Florida Commission on Hurricane Loss Projection Methodology Meeting Report

The Florida Commission on Hurricane Loss Projection Methodology (“Commission”) held a two-day meeting on September 17 and 18, 2008 to discuss and adopt the 2008 Commission Standards and Report of Activities.

To view the meeting notice and agenda, click here and here. To view 2008-2009 Modeler presentations and Professional Team On-Site Review Reports, click here.

A motion to remove all information relating to Commercial Residential Standards for 2008 and review them next year by gathering public testimony and information from the Modelers was adopted at the beginning of the meeting. It was determined that after more discussion and information gathering, the issue will be re-addressed for a final decision next year.

Jack Nicholson, Chairman of the Commission’s Acceptability Process Committee, presented a number of draft standards for adoption. Following are the Acceptability Standards, with drafts presented and accompanying action(s) on each:

• Process for Determining the Acceptability of a Computer Model
• Significant discussion on this Section took place regarding the relevance of public testimony and what statutes applied to that portion of Model acceptance. The Commission members felt these considerations should not be a requirement during their review; however, the intention was not to prohibit public testimony during the meeting. The draft was adopted with the amended changes. A number of alternative suggestions to the language were presented by Commissioner Howard Eagelfeld. Some of these were accepted and others were defeated.
• On-Site Review
• A motion was adopted to accept the draft as suggested. No discussion took place and no amendments were offered to this Section.
• Findings of the Commission
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. There was no discussion on this issue.
• Inquiries or Investigations
• A motion was adopted to remove all references to Commercial Residential Standards in order to allow Commission Staff to make all technical changes and create a document outlining procedures for collecting public input on the Commercial Residential Standards over the next year. The motion to accept all other recommended changes within the draft also was adopted.
• Introduction
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. No discussion took place.
• Principles
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. No discussion took place.
• References
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. There was no discussion on this topic.
• Miscellaneous
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. There was no discussion on this topic. (Included in this category: Letter to Trustees, Commission Members, Table of Contents, Model Identifications, Submission Data, Comparison of 2008 Standards to 2007 Standards, Appendices)
• Commission Structure
• A motion was adopted to remove all references to Commercial Residential Standards and accept all other recommended changes. The Commission members requested that Commissioner Nicholson speak with the Florida Legislature regarding adding a member with some engineering expertise to the Commission.
• Definitions
• There was a significant amount of discussion on a number of definitions that were presented for consideration. It was stated that the following definitions needed additional work, and public comment was welcome to help draft the definitions of: “Coinsurance” and “Demand Surge/Economic Inflation.” There was extensive work done on the definition of “Probable Maximum Loss,” along with “Return Period.” Also added was a definition for “Insurance Policy.”

Mr. Eagelfeld, Chair of the General Standards Committee, presented a number of draft Standards for adoption. Following are the draft Standards, with accompanying action(s) on each:

• G-1 Scope of the Computer Model and Its Implementation
• There were significant revisions and alternative wording adopted to Standard G-1, including the “purpose,” “disclosures” and “audit” language adopted by the Commission.
• G-1CR Scope of the Computer Model and its Implementation
• A motion was adopted to add entirely new “standard,” “purpose” and “audit” language.
• G-2 Qualifications of Modeler Personnel and Consultants
• Significant revisions were adopted to the G-2 standard, along with minimal changes adopted to its purpose.
• G-3 Risk Location
• A motion was adopted to add wording to the “purpose” and “audit” portions of this Standard. There was no discussion on this topic.
• G-4 Independence of Model Components
• A motion was adopted to change the wording of this Standard’s “purpose” and “audit.” There was no discussion on this topic.
• G-5 Editorial Compliance
• A motion was adopted for significant revision and alternative wording to Standard G-5’s “purpose,” “disclosures” and “audit” sections. There were a number of segments with alternative wording suggestions presented by Commissioner Nicholson. Some of these were accepted and others were defeated. The Professional Team also suggested alternative wording that was adopted. There was discussion among the Commissioners on this topic.
• Form G-1 through Form G-7
• The motion was adopted on forms G-1, G-2, G-3, G-4, G-5, G-6 and G-7. There was no discussion on this topic.

