Florida Commission on Hurricane Loss Projection Methodology Report: August 12 & 13

The Florida Commission on Hurricane Loss Projection Methodology (“Commission”) held consecutive meetings on August 12 and 13, 2008 in Tallahassee, Florida to discuss recommended changes to various loss modeling standards by various committees. The individual committees established by the Commission to review acceptability standards included: computer, statistical, meteorological, general, actuarial, vulnerability, and acceptability process.

As part of the agenda, Larry Johnson was elected Commission vice-chair.

Fair Insurance Reform of Monroe County

Before the individual committee meetings began, representatives with Fair Insurance Reform of Monroe County (“FIRM”) gave a presentation on model projections in Monroe County. They detailed evidence to demonstrate that actual hurricane experience does not accurately reflect the high costs that the hurricane models are currently projecting. They encouraged the Commission to give Monroe County special consideration based on these observations.

Modeling Standards

Computer Standards

Changes were effected to the following Computer Standards:

C-1 relating to Documentation
C-6 relating to Model Maintenance and Revision
C-4 relating to implementation (minor changes)

The Commission reviewed and made changes to the working definitions of terms used in the “Report of Activities.”

Statistical Standards

Commission Chairman Jack Nicholson expressed concern with the recommendation that Form S-2 regarding Probable Maximum Loss (“PML”) be deleted. After discussion, they will not recommend this Form for elimination. The Commission also discussed definitional changes to the PML that were made because of concerns that the current definition is too narrow in scope.

There was discussion regarding the consequences for property insurers and consumers as a result of statutory changes that require companies to use approved models for ratemaking purposes in Florida. There is a potential gap because many reinsurance companies use short-term models to calculate their rates. The Commission indicated that science would dictate the appropriateness of particular models.

Meteorological Standards

Limited changes were made to the information on required Meteorological Standards forms. The Commission suggested requiring models to describe the effect of a storm passing over foreign land masses (i.e.Cuba) prior to Florida landfall.

EQECAT, Inc. provided a presentation on the use of “near-term” methodology and urged the Commission to include an optional standard to review the “near-term” hazard for the February 2009 submission.

General Standards

Changes were made to several General Standards. The scope of computer models and their implementation were amended to reflect the use of PML levels for personal lines residential property damage from hurricane events. Some modeling companies were concerned about the changes in Standard G-6 because the process, not the substance of the model, could result in a model failing this particular standard.

Actuarial Standards

Mr. Johnson reviewed proposed changes to the Actuarial Standards. Howard Eagelfeld recommended changes to explicitly exclude flood and storm surge as elements to determine loss costs. This prompted significant discussions about applicability of storm surge in a model.

The Commission will be accepting input on this issue from the modeling companies before finalizing any changes. It also discussed the use of demand surge to calculate PML and concluded that more information is needed before reaching a final determination. The Commission will revisit this issue at the September meeting.

Vulnerability Standards

Kristen Bessette reviewed the proposed changes to the Vulnerability Standards. The significant changes proposed relate to requiring a review of building codes and characteristics including how retrofitted or remolded buildings are treated in the model. They seemed to reach a consensus on adding a “roof type” to the mitigation measures.

Acceptability Process

Mr. Nicholson reviewed proposed changes to the Acceptability Process. The Commission discussed separating the definitions of commercial residential (multiple occupancy buildings) and personal residential structures for modeling purposes. This standard requires a computer model to project loss costs and PML for commercial residential. Ambiguity exists as to which types of lines constitute commercial residential (i.e. a condominium association). The Commission will consider alternatives.

Commissioners discussed whether they should be required to provide a summary of their rationale for their vote on whether a particular model should be considered. It was determined they may do so as a courtesy, but not as a requirement.

The modelers suggested convening a meeting among themselves, Commission members and the Commission’s Professional Team prior to a Professional Team site visit in order to improve communications. This was framed as a long-term strategy projected to save time and expense.

The Commission will reconvene in September to approve, disapprove, or amend the conclusions of the various committees.

Conclusion

The Commission staff provided documents to the attendees regarding the recommended changes to the modeling standards. Because they are voluminous, they are not included in this update.

However, if you would like a copy of the documents, or a specific section from them, please feel free to contact Colodny Fass.

To view the meeting notice and agenda, click here.

The above information is a brief review of the items discussed during the two day meetings. It is not intended to be a comprehensive analysis of the issues discussed therein.

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