Florida Hurricane Catastrophe Fund’s Jack Nicholson to Submit ‘Right-Size’ Plan to Senate Banking and Insurance Committee

 

The Senate Committee on Banking and Insurance (“Committee”) met September 21, 2011.  Committee Chairman Garrett Richter called the meeting to order and introduced the newest member of the committee, Senate President-Designate Don Gaetz, who was recently appointed to the committee by Senate President Mike Haridopolos. 

The Committee heard a presentation from Florida Office of Financial Regulation (“OFR”) Commissioner Tom Grady.  A former Member of the Florida House of Representatives and securities lawyer, Commissioner Grady was appointed to his position in August 2011 by the Florida Financial Services Commission.  Commissioner Grady introduced himself to the Committee members and gave a brief overview of his duties and the OFR’s regulatory authority.

Dr. Jack Nicholson, Chief Operating Officer of the Florida Hurricane Catastrophe Fund (“FHCF”), made a presentation to the Committee, in which he explained that the FHCF’s initial purpose and role was to work in conjunction with private reinsurance to provide stability in the market that reinsurers alone may not be able to provide. 

The major issues facing the FHCF are the claims paying capacity, financial market volatility and adverse loss development from the 2004 and 2005 hurricane seasons. 

Dr. Nicholson gave an overview of Florida’s property insurance market, stating that it comprises approximately 6.4 million insured residential property risks, with $9.825 billion in residential premium.  For 2011-2012, the FHCF’s claims paying capacity is estimated to be $18.5 billion.  With $7.245 billion cash on hand, the FHCF would have to issue approximately $11.3 billion in bonds, which would be serviced by a six percent Emergency Assessment.  The current Emergency Assessment is 1.3 percent, which finances $2.65 billion in bonds issued as the result of losses in the 2005 FHCF Contract Year.  Billing from the current Emergency Assessment is expected to continue until 2016. 

Dr. Nicholson expressed concern that, given the current turmoil and uncertainty in the world financial markets, the FHCF could have difficulty placing $11 billion in bonds.  He stated that it would be the largest bond offering in history.  When questioned by the Committee members, Dr. Nicholson described the FHCF as “dangerously overexposed.”

Senator Gaetz asked Dr. Nicholson what should be done to “right size” the FHCF and whether it should collect more cash or lay off more risk.  Senator Gaetz questioned if there was a way to do this without raising rates on insureds.  Dr. Nicholson stated that the rapid cash build-up factor implemented in 2009 did help to grow the amount of cash in the FHCF. 

Dr. Nicholson was asked to submit a business model and plan to “right size” the FHCF.   In response, it is anticipated that he will submit a legislative proposal that would reduce the limits of the FHCF mandatory coverage layer, increase the participating insurer co-pay, increase the aggregate insurer retention and the cash build-up factor, and reduce the maximum allowable emergency assessments.

 

Insurance Related Open Government Sunset Review Committee Bills To Be Filed

The Committee staff then presented three Interim Reports relating to Open Government Sunset Reviews of public records exemptions.  Pursuant to Florida law, public records and meetings exemptions are reviewed the fifth year after enactment, and the exemptions are repealed on October 2 of the fifth year unless they are reviewed by the Legislature and saved from repeal. 

Committee staff presented the Interim Report, Open Government Sunset Review of Section 324.242, F.S., Personal Identifying Information in Insurance Policy Personal Injury Protection (PIP) and Property Damage Liability Insurance Policies.  The referenced statute exempts from the public records law all personal identifying information of insureds and the policy number of each insurance policy, when this information is held by the Florida Department of Highway Safety and Motor Vehicles. This public records exemption will expire on October 2, 2012, unless saved from repeal by the Legislature.  The staff report contained a recommendation that the public records exemption established in s. 324.242, F.S., be saved from repeal and be reenacted.  The Committee moved to file a committee bill to reenact this public records exemption.

Also presented was the Interim Report, Open Government Sunset Review of Section 624.23, F.S., Consumer Complaints and Inquiries Received by the Department of Financial Services.  The referenced law provides an exemption from public records for personal financial and medical information provided by consumers to the Florida Division of Agent and Agency Services, the Florida Division of Consumer Services, or the Florida Division of Workers’ Compensation within the Florida Department of Financial Services (“DFS”).  The Committee staff recommended that the exemptions be saved from repeal and be reenacted because the exemption is necessary to protect against identify theft or other misuse.  The Committee moved to file a committee bill to reenact this public records exemption.

Finally, Committee staff presented the Interim Report, Open Government Sunset Review of Section 717.117(8), F.S., Unclaimed or Abandoned Property.  Section 717.117(8), F.S. provides a public records exemption for Social Security numbers and property identifiers used to identify the holder of unclaimed or abandoned property held by the DFS.  The Committee staff recommended that the exemptions be saved from repeal and be reenacted.  The Committee moved to file a committee bill to reenact this public records exemption.

 

To access the meeting materials in PDF format, click here.

 

Should you have any comments or questions, please contact Colodny Fass.

 

 

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