A Florida state insurance agency sold $590 million in bonds to pay the covered claims of an insolvent insurer.
The bonds were issued in two series by the Florida Insurance Assistance Interlocal Agency. The Series 2023A-1 bonds mature between 2024 and 2028, yielding between 3.25% and 3.45%. They pay interest at 5%. The Series 2023A-2 bonds mature on September 1, 2032, and pay interest at a variable rate determined weekly by BofA Securities, Inc in its role as remarketing agent. The securities received a rating of A2 from Moody’s Investors Service. The Series 2023A-1 bonds also received a rating of A from S&P Global Ratings.
“The rating reflects the large and growing assessment base that supports debt service, ample debt service coverage with rapid debt repayment,” according to Moody’s.
The issuance comes amid debate in the insurance industry about how to insure property that is increasingly likely to be damaged by natural disasters as a result of climate change. Florida, where 10% of residents live fewer than five feet above sea level, is at particular risk of becoming an untenable property insurance market. McKinsey projects that annual flood losses in Florida could rise to $2.94 billion by 2050, up from $1.98 billion in 2019. That could lead to a nearly 50% increase in inflation-adjusted premiums, making flood insurance unaffordable to many Florida residents.
The bonds issued this week will allow the Florida Insurance Guaranty Association (FIGA) to finance the covered claims of policyholders affected by insurer insolvency. FIGA was formed in 1970 to process such claims. The bonds are backed by FIGA revenue.
BofA Securities, Inc served as lead underwriter on the issuance, purchasing the bonds for more than $607 million. The price reflected a premium of $18 million.