential events. In addition, it supports the stability of the property insurance market through the Florida Hurricane Catastrophe Fund (FHCF) and Citizens Property Insurance Corp., the state's insurer of last resort.
Recognizing the increasing strain of insurance premium growth, a rise in insolvent insurers, and increased policy counts in recent years, the state adopted laws to help mitigate ongoing pressure on the insurance sector, including curbing excessive litigation as well as providing additional resources to insurers to obtain reinsurance. Hurricanes Helene and Milton will test whether these various measures will result in improved affordability of property insurance and entice new entrants into the market--especially as major events occur. According to the Florida Office of Insurance Regulation, nine new property insurers have been approved since the 2023 reforms.
While these risk-mitigation measures provide protections for the foreseeable future, in our view, storm frequency or severity, storm surge resulting in flood events, and rising sea levels or temperatures could result in a variety of outcomes that--individually or in combination--could result in weaker economic activity and demographic trends and dampen related state revenue. In our view, the long-term exposure to climate-related risks and Florida's demonstrated resilience and adaptation initiatives can support the state's credit quality--at least for now.
Our ratings on FHCF and FIGA incorporate the risk if events become more severe or repetitive, necessitating significant debt that is payable in part from varying assessments following the same hurricane event. However, these entities may face potentially large borrowing requirements and there could be limited capacity following a major catastrophic event if post-event financing is required.
Florida annual premium change and estimated event costs*
Florida Hurricane Catastrophe Fund
FHCF's goal is to provide a recurring and cost-effective source of reimbursement to residential property insurers in the state and it can access capital markets to obtain post-event bonding if necessary to pay claims. It also issues pre-event bonds, secured in part by assessments, to add financial flexibility and liquidity for FHCF to meet its maximum statutory liability ($17 billion) should the need arise.
It issued revenue bonds before the current hurricane season as pre-event bonds, meaning that FHCF set aside bond proceeds in a trust account and draws on proceeds if it needs liquidity to pay loss reimbursements to participating insurers following a covered storm event. Currently, it expects to use its other accumulated fund balance before drawing down parity pre-event bond proceeds.
FHCF had approximately $10.4 billion of available liquid resources to pay claims for the 2024 hurricane season. In our view, the $17 billion cap on losses to FHCF, which is estimated to cover more than a one-in-250-year storm, also reduces the likelihood of substantial additional bonding in the near term. To date, FHCF has reimbursed insurers for losses from more than a dozen storms in seven different hurricane seasons, with the largest historical loss reimbursements being $7.5 billion to cover losses from Hurricane Irma in 2017.
Florida Insurance Guaranty Assn.
FIGA was created as a nonprofit corporation in 1970 to pay covered claims of insolvent insurers. Its primary funding sources include estate distributions from insolvent insurers, recoveries from FHCF, assessments, and investment income. Membership in FIGA is mandatory for all insurers as a condition of doing business in Florida, which we view as a credit strength in terms of its ability to collect assessments. The state oversees FIGA through the Florida Department of Financial Services, while the Office of Insurance Regulation, with updated certification from FIGA, levies the pledged assessments.
In addition to an up to 4% emergency assessment that is directly levied to fund hurricane-related claims and fund debt service on any bonds issued, regular assessments in an amount up to 2% are available to FIGA to augment its general operations and claims, providing significant flexibility to service debt with its existing assessments, in our view. FIGA's series 2023A-1 and 2023 A-2 bonds are secured by a 1% emergency assessment which will continue until the bonds are no longer outstanding. It has not assessed an emergency assessment since 2006. Authorization of an emergency assessment is required before issuing bonds by FIGA to the Office of Insurance Regulation. The statute includes nonimpairment provisions whereby the state covenants not to take any action that will have a material adverse effect on bondholders.
Florida Citizens Property Insurance Corp.
Citizens was created by the Florida legislature in 2002 by a merger of the Florida Windstorm Underwriting Assn and the Florida Residential Property and Casualty Joint Underwriting Assn. It insures risks for property owners that cannot procure coverage in the voluntary market. At the time Citizens was created, there were three accounts established by statute to allow for bondholder security to be preserved on the debt obligations outstanding of each entity, though recent legislation consolidated accounts (effective July 1, 2024). Citizens legally defeased its only outstanding debt in early 2024.
Citizens remains the largest property insurer in the state, but has successfully "depopulated" with declining policy counts, which as of Sept. 30, 2024, totaled 1.26 million, down from a recent peak of 1.4 million. Before the start of hurricane season, Citizens projected it would not need to levy an assessment to support a one-in-50-year storm, though it would have shortfalls of approximately $542 million and $12.2 billion for, respectively, one-in-100-year and one-in-250-year events.
| Summary of Florida insurance entities with assessment authority | ||||||||
|---|---|---|---|---|---|---|---|---|
| Florida Insurance Guaranty Assn. | Citizens | Florida Hurricane Catastrophe Fund | ||||||
| Purpose | Pay covered claims of insolvent insurers | Residual market insurer | Loss reimbursements for residential property insurers | |||||
| Sources of funding | Estate distributions, investments, & assessments | Premiums, FHCF reimbursements, investments, policyholder surcharges, & assessments | Reimbursement premiums, investments, & assessments | |||||
| 2023 assessment base (direct written premium) | $31.8 billion (all other accounts only) | $85.2 billion | $85.2 billion | |||||
| Maximum assessment percentage | 2% Regular assessment 4% Emergency assessment | 10% Emergency assessment | 6% Emergency assessment (1 year) 10% Emergency assessment (total) | |||||
| Assessment collection method | Paid directly by policyholders each year at policy renewal | Paid directly by policyholders each year at policy renewal | Paid directly by policyholders each year at policy renewal | |||||
| History of successfully levying assessments | Yes | Yes | Yes | |||||
| Ratings | A/Stable | NR | AA/Stable | |||||
| *Only FIGA is currently levying an assessment. Source: Florida Division of Bond Finance, S&P Global Ratings. | ||||||||
Related Research
- Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022
- Hurricane Milton: The Implications For Rated U.S. Insurers And Global Reinsurers, Oct. 9, 2024
This report does not constitute a rating action.
| Primary Credit Analysts: | Oscar Padilla, Dallas + 1 (214) 871 1405; oscar.padilla@spglobal.com |
| Thomas J Zemetis, New York + 1 (212) 4381172; thomas.zemetis@spglobal.com | |
| Secondary Contacts: | Geoffrey E Buswick, Boston + 1 (617) 530 8311; geoffrey.buswick@spglobal.com |
| Sussan S Corson, New York + 1 (212) 438 2014; sussan.corson@spglobal.com |
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