FHCF Advisory Council Meeting Report: May 14

On Wednesday, May 14, 2008, the Florida Hurricane Catastrophe Fund (“FHCF”) Advisory Council (“Council”) met in Tallahassee, Florida for the purpose of reviewing the 2008 Legislative Session, May bonding estimates and other issues affecting the FHCF. To view the meeting notice, click here. To view the complete meeting agenda, click here.

The meeting was called to order by FHCF Chairman Bill Huffcut. Following the roll call and approval of the March 16, 2008 minutes, the Council moved into substantive matters.

FHCF Senior Officer Jack Nicholson provided the Senior FHCF Officer’s Report, which included the following updates:

• 2008 Legislative Session
• FHCF Financial Services Team
• Bonding issues
• A review of 2004/2005 FHCF losses
• A review of the auditor general’s operational audit
• A discussion on the 8th Annual Participating Insurer’s Workshop

From the 2008 Legislative Session, Mr. Nicholson reported on changes to the FHCF in Senate Bill 2860, specifically:

• $10 million coverage in the FHCF for limited apportionment companies and select other insurers was extended from 2007
• The FHCF has more capacity than last year, totaling approximately $35 billion
• Governor Crist may veto the $250 million appropriation for the Insurance Capital Build-Up Incentive Program
• Florida’s Chief Financial Officer is required to submit a report on the financial impact of a 1-in-100 year storm striking Florida.
• Hurricane models for use in ratemaking must be accepted by the Florida Commission on Hurricane Loss Projection Methodology

Please note: As of the publication of this bulletin, the Governor has not signed the legislation, but it is expected that he will.

Mr. Nicholson also reviewed the purpose and creation of the FHCF Financial Services Team. The Team is comprised of 17 firms from the international banking arena. They are charged with developing a plan to address issues that may arise from the lack of liquidity or bonding capacity should the FHCF need to seek financing in these markets.

Mr. Nicholson discussed the 2004/2005 FHCF losses. The FHCF has paid nearly 99 percent of claims from the 2004 storms, which totals approximately $3.8 billion and $4.4 billion of an expected $5 billion from 2005. He noted that these numbers are subject to change due to the opening of new claims and re-opening of existing claims. During this report, John Forney of Raymond James and Associates, Inc. noted that liquidity and bonding would be tight in the event of a large event such as Hurricane Wilma. However, he opined that the FHCF could manage such event.

Concluding Mr. Nicholson’s report was a discussion about the upcoming Participating Insurer’s Workshop. It was noted that Senator Steve Geller and State Representative Dennis Ross are expected to speak about the 2008 Legislative Session. Other Workshop forums are scheduled to include topics on mitigation, modeling and specific information related to the FHCF.

Next, Tracy Allen briefly discussed Rule 19-8.028, F.A.C. relating to the Reimbursement Premium Formula. Without discussion or debate, the Council approved the Rule for filing.

The Council addressed and approved Addendum Number Four to the reimbursement contract implemented by Emergency Rule.

Next, Mr. Forney gave a presentation of the May 2008 bonding estimates. He commented that the FHCF is highly rated by three major rating agencies, is not on the verge of collapse, and has approximately $8 billion in cash on hand. However, he noted that the FHCF could face a significant challenge if there is an unprecedented event.

He reported that the credit markets are extremely tight. Access for debt, at times, has been unavailable at any price. For a $28 billion event or greater, the FHCF would seek other financing options such as pre-event bonding or contingent financing plans. He also stated that the liquidity problem is not isolated to the FHCF, but the markets in general.

Following his presentation, the Council approved his report for bonding estimates. The FHCF is required by law to file bonding estimates publicly in the Florida Administrative Weekly.

The Council addressed a few other matters, including comments made earlier about companies “gaming” the system. The Council agreed to fully address this issue at its next meeting. Also, the Council addressed problems with public adjusters. It was noted that nearly all re-opened claims are public adjuster-related, and that legislation was passed this year to address these problems. However, the ultimate bill was a watered-down version of necessary reforms.

Mr. Huffcut provided brief closing remarks and the meeting adjourned.

Should you have any questions, please feel free to contact this office.

 

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