Larry Johnson, Chair of the Actuarial Standards Committee, presented a number of draft Standards for adoption. Following are the draft Standards, with accompanying action(s) on each:

• A-1 Modeled Loss Costs and Probable Maximum Loss Levels
• A motion for significant revision to Standard A-1 was adopted, along with alternative wording to be applied to its “purpose,” “disclosures” and “audit” sections. There was no discussion on this topic.
• A-2 Underwriting Assumptions
• After discussion, a motion was adopted for significant revision to Standard A-2. The addition of alternative wording to the Standard was suggested by Commissioner Eagelfeld for the “purpose,” “disclosures” and “audit” sections and adopted by the Commission.
• A-3 Loss Cost Projections and Probable Maximum Loss Levels
• After discussion among the Commission, a motion was adopted for significant revision to Standard A-3. The motion also was adopted for alternative wording to be added to the “purpose” and “disclosure” sections.
• A-4 Demand Surge
• After discussion among the Commission, a motion was adopted to add alternative wording to the Standard’s “disclosure” and “audit” sections.
• A-5 User Inputs
• A motion was adopted to remove all of Commissioner Eagelfeld’s alternative wording and accept all other recommended changes.
• A-6 Logical Relationship to Risk
• A motion was adopted for significant revision to standard A-6. Alternative wording also was adopted to the “disclosures” section of this Standard.
• A-7 Deductibles and Policy Limits
• A motion was adopted for significant revision to Standard A-7. There was no discussion on this topic.
• A-8 Contents
• A motion to accept this Standard as presented was adopted with no discussion.
• A-9 Additional Living Expense (“ALE”)
• A motion was adopted with no discussion for alternative wording to be applied to the “audit” section of this Standard.
• A-10 Output Ranges
• A motion was adopted for alternative wording to be applied to the “disclosure” and “audit” sections of this Standard. No discussion took place.
• A-10CR Commercial Residential Output Ranges
• A motion was adopted with no discussion to accept this new standard as presented.
• A-11 Probable Maximum Loss
• After discussion among the Commission, a motion was adopted to accept this new standard as presented.
• Form A-1 Loss Costs
• A motion to accept this Standard as presented was adopted with no discussion.
• Form A-2 Zero Deductible Loss Costs by ZIP Code
• A motion to accept this Standard as presented was adopted with no discussion.
• Form A-3 Base Hurricane Storm Set Statewide Loss Costs
• A motion was adopted to add alternative wording to this Standard.
• Form A-4 Hurricane Andrew (1992) Percent of Losses
• A motion to accept this Standard as presented was adopted with no discussion.
• Form A-5 Cumulative Losses from the 2004 Hurricane Season
• A motion to accept the Standard with a new Form was adopted with no discussion.
• Form A-6 Output Ranges
• A motion was adopted to accept this Standard with alternative wording. There was no discussion.
• Form A-7 Percentage Change In Output Ranges
• A motion was adopted with no discussion to accept this Standard as presented.
• Form A-8 Percentage Change in Output Ranges by County
• A motion was adopted with no discussion to accept this Standard with alternative wording.
• Form A-9 Probable Maximum Loss for Florida
• A motion was adopted for alternative wording. There was no discussion on this topic.
• Form A-10CR Commercial Residential Output Ranges
• A motion to accept the Standard with a new Form was adopted with no discussion.

Hugh Willoughby, Chair of the Meteorological Standards Committee, presented a number of draft standards for Commission adoption. Following are the draft Standards, with accompanying action(s) on each:

• M-1 Base Hurricane Storm Set
• A motion was adopted for significant revision to the wording of this Standard, in addition to alternative wording in its “purpose,” “disclosures” and “audit” sections. There was no discussion on this topic.
• M-2 Hurricane Parameters and Characteristics
• A motion was adopted with no discussion for alternative wording to be used in the “purpose” section of this Standard.
• M-3 Hurricane Probabilities
• A motion was adopted with no discussion for the use of alternative wording in the “purpose” section of this Standard.
• M-4 Hurricane Windfield Structure
• A motion was adopted with no discussion to accept alternative wording of the “purpose,” “disclosures” and “audit” sections of this Standard.
• M-4CR Hurricane Vertical Wind Profile
• A motion was adopted with no discussion to accept this new Standard as presented.
• M-5 Landfall and Over-Land Weakening Methodologies
• A motion was adopted with no discussion to accept alternative wording in the “disclosure” and “audit” sections of this Standard.
• M-6 Logical Relationships of Hurricane Characteristics
• A motion to accept this Standard as presented was adopted with no discussion.
• Form M-1 Annual Occurrence Rates
• A motion to accept alternative wording on this Standard was adopted with no discussion.
• Form M-2 Maps of Maximum Winds
• The motion was adopted for alternative wording. There was no discussion on this topic.
• Form M-3 Radius of Maximum Winds and Radii of Standard Wind Thresholds – A motion was adopted for alternative wording. There was no discussion on this topic.

