Florida Commission on Hurricane Loss Projection Methodology Advances Review of AIR Worldwide Model; Site Visit Planned for May

 

The Florida Commission on Hurricane Loss Projection Methodology (“FCHLPM”) voted today, April 15, 2010, to continue its review of AIR Worldwide Corporation’s (“AIRs”) Atlantic Tropical Cyclone Model V12.0, subject to the company addressing several deficiencies and issues by April 22.  To view the meeting agenda, click here.

The actions taken by the FCHLPM at its meeting today come in advance of an inspection and on-site visit by several FCHLPM Commissioners and staff members to AIR’s facilities on May 4-7.

FCHLPM Commissioners, assisted by the FCHLPM’s Professional Team, identified nine deficiencies and issues with AIR’s model during the April 15 teleconference and noted several other items for the company to address.  Statistician Mark Johnson, leader of the Professional Team, said all of the items were considered minor and said he expected the company would have no difficulty meeting the April 22 deadline.  

AIR Worldwide representative Scott Davidson, who was present for the teleconference, indicated that the company would be able to comply with the FCHLPM’s requests.

Listed below are the nine deficiencies and issues identified by the FCHLPM in AIR’s submitted model:

(To reference the 2009 FCHLPM Report of Activities, which contain the 2009 Model Standards, click here)

• Standard G-1, Disclosure 5-Responses are not provided separately for parts A, B, and C.
• Standard M-3, Part A-Landfall location and peak weighting factor are listed as random variables in Standard M-2, Disclosure 3; therefore, the probability distributions for these variables should be discussed in Standard M-3, Part A.
• Standard M-4, Disclosure 3 -Table is not numbered or listed in the Table of Contents.
• Standard V-2, Part B — Material provided is non-responsive.  Summary response delineating what part of Attachment F corresponds to this standard is required.
• Standard A-2, Part B — Response is incomplete since (3) claim payment practices, (5) contractual provisions, and (6) relevant underwriting practices underlying those losses are not addressed.
• Form A-3 — Storm ID numbers provided for “Other hurricanes included” do not follow instructions as given in Part B.
• Form A-4 — Column headings are not shown and repeated at the top of all subsequent pages.
• Form A-5 — Column headings are not shown and repeated at the top of all subsequent pages.
• Form S-4 — Response is not provided for Part B.

FCHLPM Chairman Randy Dumm and fellow Commissioners Kristen Bessette, Howard Eagelfeld and Florida Insurance Consumer Advocate Sean Shaw are expected to make the site visit to AIR.  Commissioner Lori Schneider, citing schedule conflicts, removed herself from the site-visit team. 

Florida Hurricane Catastrophe Fund Senior Attorney Tracy Allen explained to FCHLPM Commissioners that those making the site visit should expect to receive information, such as trade secrets, that is exempt from Florida’s Open Records law.  However, Ms. Allen noted that any material handled by the FCHLPM at a public meeting becomes a public record.  To avoid this potential conflict, Ms. Allen instructed FCHLPM members of the site-visit team not to discuss with each other — even during the visit itself — any matter related to FCHLPM’s oversight or regulatory duties, because doing so in any context other than a properly noticed public meeting would violate Florida’s Government-in-the-Sunshine law.  As long as FCHLPM members do not discuss FCHLPM business with each other during the site visit, the visit need not be treated as a public meeting, Ms. Allen said.

Individual FCHLPM members can discuss information received during the visit with company representatives or FCHLPM staff members without violating the law, Ms. Allen said.  She also counseled FCHLPM members and staff that they could examine company documents containing trade secrets and even take notes on them, but to leave both the materials and their notes about them in the possession of the company upon leaving to avoid turning them into public records under state law.

FCHLPM Commissioners briefly discussed legislative efforts to amend state law to enable the board to include an engineer among its members.  Florida Hurricane Catastrophe Fund Chief Operating Officer and FCHLPM Board Member Jack Nicholson said those efforts were likely to fail during this legislative session, and recommended getting an early start before the 2011 Florida Legislature convenes to help make that goal a reality.

Mr. Nicholson also told the FCHLPM it was not yet clear how many of the its recommendations would be included in pending windstorm mitigation legislation working its way through the 2010 Florida Legislature, which is currently in Session.  

Portions of the AIR model documentation are attached for review, including:

• Form S-6, which specifies the model input variables that were examined in evaluating aggregated loss costs for hypothetical events for sensitivity and uncertainty analysis;
• A listing of remapped zip codes used in the AIR model; and
• AIR’s Form A-1 Loss Costs chart.

The Addendum to the 2009 FCHLPM Report of Activities specifies that if an organization’s model changes after the model has been reviewed under the 2009 Standards and prior to the adoption of the 2011 Standards, whether or not the model was found to be acceptable, the modeling organization may submit the revised model under the 2009 Standards by November 15, 2010.   To view the Addendum, which also provides the schedule for a March 31, 2010 model submission, click here. 

 

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

 

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