Florida House Insurance, Business and Financial Affairs Policy Committee Report: November 4

The Florida House of Representatives Insurance, Business and Financial Affairs Policy Committee met on November 4, 2009, during which presentations were given by the following persons:

• Tom Cardwell, Commissioner; Florida Office of Financial Regulation
• Dr. Jack Nicholson, Chief Operating Officer; Florida Hurricane Catastrophe Fund (“FHCF”)
• Susanne Murphy, Executive Vice President of Corporate Operations; Citizens Property Insurance Corporation (“Citizens”)

To preface his presentation, Dr. Nicholson provided a brief history of the FHCF, particularly in relation to House Bill 1A (passed in January 2007) and the subsequent expansion of the FHCF.  He explained that the FHCF would be currently unable to issue bonds to the maximum of its statutory liability because of recent financial market turmoil.

Dr. Nicholson emphasized that the FHCF’s financial obligations are limited by its on-hand cash and bonding ability. Since insurers that purchase reinsurance from the FHCF rely on it for claims payment to the fullest extent allowed by Florida law, the negative information about FHCF capacity is surprising.

Dr. Nicholson then explained changes to the FHCF effected by the passage of House Bill 1495 in 2009.  In regard to the upcoming revisions and transition in the FHCF contract year, he briefly mentioned that a statutory accounting issue exists, and that he and the Florida Office of Insurance Regulation are currently evaluating legislative solutions.

Other HB 1495-related changes to the FHCF include the availability of the $10 million drop down coverage layer, the gradual reduction in the Temporary Increase in Coverage Limits and an increase in costs.

This year, the FHCF remains about $4 billion short of being able to fulfill its maximum statutory bonding obligation.  Dr. Nicholson advised that the FHCF may need to issue more bonds due to an increase in losses from the 2004 and 2005 hurricane seasons.  He praised the impact of HB 1495 and noted that financing $25 billion is always a risk, regardless of the state of financial markets.

Dr. Nicholson reported that, during 2009, 172 insurers selected the FHCF’s 90 percent coverage option and 23 insurers selected the 45 percent option.  Also, certain other companies opted to purchase private reinsurance because the FHCF could not bond to its maximum capacity.

In his discussion on policy assessments, Dr. Nicholson reminded the Committee that regulators are supposed to ensure that insurers are solvent, so that Floridians will be liable only for assessments in limited circumstances.

A Committee member commented that it is difficult to comprehend how the FHCF rates could be decreased if insurers can’t rely on it because of limited resources to begin with.  This statement was affirmed by Dr. Nicholson.

Although Ms. Murphy’s presentation was abbreviated because of the lack of remaining meeting time, most of her discussion centered around Citizens’ rates.  New legislation has mandated changes in the way that Citizens determines its rates, as well as subjects its rate increases to a 10 percent cap per year.

Citizens’ Board of Governors had determined that an obligation now exists to evaluate Citizens’ rates for actuarial soundness, which also means that some policyholders will experience rate decreases.  Several Committee members commented on this issue, with one legislator even stating that he was “offended” by this revelation, particularly in light of the fact that last year, Citizens testified that its rates were between 40-45 percent deficient. However, other Committee members expressed concerns that Citizens’ rates were still too high.  Further questions were asked about how the Legislature could help keep rates low.

The meeting was then adjourned.  To view the meeting packet, click here.

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

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