Kristen Bessette, Chair of the Vulnerability Standards Committee presented a number of draft Standards for Commission adoption. Following are the draft Standards, with accompanying action(s) on each:

• V-1 Derivation of Vulnerability Functions
• A motion to remove Commissioner Eagelfeld’s alternative wording was adopted with no discussion.
• V-1CR Derivation of Commercial Residential Vulnerability Functions
• A motion to adopt this new standard was approved with no discussion.
• V-2 Mitigation Measures
• A motion to remove Commissioner Eagelfeld’s alternative wording was adopted with some discussion.
• Form V-1 One Hypothetical Event
• A motion to adopt this Standard was approved with no discussion.
• Form V-2 Mitigation Measures – Range of Changes in Damage
• A motion to adopted this Standard with alternative wording was approved with no discussion.
• Form V-3 Mitigation Measures – Mean Damage Ratio Trade Secret List Item
• A motion to adopt this Standard was approved with no discussion.

Sneh Gulati, Chair of the Statistical Standards Committee, presented a number of draft standards for adoption. Following are the draft Standards, with accompanying action(s) on each:

• S-1 Modeled Results and Goodness-of-Fit
• A motion was adopted for alternative wording suggested by Risk Management Solutions (“RMS”), in addition to alternative wording in the “disclosure” and “audit” sections of this Standard.
• S-1CR Commercial Residential Modeled Results and Goodness-of-Fit
• A motion was adopted with no discussion to approve this new Standard.
• S-2 Sensitivity Analysis for Model Output
• A motion was adopted to approve this Standard. There was no discussion on this topic.
• S-4 County Level Aggregation
• A motion was adopted to approve this Standard. There was no discussion on this topic.
• S-5 Replication of Known Hurricane Losses
• A motion was adopted to approve alternative wording in the “disclosure” section of this Standard. There was no discussion on this topic.
• S-6 Comparison of Projected Hurricane Loss Costs
• A motion was adopted with no discussion to approve this Standard.
• Form S-1 Probability and Frequency of Florida Landfalling Hurricanes per Year
• A motion to approve this Standard was adopted with no discussion.
• Form S-2 An Example of Loss Exceedance Estimates Based on a Limited Hypothetical Data Set
• A motion to approve this Standard was adopted. No discussion took place.
• Form S-3 Distributions of Stochastic Hurricane Parameters
• After discussion, a motion was adopted for to approve alternative wording to Form S-3.
• Form S-3CR Distributions of Commercial Residential Stochastic Parameters
• A motion was adopted to approve a new Form for this Standard. There was no discussion on this topic.
• Form S-4 Five Validation Comparisons
• A motion to approve this Standard was adopted with no discussion.
• Form S-5 Average Annual Zero Deductible Satewide Loss Costs – Historical versus Modeled
• A motion was adopted with no discussion to approve this Standard.
• Form S-6 Hypothetical Events for Sensitivity and Uncertainty Analysis (requirement for models submitted by modeling organizations which have not previously provided the Commission with this analysis)
• A motion was adopted with no discussion to approve this Standard.

Jai Navlakha, Chair of the Computer Standards Committee, presented a number of draft Standards for adoption. Following are the draft Standards, with accompanying action(s) on each:

• C-1 Documentation
• A motion was adopted to approve significant revisions to Standard C-1, in addition to alternative wording suggested by RMS. There was no discussion on this topic.
• C-2 Requirements
• A motion to adopt this Standard was approved with no discussion.
• C-3 Model Architecture and Component Design
• A motion to adopt this Standard was approved with no discussion.
• C-4 Implementation
• A motion to adopt this Standard was approved with no discussion.
• C-5 Verification
• A motion to adopt this Standard was approved with no discussion.
• C-6 Model Maintenance and Revision
• A motion was adopted for significant revisions to Standard C-6. The request submitted by the AIR Corporation was withdrawn. There was no discussion on this topic.
• C-7 Security
• A motion to adopt this Standard was approved with no discussion.
• C-8CR Computer Standards
• A motion to adopt this new standard was approved with no discussion.

The meeting was then adjourned.

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

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