Florida Hurricane Catastrophe Fund Advisory Council Meeting 3/16/2006
Jan 5, 2007
On March 15, 2006, the Florida Hurricane Catastrophe Fund (FHCF) Advisory Council met in Tallahassee. The Advisory Council voted and approved that Rules 19-8.010, 19-8.012, 19-8.013, 19-8.029 and 19-8.030 be submitted to the trustees for adoption, unless any changes are prompted by a rule hearing taking place on Monday, March 20, 2006. A copy of the Rules is here.
The 2006/2007 Premium Formula was then presented to the Advisory Council, a copy of which is attached. The overall indications of the Premium Formula show a rate decrease of 2.21%. The projected FHCF premium for 2006 is $800.4 million, up from $735.9 million in premium in 2005. Discussion took place as to whether the proposed rates were adequate, considering the models currently used do not take into account a heavier hurricane cycle. The Advisory Council acknowledged that new models will be released in May; however, the Advisory Council emphasized that the 2006/2007 Premium Formula rates are actuarially sound based upon the current adopted models. The Advisory Council voted and approved the 2006/2007 Premium Formula and Premium Formula Rule 19-8.028 and will file a Notice of Proposed Rulemaking with regard to the rule. The Ratemaking Formula Presentation is here.
Jack Nicholson, FHCF’s senior officer, updated the Advisory Council on the 2004 and 2005 Hurricane Losses. The FHCF reported $15.867 billion in total industry residential losses for the 2004 hurricanes as of March 8, 2006 and estimated FHCF losses at $3.760 billion. Currently, 137 companies are expected to trigger FHCF coverage, while 133 have already done so and 62 insurers are expected to exhaust their limit of coverage. $3.472 billion has been paid by FHCF for 2004 losses, with an additional $288 million outstanding to be paid.
Mr. Nicholson reported $8.360 billion in total industry residential losses for the 2005 hurricanes as of March 8, 2006. Currently, 48 of an expected 99 insurers have triggered coverage, with only one insurer exhausting its limit. $1.744 billion has been paid by FHCF, with an additional $1.220 billion outstanding to be paid. Over 99% of the reported losses are from Hurricane Wilma. Mr. Nicholson stated that the FHCF could face a deficit for the 2005 hurricane season losses, and the FHCF will have a better idea of its financial situation when insurers’ loss reports are submitted in March, 2006. A copy of the presentation is here.
The Advisory Council discussed Rapid Cash Build-up Factor (RCBF) as one option to pay losses, in case of a short-fall. Mr. Nicholson emphasized that RCBF would enable the FHCF with greater flexibility when paying losses, and that the recommendation to consider RCBF does not mean it is the only option. The Advisory Council is currently discussing several options, another of which is bonding. Mr. Nicholson reported that RCBF would be available to pay any year’s losses and its necessity would be approved on a year by year basis. No specific percentage was determined, and the Advisory Council voted and approved the recommendation to consider RCBF.
A copy of the agenda is here.
Should you have any questions or concerns, please do not hesitate to contact Colodny Fass.