(Bloomberg) -- Florida hasn’t been hit by a hurricane since2005, the longest stretch in more than a century. Its state-runproperty insurer isn’t taking any chances.

Even though forecasters predict this year will produce thefewest named Atlantic storms since 1997, Citizens PropertyInsurance Corp., which provides coverage when other insurers won’ttake the risk, is selling as much as $1 billion of municipal debtto raise cash just in case. It would be the insurer’s first bondsale in three years.

With hurricane season set to start June 1, Citizens is takingadvantage of interest rates close to generational lows to bolsterits claim-paying ability. Investors in the insurer’s tax-exemptbonds welcome the steps toward a sturdier balance sheet: One stormis all it takes to rack up billions of dollars of expenses.

“I’m not sure they can predict what’s going to happen with theweather,” said Justin Land, director of tax-exempt management inNaples, Fla., at Wasmer, Schroeder & Co., which oversees about$5.3 billion. “Money is so cheap this is a good time to financetheir pre-event capital.”

Wilma’s Toll

Wilma was the last hurricane to strike the state, in October2005. It killed five people in Florida and caused $20.6 billion ofdamage, according to a National Hurricane Center report. The statehasn’t gone this long without a hurricane in records going back to1851, NHC data show.

In its last bond sale in 2012, Citizens told investors that itwrites policies in areas that “appear to be at the highest risk” ofhurricanes and sinkholes, according to offering statements. If astorm produces enough claims to consume reserves, Citizens can askfor a surcharge on property-insurance policies sold statewide,including those from other companies, to repay its bonds. One riskis that regulators don’t grant the surcharge.

The exposure to the weather can generate higher yields forinvestors. In the 2012 tax-exempt sale, 10-year Citizens bondspriced to yield 3.77%, or about 1.8 percentage points abovebenchmark securities, data compiled by Bloomberg show. The bondscarry an A+ grade from Standard & Poor’s, the fifth-highestlevel.

Storm Wait

“They tend to trade a little wider based on Florida’s locationand the potential that they could get a hurricane or two,” saidPaul Brennan, a money manager in Chicago for Nuveen AssetManagement LLC, which owns Citizens bonds among its approximately$100 billion of munis. “It’s only a matter of time before they getanother hurricane.”

This year, partly because of cooler Atlantic waters, ColoradoState University researchers predict seven named storms, comparedwith the 30-year average of 12, with three reaching hurricanestrength of at least 74 miles (119 kilometers) per hour. The seasonlasts through Nov. 30.

The insurer still needs cash for possible claims, in partbecause it plans to pay off about $2.6 billion of debt, most ofwhich matures within three years.

Most of the deal will be tax-exempt and fixed-rate, maturing inthree to 10 years, Jennifer Montero, the chief financial officer,said in an interview. It will probably price next month, shesaid.

“This allows us to take advantage of the yield curve and lock inrates at historically low rate levels,” she said.

Risk Reduction

The insurer determines reserve levels based on expected lossesfrom a storm that has a one-in-100 chance of happening.

The lack of storms has drawn competition from other insurers,reducing residents’ reliance on Citizens, which has been trying tomove customers off its books to reduce risk.

With storms bypassing the state, the company earned net incomeof more than $1 billion the past two years, raising its surplus to$7.4 billion at year-end, compared with a deficit of $1.8 billionat the end of 2005, according to financial statements.

The value of property it insures that could be subject to losseshas fallen to less than $200 billion, from $518 billion in 2011.The number of policyholders has dropped to 600,000 from 1.5 millionin 2012, and may sink to 450,000 if no storms hit, according to thecompany.

With less potential for claims, the planned bond sale is about athird smaller than in 2012.

The bonds are “a very acceptable risk,” said Land at Wasmer,Schroeder. The company owns Citizens debt and will consider the newbonds.

--With assistance from Brian K. Sullivan in Boston.

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