FHCF Reimbursement Rule Hearing and Advisory Council–March 25-26 Meeting Report

On March 25, 2008, the State Board of Administration, Florida Hurricane Catastrophe Fund (“FHCF”) held a Proposed Rule Hearing regarding Rule 19-8.010, F.A.C., Reimbursement Contract (“Contract”) and amendments to certain Rules for the 2008-2009 Contract Year. A meeting of the FHCF Advisory Council was held on March 26, a report on which follows the Rule Hearing update below.

The amended Contract Rules reviewed were:

• 19-8.012: Procedures to Determine Ineligibility for Participation in the Florida Hurricane Catastrophe Fund and to Determine Exemption from Participation in the Florida Hurricane Catastrophe Fund
• 19-8.013: Revenue Bonds Issued Pursuant to Section 215.555(6), F.S
• 19-8.029: Insurer Reporting Requirements
• 19-8.030: Insurer Responsibilities

Each Rule was reviewed and, where applicable, it was noted where public input had been incorporated. Several new changes that had not been discussed at the previous Rule Hearings held on the Contract also were noted.

19-8.012: Procedures to Determine Ineligibility for Participation in the Florida Hurricane Catastrophe Fund and to Determine Exemption from Participation in the Florida Hurricane Catastrophe Fund due to Limited Exposure: The proposed amendments to Rule 19-8.012, F.A.C., update and adopt forms for ineligibility and exemption from the FHCF and also provide that an insurer which has been granted ineligibility or de minimis status and then fails to execute and return the Reimbursement Contract to the FHCF within 30 days of losing such ineligible or exempt status will not be reimbursed for losses occurring prior to the receipt by the FHCF of the executed Reimbursement Contract.

Revisions of note:

• Any Company granted ineligibility status which fails to execute and return the Contract to the FHCF within 30 days of writing its first covered policy following the grant of ineligibility status shall not be eligible for reimbursement for any covered losses occurring prior to the receipt by the FHCF of the executed Contract.

• Any Company granted de minimis exempt status which fails to execute and return the Contract to the FHCF within 30 days of writing a covered policy that results in the insurer’s aggregate covered exposure exceeding $10 million shall not be eligible for reimbursement for any covered losses occurring prior to the receipt by the FHCF of the executed Contract.

It was discussed that these changes were included to protect the FHCF.

• Citizens Property Insurance Corporation was added to the definition of “Authorized Insurer,” both in this Rule and in Rule 19-8.030, Insurer Responsibilities.

19-8.013: Revenue Bonds Issued Pursuant to Section 215.555(6), F.S.: The proposed amendments to Rule 19-8.013, F.A.C., update the rule to incorporate the changes to the rapid cash build-up factor made by the Legislature during 2007 and to exclude Multi-Peril crop policies reinsured or subsidized by the Federal Government from the emergency assessment as the result of the decision in National Crop Insurance Services, Inc. et al. v. Office of Insurance Regulation, Case No. 2006 CA 2594 (Fla. 2nd Cir. Ct. 2007).

Revisions of note:

• Language specifying limits on the FHCF’s liability related to revenue from bond issuance applicable to the Contract Year was removed.

• Policies issued as part of the National Flood Insurance Program are not subject to the Emergency Assessment pursuant to the doctrine of federal pre-emption.

• Reimbursement premium will not be used to pay for past losses or for debt service on tax-exempt post-event revenue bonds. If the bonds are not tax-exempt, reimbursement premium may be used to pay for them.

19-8.029: Insurer Reporting Requirements: The proposed amendments to Rule 19-8.029, F.A.C., update and adopt the forms for insurer exposure and loss reporting to the FHCF for the 2008-2009 Contract Year and incorporates a new Company Contact form on which insurers designate individuals to be their official contacts.

Revisions of note:

• For the 2008/2009 Contract Year, the reporting shall be in accordance with Form FHCF-D1A, “Florida Hurricane Catastrophe Fund 2008 Data Call,” rev. 05/08, hereby adopted and incorporated by reference. The form may be obtained from the FHCF’s Administrator (at the address stated in the Contract). A new participant writing covered policies on or after June 1 but prior to December 1, shall report its actual exposure as of December 31 of the Contract Year on or before March 1 of the Contract Year, to the Administrator.

