Southeast prepares for another above-average hurricane season

BY SourceMedia | MUNICIPAL | 06/08/22 12:17 PM EDT By Chip Barnett

With memories of devastation brought by last year's Hurricane Ida still looming large, states in the Southeast head into this year?s hurricane season with a sense of apprehension.

The National Oceanic and Atmospheric Administration?s initial 2022 outlook forecasts another above-normal season. This would make it the seventh straight above-average hurricane season.

The 2022 hurricane season officially began June1 and will run through Nov. 30.

NOAA is predicting there will be between 14 and 21 named storms with six to 10 hurricanes, defined as tropoical storms with winds of 74 miles per hour or higher. Of those hurricanes, NOAA expects with a 70% confidence rate that between three and six of those will be classified as major storms, categories three to five.

Florida?s fiscal 2022-2023 budget provides $10 million for the state?s eight Urban Search and Rescue teams to support operations and training exercises to ensure that they are ready to respond immediately in the event of a disaster.

?As we saw following disasters like Hurricane Michael and the tragic Surfside condo collapse, our Urban Search & Rescue Teams are the first boots on the ground, leaving their families behind and risking their own lives to save others,? Florida Chief Financial Officer Jimmy Patronis said in a statement.

Hurricane risk has made homeowners' insurers leery of Florida and led to high state government involvement in the market.

In May, Gov. Ron DeSantis signed Senate Bill 2D into law. The law makes reforms designed to stabilize Florida?s property market and rates.

The law establishes the Reinsurance Assistance to Policyholders program, which authorizes a $2 billion dollar reimbursement layer of reinsurance for hurricane losses directly below the mandatory layer of the Florida Hurricane Catastrophe Fund, a state trust fund that provides reimbursement to residential property insurers for a portion of their Florida catastrophic hurricane losses.

Last year, officials at the Cat Fund said it was well positioned to weather any possible payouts due to damaging storms after it replenished its accounts with a large municipal bond sale two years ago. The fund's conduit issuer, the Florida State Board of Administration Finance Corp., sold $3.5 billion of taxable revenue bonds that benefitted the fund in 2020.

The corporation can issue bonds on either a pre-event or post-event basis. The proceeds of debt issued by the corporation on a pre-event basis go toward either providing liquidity allow the fund meet future obligations or for reimbursements on a post-event basis after a covered catastrophe when the fund's cash balance is insufficient. So far, the corporation has issued $13 billion in pre-event debt and $2.65 billion in post-event debt.

The new law also requires an insurer participating in the Reinsurance Assistance to Policyholders program in 2022-2023 to reduce its rates by making a filing with the Florida Office of Insurance Regulation by June 30 to reflect the cost savings realized.

An insurer that defers using the program until the 2023 contract year must reduce rates to reflect the cost savings realized by participating in the program in a rate filing submitted to the OIR no later than May 1, 2023. The insurer shall make no other changes to its rates in the filing.

The fiscal 2022-2023 budget also provides funds for new property and casualty actuaries and for expanded property and casualty examinations to look at the financial stability of insurers and their compliance with the state insurance code.

It also provides funds to conduct an annual catastrophe stress test of homeowners? insurers to evaluate their ability to withstand the financial impact of a series of catastrophic events. These stress tests are conducted by the Florida Public Hurricane Model maintained by Florida International University and help promote resiliency in Florida's market.

U.S. Sen. Rick Scott of Florida toured the Palm Beach County Emergency Operations Center last week to highlight the importance of hurricane preparedness.

?Throughout my eight years as governor, I saw firsthand the destruction left behind by multiple devastating hurricanes ? Michael, Irma, Hermine, Matthew,? he said. ?Florida is resilient because we prepare for storms. I cannot stress this enough: preparedness saves lives. We can always rebuild a home, but we can?t rebuild a life.?

This was echoed by federal officials.

?Early preparation and understanding your risk is key to being hurricane resilient and climate-ready,? said U.S. Secretary of Commerce Gina Raimondo. ?Throughout the hurricane season, NOAA experts will work around-the-clock to provide early and accurate forecasts and warnings that communities in the path of storms can depend on to stay informed.?

