KBRA Assigns AA Rating to the State of Florida State Board of Administration Finance Corporation Revenue Bonds, Series 2024A; Outlook is Stable

KBRA has assigned a long-term rating of AA with a Stable Outlook to the State of Florida State Board of Administration Finance Corporation Revenue Bonds, Series 2024A. Proceeds of the 2024A Bonds will be used, together with other funds, as a source of funds for the Florida Hurricane Catastrophe Fund (“FHCF”) to reimburse participating insurers for insured losses in the State relating to any single hurricane that occurs in the contract year beginning June 1, 2024 and ending May 31, 2025, or thereafter. The rating reflects the Florida Hurricane Catastrophe Fund’s (“FHCF’s”) strong debt repayment capabilities, which derive from its ability to levy assessments on almost all property and casualty insurance policies statewide. Assessments, if levied, are charged directly to policyholders and, while subject to single year and annual aggregate limits, can be collected for as long as bonds are outstanding.

Key Credit Considerations

The rating was assigned because of the following key credit considerations:

Credit Positives

• Assessments may be levied on a broad, diverse and growing statewide property and casualty policy base for payment of debt service on pre-event and post-event parity obligations.
• The low-cost reinsurance provided by the FHCF is vital to the healthy functioning of the State’s residential property insurance market, and thus to Florida’s economy. FHCF’s strong governance ties and the oversight provided by the State Board of Administration are credit strengths.
• Strong non-impairment covenants under the Act restrict the State from repealing or revoking the SBA’s power to direct assessment levies by the OIR and to collect the pledged collateral if debt is outstanding.
• Recent legislative reforms are expected to improve conditions for private insurers operating in Florida.

Credit Challenges

• FHCF’s liquid resources are presently well below its statutory maximum, potentially requiring significant post-event borrowing in the event of one or more catastrophic events.
• Potential post-event bonding needs are large by municipal market standards. Post-event bond capacity and market access are inherently uncertain and subject to market conditions.
• In the aftermath of a catastrophic event, the potential exists for FHCF, Citizens and FIGA to levy overlapping assessments on the same property and casualty insurers and their policyholders, and to simultaneously seek market access for post-event debt supported by such assessments.
• While the State has a proven record of collecting assessments in the wake of a catastrophic event, the potential exists for assessments to be delayed.

Rating Sensitivities

For Upgrade

• A consistent increase in FHCF’s projected fund balance (liquidity) through increased reinsurance premium collections and/or decreased loss reimbursements, that reduces the need for pre-event and post-event bonding and related assessments.

For Downgrade

• An increase in loss reimbursements due to more frequent or severe storm events, and/or a reduction in reinsurance premiums, that results in reduced liquidity and an increased need for assessments and bonding.

To access rating and relevant documents, click here.

Methodologies

• Public Finance: U.S. Special Tax Revenue Bond Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1003670

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