• For the 2008/2009 Contract Year, the applicable Interim Loss Report is the “Contract Year 2008 Interim Loss Report, Florida Hurricane Catastrophe Fund (FHCF)”, FHCF-L1A, rev. 05/08, which is hereby adopted and incorporated by reference. The applicable Proof of Loss Report is the “Contract Year 2008 Proof of Loss Report, Florida Hurricane Catastrophe Fund (FHCF),” FHCF-L1B, rev.05/08, which is hereby adopted and incorporated by reference. The forms may be obtained from the FHCF’s Administrator at the address listed within the Contract.

• Companies must submit Form FHCF C-1, Company Contact Information, new 05/08, by June 1 of each Contract Year. This form must be updated by the Company as the information provided thereon changes. The FHCF shall have the right to rely upon the information provided by the Company to the FHCF on this form until receipt by the FHCF of a new properly completed and notarized FHCF C-1 from the Company.

• All forms may be obtained from the FHCF Administrator.

19-8.030: Insurer Responsibilities: The proposed amendments to Rule 19-8.030, F.A.C., incorporate the 2007 Special Legislative Session’s changes to the law, and update and adopt forms for insurer exposure and loss examinations and reporting to the FHCF for the 2008-2009 Contract Year, increases the resubmission fees for resubmissions resulting from an examination, and provides that optional coverages will be lost if the Addendum offering such optional coverage is not executed and returned timely.

Revisions of note:

• Optional coverages authorized by law must be chosen by current participants by executing and returning the applicable Addenda to the Reimbursement Contract by June 1 of the relevant Contract Year. New Participants choosing optional coverage must execute and return the applicable Addenda to the Reimbursement Contract for the relevant Contract Year prior to the time in which a covered loss occurs and within thirty days of writing its first covered policy. Any current or new participant failing to meet these deadlines shall not be eligible for such optional coverage.

• The provision of a grace policy of data resubmission notification was deleted and the resubmission fee schedule was changed to reflect the following increase: A $1,000 resubmission fee (for resubmissions that are not the result of an exam by the SBA) will be invoiced by the FHCF for each resubmission. If a resubmission is necessary as a result of an examination report issued by the SBA, the resubmission fee will be $2,000. If a company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000.

• For the Contract Year 2008-2009, the applicable “Florida Hurricane Catastrophe Fund Interim Loss Report,” is the FHCF-L1A (rev. 05/08) and the applicable “Florida Hurricane Catastrophe Fund Proof of Loss Report,” is the FHCF-L1B (rev. 05/08). These forms may be obtained from the FHCF’s Administrator, Paragon Strategic Solutions Inc., 3600 American Boulevard West, Suite 700, Minneapolis, Minnesota 55431.

• Company Contact Information: Companies must submit Form FHCF C-1, Company Contact Information, by June 1 of each Contract Year. This form must be updated by the Company as the information provided thereon changes. The FHCF shall have the right to rely upon the information provided by the Company to the FHCF on this form until receipt by the FHCF of a new properly completed and notarized FHCF-C1 from the Company.

The proposed amendments to 19-8.010, F.A.C., which adopts the Reimbursement Contract for the Contract Year 2008-2009, included the following three addenda:

• Addendum No. 1: This addendum incorporates the Temporary Emergency Options for Additional Coverage “TEACO” program. This program allows insurers to purchase its FHCF premium share of a $1 billion, $2 billion, or a $3 billion layer of coverage below the mandatory FHCF layer of coverage.

• Addendum No. 2: This addendum incorporates the Temporary Increase in Coverage Limit Options “TICL” program. This program allows insurers to choose from one of twelve options for increasing their level of FHCF coverage above and beyond the mandatory FHCF coverage.

• Addendum No. 3: This addendum gives effect to the extension of FHCF coverage to policies of liquidated insurers taken over by Citizens Property Insurance Corporation pursuant to changes made to the law in 2007.

