Hurricane Helene won't hammer Florida's CAT fund

While Hurricane Helene could have short- and long-term impacts on government finances and the economy, observers say Florida's hurricane catastrophe fund has sufficient funds to cover damages without requiring immediate replenishment.

Meanwhile, for now, BofA still plans to price $233 million of water and wastewater revenue bonds for Tampa on Tuesday and $210 million of solid waste disposal revenue bonds for the Florida Development Finance Corp., on Thursday.

"I do not expect the CAT fund to need any financing in connection with Helene," Florida Division of Bond Finance Director Ben Watkins said in an email. The fund is "well positioned to deal with any losses, [with] strong reserve balances and plenty of liquidity."

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The storm won't "be an issue for" the CAT fund or Citizens Property Insurance Corp., Watkins said. While it's "premature to speculate" the cost of damages, he added, it "will not be a problem."

The storm is lunikely to damage the "credit ratings for property/casualty (P/C) (re)insurers, Citizens Property Insurance (Citizens; AA) or the Florida Hurricane Catastrophe Fund (FHCF; AA)," Fitch Ratings said.

Helene, a Category 4 storm, left at least 20 dead, according to reports. The high winds, tornadoes, landslides, and extensive flooding damage associated with the storm left more than six million customers without electricity.

Extensive damage was reported in South Carolina, North Carolina and Georgia.

"Florida could face substantial insurance claim exposure from both Citizens and the Florida Hurricane Catastrophe Fund depending on the magnitude of wind damage Hurricane Helene may cause in northern Florida," said Denise Rappmund, Moody's Ratings senior analyst. "Despite the anticipated damages, current on-hand resources are likely to cover the claims, though they could notably reduce FHCF's reserves for future events, especially within the current hurricane season."

Flooding associated with the storm, "is outside of the state's insurance coverage exposure," she noted, "but may lead to costly clean up and temporary economic disruption."

Florida's catastrophe fund serves as a back-up for the state's private residential hurricane insurance. It is sometimes funded by state-issued revenue bonds backed by property assessments.

Payment defaults from issuers in the region are a possibility, according to Municipal Market Analytics Partner Matt Fabian. Natural disasters were blamed by a dozen municipal borrowers "for technical or payment defaults in the last decade," he said, but "nearly all were risky sector credits: multifamily, senior living, etc. It seems like those kinds of financings, of which there are many in Helene's path, are most vulnerable right now."

But financing projects could be more difficult if the borrower's "revenues are severely constrained" should the storm drive up insurance or other costs in the region, Fabian added. "Governments are at less risk of immediate defaults but a big storm followed by a big reconstruction could soften long-term growth trends," he said. "Studies have shown that storm affected areas bounce back quickly but often lag former growth pattern after that."

Some "municipalities will be challenged more than others," said Fitch Director Kevin Dolan said. Tax-supported ratings should remain stable despite "substantial property damage and unprecedented flooding."

While "federal relief funds, state support, insurance claims and private resources" generally cover rebuilding and economic rebound, Dolan said, "higher numbers of uninsured homeowners and businesses triggered by financial instability across Florida's property insurance market, a tight labor market, inflationary pressures and supply chain issues could slow the pace of recovery from Hurricane Helene compared to historical standards."

Two Moody's professionals looked at possible economic impacts.

"The convergence of Hurricane Helene and the looming dock strike on the East and Gulf Coasts is a worst-case scenario for supply operations," said John Donigian, Moody's senior director.

"Helene has the potential to be the most severe storm in an otherwise quiet hurricane season, surpassing the economic impact of Francine, Beryl and Debby on the merits of its intensity and the projected location of where it will make landfall," said Moody's Chief Economist Chris Lafakis. "At an industrial level, while we are not in the summer peak tourism season anymore, the story has the potential to upset the Big Bend Coast's tourism industry."