Florida Cabinet Authorizes Emergency Rule Finalizing 2005 Florida Hurricane Catastrophe Fund Losses
May 17, 2011
Florida Governor Rick Scott opened the Cabinet meeting today, May 17, 2011, by presenting a Memorial Day resolution to the mother of Marine Corporal Julian Woodall, who lost his life serving the United States during Iraq combat operations.
Presenting on behalf of the State Board of Administration (“SBA”), SBA Executive Director and Chief Investment Officer Ash Williams first introduced a series of bonds for approval of fiscal sufficiency, which the Cabinet provided.
Mr. Williams also requested approval and authority to file Emergency Rule 19ER11-1, F.A.C., entitled “Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses” relating to 2005 Florida Hurricane Catastrophe Fund (“FHCF”) losses, inasmuch as large quantities of new and reopened claims on 2005 FHCF policies were received in the first quarter of 2011, he explained, also adding that the SBA needs more flexibility in commutating these 2005 losses, due to the long tail of the losses and concentration of the exposure.
Pursuant to Paragraph (3)(d), Article X, of the 2005 FHCF Reimbursement Contract, the process of finalizing FHCF participating insurers’ losses must begin no later than June 1, 2011. This involves a valuation of claims that an insurer has received but has not yet paid (“outstanding losses”) and claims that an insurer anticipates, but has not yet received (“incurred but not reported losses”). In most circumstances, these losses represent a small portion of an insurer’s recoveries under the FHCF Reimbursement Contract. However, the FHCF is concerned that some participating insurers may have very large amounts of outstanding losses and incurred, but not reported losses, as a result of claims that were filed or reopened many years after the hurricanes covered by the 2005 FHCF Reimbursement Contract.
According to the FHCF, the size of these losses raises the possibility that the process for finalizing losses may understate their value, resulting in disruption of the property insurance market in Florida, or may overstate their value, resulting in the need for additional bonding on behalf of the FHCF. The FHCF has determined that alternative methods of finalizing these losses may significantly reduce the likelihood of either overpayment or underpayment.
Florida Chief Financial Officer Jeff Atwater asked whether the SBA has a specific plan for the Emergency Rule it intends to develop. Mr. Williams said there is not currently a specific plan, but the SBA intends to work with the industry to develop one that makes sense.
CFO Atwater also asked why the SBA is still dealing with claims from 2005, to which Mr. Williams responded that the reason for 2005 claims still flowing into the system is due to the bad economy, statutes that encourage aggressive claims filing practices and a cottage industry in Florida that has developed around aggressive claims filing practices.
Mr. Williams also told the Cabinet that, if enacted, CS/CS/CS/SB 408 would prevent claims filing five years after an event, as well as go a long way towards strengthening the property insurance market.
The Cabinet authorized the SBA to engage in emergency rulemaking to deal with the 2005 FHCF losses.
The SBA’s request approval of, and authority to file a Notice of Proposed Rule for 19-8.029 Insurer Reporting Requirements and 19-8.030 Insurer Responsibilities was not taken up today.
Subsequently, the SBA Division of Bond Finance went before the Cabinet to request authorization of several series of bonds, which were approved. The Cabinet also acted in its capacity as the SBA Board of Trustees by approving a series of land uses on conservation lands.
To view the complete SBA materials packet for today’s Cabinet meeting, click here.
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