 

FHCF Advisory Council Meeting Report

On Wednesday, March 26, 2008, the FHCF Advisory Council (“Council”) held a meeting to obtain approval to file the aforementioned Rules for adoption and vote on the filing of a Notice of Proposed Rulemaking regarding the Reimbursement Premium Formula Rule. The agenda, a copy of which may be viewed by clicking here, included a discussion regarding the premium formula for the 2008/2009 Contract Year.

Chairman William Huffcut called the meeting to order, with the following members in attendance:

• Vice-Chairman Jim Henderson from Brown & Brown, Inc. in Daytona Beach, Florida
• John Auer from American Strategic Insurance Corporation in St. Petersburg, Florida
• Larry Johnson from Allstate Insurance Company in Northbrook, Illinois
• Robert Peduto from Swiss Re in Overland Park, Kansas
• Joseph Varon from Quick Tie Products in Jacksonville, Florida
• David Walker from Clearwater, Florida

Also in attendance were FHCF Senior Officer Jack Nicholson and FHCF Director of Operations, Anne Bert, as well as Paul Buddie and Andy Rapoport from Paragon Strategic Solutions, Inc. (“Paragon”).

The amended Rules discussed at the March 25 FHCF Rule Hearing were approved for adoption. It was noted that substantive changes were made to Rules 19-8.010, .012 and .013 prior to this meeting, and a Notice of Change will be filed for each.

Changes to Rule 19-8.029 will also be filed as a result of the mitigation credit measure discussed at the March 25 meeting.

The Council approved filing Rule 19-8.030 as-is.

A presentation on the 2008/2009 Premium Formula was given by the representatives from Paragon, a copy of which soon will be made available on the FHCF Web site.

Council members voiced concern about the Applied Research Associates (“ARA”) mitigation credit model used in the FHCF Reimbursement Premium Formula. According to Mr. Auer, some insurance companies feel this model uses an exaggerated formula when calculating mitigation in coastal areas.

After lengthy discussion, the Council passed a motion by Mr. Auer to exclude mitigation credits from the 2008 Reimbursement Premium Formula, and instead gather input from other modelers and insurance companies during the coming year, so all sides of this complex issue can be properly addressed.

The lone vote against this measure was from Mr. Johnson. A proposal from Mr. Varon to eliminate all mitigation factors except for the year in which a structure was built was defeated by one vote.

The FHCF will continue gather mitigation information through its Data Call, but will not use that information when determining rates.

The Council then voted to file Rule 19-8.028: Premium Formula for Notice after minor changes were made regarding the mitigation credits.

The Senior FHCF Officer Report (“Report”) was then given by Ms. Bert, inasmuch as Mr. Nicholson, was called from the meeting to speak with the Governor and his staff regarding FHCF bonding issues. The FHCF anticipates the possibility of having to issue additional bonds to cover approximately $512 million in outstanding claims as a result of the 2004 and 2005 hurricane seasons.

The Report included a Legislative Update on bills currently viable in the 2008 Legislative Session relating to the FHCF, among which are:

• SB 2156 Relating to the Florida Hurricane Catastrophe Fund by Senator Bill Posey
• HB 0983/SB 2784 Relating to Windstorm Insurance Coverage
• HB 1497 Relating to the Florida Hurricane Catastrophe Fund by Representative Dan Gelber

SB 2156 passed out of the Senate Banking and Insurance Committee on March 25. To read a report and summary on this meeting, click here.

An update will be given on the other bills during the next Council meeting.

An update on FHCF staff activities also was given in the Report. A financial services team has been assembled by Mr. Nicholson to ensure that the FHCF will enter the 2008 hurricane season with sufficient reimbursement capacity. This team is working closely with the State Board of Administration’s Division of Bond Finance and its investment advisors, who will assist in developing products to examine liquidity, risks, and capacity.

The next FHCF Advisory Council meeting is scheduled for May 14, 2008 from 9:00 a.m. to 1:00 p.m. Scheduled for discussion are May, 2008 bonding estimates, approval of the Premium Formula Rule (19-8.028) for adoption, and additional legislative updates.

The meeting was then adjourned.

 

Should you have any questions or comments, please do not hesitate to contact this office.

 

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