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While Hurricane Irma Prepares for Landfall, Florida is Already Braced for the Assault

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While Hurricane Irma Prepares for Landfall, Florida is Already Braced for the Assault

According to S&P Global Ratings, the State of Florida (AAA/Stable/--) is well-positioned, to the extent possible, to confront the potential demands of a catastrophic storm, namely Hurricane Irma, given the state's governing framework and infrastructure. On Sept. 4, 2017, Gov. Rick Scott declared a state of emergency for all of Florida in anticipation of Irma. The governor also authorized activation of the Florida National Guard for the emergency, as needed, and approved the waiver of tolls and fees on public highways to facilitate evacuation of affected counties.

Gov. Scott has also designated the Director of the Division of Emergency Management as the state's coordinating officer as outlined in Florida's existing statutes. Florida Statutes provide the division with the powers to coordinate allocation of resources and seek assistance from the federal government and from other states in an emergency. In addition, Florida has the resources available to meet immediate potential costs for state agencies.

As Florida heads into the 2017 hurricane season, the state's economic performance has been among the strongest nationally, and its available budgeted reserve levels are strong, in our opinion, at an estimated $2.75 billion or 8.9% of expenditures in fiscal 2017. Including trust fund balances of $2.45 billion, total reserves of $5.2 billion represented about 16% of general appropriations, which we consider very strong. Beyond budgeted reserves, Florida also has the flexibility to inter-fund borrow from its treasury pool, which had a substantial $16 billion of liquidity on hand at the end of July 2017. While there is likely be short-term economic disruption following storm events, the exact trajectory and severity of Hurricane Irma are uncertain and the details of the actual demands on state resources are also unknown. Florida's service-based economy is driven by healthy tourism (including over 112 million person trips in 2016 per Visit Florida), which could experience declining trends in the aftermath of a storm.

Tourism comprises 13% of general revenue sales taxes, although tourism centers are distributed throughout the state and local effects could potentially be more severe. In addition, Florida's revenue base largely depends on sales tax revenue that could benefit from long-term recovery efforts. The timing of Hurricane Irma, at the beginning of the state's fiscal year, provides better odds that disrupted revenue will have time to rebound during subsequent recovery efforts. We believe the state's healthy budget reserves will aid in Florida's ability to withstand the expected hit to sales tax receipts in the immediate aftermath of the hurricane.

Our 'AAA' rating and stable outlook on Florida continue to reflect the state's strong financial reserve levels and structural budgetary balance to date, with above-average economic and revenue performance in the past several years, including strong employment and population growth, despite a service-based economy that remains driven by tourism and in-migration. As always, we will continue to monitor events to determine the extent of the damage and the state's response to potential challenges related to hurricane remediation costs in the short term.

Florida Citizens Property Insurance Corp.

A lack of severe storm activity since 2005 has translated into increased reserves and enhanced liquidity for Citizens Property Insurance Corp. There is about $13.3 billion in resources available from surplus, reinsurance, Florida Hurricane Catastrophe Fund (FCHF) reimbursement, and pre-event bonds. In addition, Citizens has the ability to levy emergency assessments on a direct written premium assessment base that has steadily increased to almost $44 billion in 2016. Resources on hand and authority for emergency assessment levy, coupled with a steady reduction in policies, position Citizens well financially to cover most recently estimated net losses of about $10.8 billion for combined coastal and the personal lines account /commercial lines account (PLA/CLA) for a 1-in-250-year storm event, or $6.6 billion for a 1-in-100-year storm.

Florida Hurricane Catastrophe Fund

The FHCF is a state trust fund in which Florida-authorized property insurers are required to participate. The fund provides reimbursements to insurers for a portion of their catastrophic hurricane losses. The maximum potential reimbursement to the insurance industry is capped by state statute, which is currently $17 billion. Given the size of potential losses from Irma, FHCF could reach the maximum limit on reimbursements. However, it currently has more than $17 billion of resources on hand in the form of accumulated reserves, pre-event bonds, and reinsurance. FHCF could use a portion of pre-event bond proceeds, issue post-event bonds, and/or levy emergency assessments to help pay claims or rebuild its claims-paying capacity for the subsequent hurricane season. We note that FHCF has the ability to levy an emergency assessment of up to 6% for a single year and that the assessment base has grown since 2010 to a sizable $43.7 billion in 2016.