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State Looks to Washington for Cat Fund Help

February 27th, 2009 by flanews

The state is turning to Washington for financial protection against a major hurricane. Senator Bill Nelson filed legislation today to create a limitless line of credit to back the state’s catastrophe fund. As Whitney Ray tells us, the proposal comes as 12 billion dollars of the state’s cat fund nears its sunset.

Hear it Here: State Looks to Washington for Cat Fund Help

Fears of a major hurricane hitting Florida have driven insurance companies to seek massive rate hikes. State Farm decided the risk was too high and is dropping all its policies. Other insurers worry the state’s catastrophe fund isn’t strong enough to weather the big one.

Experts say if a major hurricane hits one of Florida’s bigger cities it could drain the cat fund and bankrupt the state.

If the big one hits, the state could be out 50 billion dollars. Florida Senator Bill Nelson filed legislation that would help Florida avoid bankruptcy. Nelson wants Washington to extend an unlimited line of credit to Florida if the Cat Fund goes belly up.

“The federal government would lend to the Cat fund the cash it needs at fair market interest rates in order that the Cat Fund in Florida could function properly,” said Nelson.

12 billion of the 22 billion dollar Cat Fund is set to expire this year. The state will have to bond to cover any amount above the Cat Fund’s worth. Florida’s Chief Financial Officer Alex Sink said relying on bonds is risky.

“If the credit markets are really bad, like they are right now, and we can’t go out and bond, than we have to get cash from somewhere and the only place to get cash is the federal government,” said Sink.

Experts say the possibility of a major disaster in Florida isn’t a question of if, but when, but how the federal government will respond to the looming crisis is still unclear. Part of Senator Nelson’s bill would create a pool of states with Cat funds to create a bigger pot of cash when Mother Nature strikes.

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