FPCA Homeowners Division: Comments Requested By November 20 On Florida Hurricane Catastrophe Fund Bill Draft
Nov 5, 2009
Florida Hurricane Catastrophe Fund (“FHCF”) Chief Operating Officer Jack Nicholson has provided the Florida Property Casualty Association (“FPCA”) with a preliminary bill draft relating to the FHCF contract year change effected by legislation passed earlier in 2009. The FHCF is drafting the bill in conjunction with the Florida Office of Insurance Regulation (“OIR”).
It is anticipated that this bill will evolve in substance prior to its introduction into the Florida Legislature. Colodny Fass will work with Dr. Nicholson and the OIR on this legislation. Any comments from FPCA members should be sent to Katie Webb at kwebb@cftlaw.com by Friday, November 20.
A summary of the draft legislation, which was provided to Colodny Fass, is reprinted below.
1. We have changed the dates back so that the contract year will be June 1 to May 31. We created a definition of “contract year” for ease of reference. See subsection (2)(o) on lines 210-212.
2. We added a new section to the statute – Section (18) FACILATATION OF INSURERS PRIVATE CONTRACT NEGOTIATIONS PRIOR TO THE START OF THE HURRICANE SEASON.
3. This new section has “Findings and Intent” language. Basically, we have language that talks about the problem of timing of the legislative session and the hurricane season and problems, etc.
4. Also, in Section (18) there is a requirement that the FHCF 1) publish the FHCF’s aggregate coverage and aggregate retention by January 1 each year and 2) adopt the FHCF reimbursement contract by February 1 of each year. Note these are aggregate numbers – we will not be publishing payout multiples and retention multiples which are more difficult to do until after our premium formula is done (much later). This will benefit insurers since they can do a lot with the aggregate numbers.
5. In order to publish the FHCF’s aggregate coverage and the aggregate retention numbers, there is a need to restate both the FHCF’s coverage limit and aggregate retention to numbers that are known well in advance. The way we do this is to set the aggregate retention adjustment back one year by the wording “two years prior to the particular contract year” (see p. 6, lines 143-144). This would have the impact of creating an aggregate retention number for 2010-2011 about the same as it is this year ($7.223 billion is this year’s number but the calculation would be about $7.18 billion – very close). Note, we did not change the 2004 beginning date for the exposure growth. If we would have, the growth would have pushed the aggregate retention to about $8 billion. For the coverage limit [found in subsection (4)(c)1.], we changed the statutory language back to what it was in 2000-2004, but adjusted the $11 billion to $17 billion. The idea would be to create a known number well in advance; whereas, currently due to having to adjust the limit with either exposure growth or year-end cash balance growth, we don’t have numbers on January 1. The old statutory language also does something else. It allows for the build-up of subsequent season capacity by “freezing” initial season capacity until there is an equal amount of subsequent season capacity as determined by the SBA. In years of no events, as the cash balance grows, the amount of bonding will be less and less each year. Thus, so will the emergency assessments needed to fund our capacity each year. This creates a very favorable situation by building cash reserves and limiting the growth of bonding. The way the limit of coverage is determined under current law is that it can continue to grow without regard to whether we can fund the amount of bonding needed. This can get out of hand. We think this change is a good idea and accomplishes the objective of making the FHCF more of a certain benefit for insurers thus avoiding a lot of the uncertainty that has existed since 2007. It is always better to rely on cash than the uncertain nature of the financial markets which impacts bonding.
6. There are a few “glitch” clean ups like on page 14, line 373 where we refer to the “projected payout” factor so as to avoid confusion – the retention multiple can’t change regardless of actual capacity, etc.