The announcement that the Florida Hurricane Catastrophe Fund can borrow $15.9 billion to supplement its own funds and meet its financial responsibilities for the upcoming hurricane season is being met with sighs of relief.

The insurance industry and critics of the state’s insurance regulation policies say the news that the fund, which reimburses insurers for hurricane damages, can pay a total of $25.4 billion in claims is a promising sign for Florida.

At the same time, it is a short-term solution that does not resolve the long-term issues affecting property insurers in the state.

The nation’s improving economic climate and the lack of a major named storm in the state for the past five years has allowed the state-run catastrophe fund, which offers coverage for anywhere between 1-in-9 year to 1-in-45 year storms, to improve its bonding capacity over the years, said Jack Nicholson, president of the CAT fund. 

In 2008, the projected bond rating was $3 billion, and the state had a $19 billion shortfall. Last year, the state’s bonding capacity grew to $8 billion.

Now, it’s at $15.9 billion. Nicholson said he did not know if the state would be able to secure a similar bonding capacity next year.

With the remainder of the money coming from the fund’s own assets, the fund will be able to satisfy all claims it covers, Nicholson said. The fund doled out $29 billion in direct premiums last year.

The fund’s increased bonding capacity is good news for property insurers in the state, said Greg Landry, vice president of the Florida Insurance Council. The fund is a relatively cheap way for insurers to re-insure themselves. Without a stable CAT fund, insurers must rely on relatively expensive private re-insurers.

Landry said he is concerned that the state could lack the bonding capacity next year that it has this year. For this this year, though, the fund is on the right path.

Robert Weissert, spokesman for pro-business watchdog Florida TaxWatch, agrees that the fund’s bonding capacity is good for the state, but it is only a superficial accomplishment.

The state needs to allow private property insurers to raise their rates so they can become “actuarially sound,” a privilege Gov. Charlie Crist has firmly opposed. A bill on his desk would allow for gradually raised rates under certain circumstances, but it would not do enough for insurers to be come actuarially sound.

At best, the CAT fund’s improved bonding capacity is a short-term solution, Weissert said.

“It’s positive news,” he said. “What it doesn’t address is the major underlying issue. That Florida’s property insurance market is broken.”