NASA Administrator Bill Nelson, a longtime U.S. senator from Florida, said he knew first-hand the devastation caused by hurricanes, noting these climate-related events are growing more frequent and more powerful.

?Addressing and mitigating the effects of climate change like hurricanes are at the core of NASA?s mission," Nelson said last week. "From the agency?s upcoming TROPICS mission that will help scientists understand the factors driving storm intensification and contribute to weather forecasting models, to the creation of the Earth Information Center to ensure game-changing NASA climate data is accessible and understandable to decision-makers, NASA will continue to help communities better prepare for and recover from these weather events.?

NASA's goal for disaster preparedness, response, mitigation and recovery is bringing data to people who need it. Before, during, and after a hurricane makes landfall, NASA satellites can identify impacts in real time.

NOAA has attributed the expected increase in hurricane activity this year to several climate factors, including the ongoing La Ni?a Pacific ocean temperature and wind effect, which is likely to persist throughout the hurricane season, the warmer-than-average sea surface temperatures in the Atlantic Ocean and Caribbean Sea and weaker tropical Atlantic trade winds. Additionally, an enhanced west African monsoon means stronger waves, which seed many of the longest-lived hurricanes.

A tropical storm has already soaked Miami-Dade County this year.

Heavy rains swamped the city and county last week, dropping at least 11 inches of rain on Saturday and leaving some streets underwater.

In March, the county released an update on its sea level rise strategy, which it has been investing in to mitigate flood risks.

?Climate change and sea level rise pose an immediate threat to our communities in Miami-Dade County and many residents are already feeling the effects of sunny day flooding and increased stormwater flooding when we get heavy rainstorms,? Mayor Daniella Levine Cava said at the time.

In February, NOAA updated its sea level rise projections, which show risks will increase for coastal issuers of municipal bonds. Market research firm CreditSights said in a March report that credit risks to municipal governments include increased flood risk at high tides and during storms.

In April, the National League of Cities released a report warning climate change has become an increasingly important factor for cities, affecting everything from their bond ratings to their property tax base.

The effects of climate change and rising sea levels pose credit quality risks for Florida issuers, S&P Global Ratings said in a report released in September.

While hurricane season occurs between June and November, S&P noted rising temperatures may result in more frequent and intense storm activity, which in turn could increase storm surges and flooding.

About 20% of Florida's property currently faces a substantial risk of flooding, according to First Street Foundation, which forecasts that 24% will be at risk by 2050.

Hurricanes are a threat throughout the Eastern Seaboard and Gulf Coast.

?I want to encourage Virginians to take the time and prepare now for this coming storm season,? Gov. Glenn Youngkin said in a statement. ?This includes not only our coastal residents but inland Virginians as well. History has proven that our inland communities are just as susceptible to hurricane impacts like flooding, tornadoes, and high winds.?

The governor?s office said that in recent years hurricanes have shown that they are not just a coastal threat because that even storms that start in the lower Atlantic or Gulf States have the potential to come north and cause significant damage to Virginia.

In New Orleans, Mayor LaToya Cantrell joined public health and safety officials last week to provide an overview of city and partner preparations for the hurricane season.

New Orleans Homeland Security and Emergency Preparedness will coordinate the city?s response if a storm hits the area. Preparations also include formalizing cooling center operations into an emergency resource center plan designed to provide residents access to information and disaster resources.

Last August, Hurricane Ida smashed into Louisiana causing $18 billion worth of damage and claiming 30 lives in the state.

The Category 4 storm became the second most deadly and damaging storm behind Hurricane Katrina in 2005.

Ida also caused two deaths in Mississippi, two in Alabama, one in Maryland, 29 in New Jersey, 17 in New York, five in Pennsylvania and one in Connecticut.

There were also a large number of people hospitalized in the New Orleans area due to carbon monoxide poising by those using portable gas generators that were improperly ventilated and used during the ensuing power outages.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.