Tuesday, May 15, 2012

How Quickly Things (don't) Change

Recently, I noted some failed attempts to alter the finances of the FHCF.  I was mainly just keeping notes.  Yesterday, the Insurance Journal picked up a story that ran in The Miami Herald on May 10th which claimed that the FHCF was short of money given a storm that would cause it to run short of funds.  Kinda old news.  What was new news was that the FHCF is short on funds given "new" estimates.  So how much did or did not change from October 2011 to May 2012?

October's estimate (from sources cited here) :
  • FHCF had total obligations of $18.389 billion which exceed the projected year-end fund balance of $7.170 billion, 
  • The senior managers from Citi, Goldman Sachs, J.P. Morgan, and Barclays estimated the bonding capacity of the FHCF to be from $5 billion to $11 billion leading to an average estimate of $8 billion in bonding capacity.
  • The FHCF is short $3 billion
  • FHCF will have an additional bonding capacity of $6 billion from 12 to 24 months after the hurricane, which would enable the FHCF to pay its entire obligations and leave an estimated $2.78 billion in bonding capacity to fund losses in a subsequent hurricane season.
  • the fund would be liable for about $17.3 billion exceeding the projected $8.5 billion in cash reserves by the end of this year,  
  • Could borrow up to $7 billion after a hurricane. 
  • The FHCF would be short $1.757 billion   
  • Goldman Sachs — said Florida likely could borrow no more than $4 billion following a storm. 
Two things appear evident:
  1. The most notable change is that Goldman Sachs has changed their risk perception of the FHCF by about a billion dollars.  (Perhaps they were on the low end of the optimism scale in October anyways.)
  2. The quest for headlines can make old risk sound like new risk or riskier risk.  It appears that May estimates as reported in the news are within the range of October's estimates- even by the amount that the FHCF will could end up short.   

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