Florida Commission on Hurricane Loss Projection Methodology Meeting Report: September 21-22

 

During its September 21-22, 2011 meeting, the Florida Commission on Hurricane Loss Projection Methodology (“FCHLPM”) approved two hurricane models, withdrew acceptability on another, and discussed revisions to the numerous standards that are used to evaluate hurricane models.

The FCHLPM reviewed a request from Risk Management Solutions (“RMS”) to consider acceptability of its RiskLink Version 11.0.SP2.   After much discussion, the FCHLPM found the model acceptable, but withdrew its acceptability of RiskLink 11.0.SP1 and declined a request to find SP2a and SP2b acceptable along with SP2.

In other action, the FCHLPM found AIR Worldwide Atlantic Tropical Cyclone Model v12.0.1 as implemented in CLASIC/2 v12.5 to be acceptable for a 60-day period following the acceptability of Model 13.0 on June 16, 2011.

A representative from AIR explained that its version 12.5 was based on the original 12.01 model, but utilized a different version of software.  He further explained that companies usually update the most current software model, but not all do.  In this instance, an insurer submitted a rate filing with the Florida Office of Insurance Regulation (“OIR”) using an interim version of AIR’s software, version 12.5, instead of the most recently approved version.

“We would prefer [insurer clients] use version 13.0, but if they have an earlier version of the software, we can’t control them,” he stated. “I wouldn’t want to jeopardize one client’s rate filing just because the entire proceeding getting the model and inserting it in the rate filing process can be lengthy.”

It was noted that version 12.5 did meet the required standards.

After much discussion, the FCHLPM found AIR’s version 12.0.1 as implemented in CLASIC.2 v. 12.5 to be acceptable for a 60-day period following the acceptability of version 13.0 on June 16, 2011.

The remainder of the day-and-a-half long meeting was devoted to reviewing language, terminology, and sometimes the categorical arrangement of the detailed and technical lists of the FCHLPM’s 2009 Standards to Determine Acceptability (“Standards”) used to review hurricane models.

Some of the highlights follow:

 

Actuarial Standards Committee

Several changes to actuarial forms were discussed by Michael Young of RMS, including consolidation and sub-standardization of specifications in Form A-1, “Personal Residential Loss Costs,” and Form A-6, “Personal Residential Output Ranges.”

It was suggested that most of the current forms use FHCF-based data that is reported at ZIP code resolution, and that the current output range data is excessive.  Mr. Young said that, because of this, greater time is needed to prepare submissions and that reform in this area might be in order 

Mr. Young also mentioned the possibility of introducing various notional exposure sets to calculate loss costs in other actuarial forms. 

It was noted that changes in the output ranges could be misinterpreted as changes in the model “over time,” whereas changes are strongly affected by underlying exposures. 

The benefit of the suggested form changes would be more effective tracking of model changes.

 

General Standards Committee 

A revision was recommended to the section of the 2009 General Standards, which mandates that modelers assure continual agreement and translation of databases, data files, and computer source code.  With the change, slides and technical papers would be included in that list.

Mr. Young warned that this revision could cause models to be developed backward by asking the computer code to create the data.  

An additional revision to the General Standards focused on requiring modelers to locate all data centrally.

Commissioner Howard Eaglefeld suggested that, if RMS’ grid location format is approved, Section G-3 could be totally eliminated. 

 

Computer Standards Committee

AIR representatives recommended a reordering of the Computer Standards required to conduct a catalog generation audit.  The proposed reordering would not remove any content from the current Computer Standards. 

The reordering would, however, reduce the number of documents required for the audit from five to one.  The FCHLPM Computer Standards Team agreed that the current audit is overwhelming.  

As an alternative, a change was suggested to Standard C-6, “Model Maintenance and Revision,” which would allow reference to all software, instead of download and submission.   

 

Meteorological Standards Committee: 

Another recommendation by AIR representatives was to update the historical storm catalog every five years, instead of every two years.

Members of the FCHLPM Meteorological Team expressed concern that a moral hazard might occur if significant storm events are not included in models for five years.  It was also said that five-year catalog updates would conflict with the two-year modeling cycle.  

In response, an AIR representative stated that the five-year update recommendation is in concert with AIR’s desire to reduce the frequency of required submissions.

Another suggestion by AIR representatives was to change the definition of “hurricane.”  The FCHLPM Meteorological Team expressed concern about the definition change, because the meteorological community is constantly changing it.

AIR recommended Standard M-3 include terrain assumptions provided by the FCHLPM.  AIR said this would “complete” the Standard.  The FCHLPM stated that terrain assumptions are modelers’ work product and should not be provided by the FCHLPM.  Commissioners stressed their concern that modelers should model land as land, and water as water. 

 

The FCHLPM is scheduled to meet next on October 19 and 20, 2011.  

 

With no further business before the FCHLPM, the meeting was adjourned.

 

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

 

 

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