Fitch Rankings Director Tammy Gamerman said the long-term increase in frequency and intensity of hurricanes could hinder Florida’s economic growth.
Hurricane Milton caused more damage that may require reimbursement from the Florida Hurricane Catastrophe Fund than Hurricane Helene did, and Moody’s Rankings believes the state may have to sell bonds to replenish the fund within the spring.
Florida now estimates Hurricane Milton would require a $4.5 billion draw on the CAT fund, in comparison with an estimated $100 million draw for Hurricane Helene, based on a post to the Municipal Securities Rulemaking Board’s EMMA site Wednesday. The CAT fund has $6 billion and access to $2 billion to $3 billion of pre-event bond proceeds.
Nevertheless, the state estimates Milton’s impact on the fund could increase to $5.8 billion and Helene’s impact could climb to $441 million.
“Based on current modeled losses, the [CAT fund] expects that loss reimbursement payments from Hurricanes Helene and Milton shall be paid from existing internal resources and won’t require assessments or financings,” Florida said in its post.
Faced with these substantial hits, Florida is more likely to issue bonds within the spring to expand its pre-event bond proceeds to arrange for one more Milton-sized hurricane, said Moody’s Vice President Denise Rappmund.
Ben Watkins, director of the Florida Division of Bond Finance, didn’t immediately reply to a request for comment.
The state government also said the hurricanes’ impact on the final fund is an estimated $2.3 billion.
“The state has sufficient reserves and liquidity to fund disaster response efforts prematurely of future Federal Emergency Management Agency reimbursements,” based on the EMMA posting. “Future expenditures related to hurricanes Helene and Milton and FEMA reimbursements for such expenditures [are] unknown.”
Florida can manage near-term estimated hurricane costs, said Fitch Rankings Director Tammy Gamerman said, “and has access to ample liquidity, including $500 million in its Emergency Preparedness and Response Fund, which was created to supply immediate funding for emergency events prior to FEMA reimbursements.
But, longer-term, with hurricanes’ “frequency and intensity” expected to extend, Fitch expects ongoing challenges involving insurance accessibility and affordability in Florida, which could hinder overall economic growth over time,” Gamerman said. “Recent hurricanes can even test Florida’s legislative and regulatory tort reforms and can likely limit potential for property insurance rate declines within the near term.”
Florida is rated triple-A by Moody’s, S&P Global Rankings and Fitch. The CAT fund is rated Aa3 by Moody’s and AA by Fitch and KBRA.
John Mousseau, president of Cumberland Advisors, said he expects the storms’ hit to Florida’s general fund will exceed $2.3 billion.
“If Florida, particularly west coast communities, face an extended contracted downward market in housing (have seen some front fringe of this already), then this might change into a state and native government issue away from the insurers,” Mousseau said.
He said the storms may lead bond insurers to extend what they charge for insurance to some local governments and will cause the state to impose a small income tax.
“Affordability and desirability of Florida are longer-term concerns tempered by weather and low-tax environment,” said Patricia Healy, senior vp at Cumberland.
Many condos within the state are older and in poor condition, she said, and more frequent storms often result in damages that lead to assessments that individuals on fixed incomes cannot afford.
These residents often resort to sales at depressed prices, while some condos are sold to developers, “which could lead to fewer reasonably priced housing units,” Healy said.
Buyers are eschewing 30-plus-year-old condos, which depresses their value, she added.
Individually, Moody’s put Asheville, North Carolina’s water revenue bonds’ Aa1 rating on review for downgrade Thursday. Milton hit Asheville hard and two months of water revenue are expected to be lost, Moody’s said. The review affects $90 million of debt.