Florida House Insurance Committee to Hold First meeting in November; Chairman Patterson Issues Property Insurance Updates

In lieu of holding an interim House of Representatives Insurance, Business and Financial Affairs Policy Committee meeting this week, Chairman Pat Patterson provided Committee Members with updates on Florida property insurance and related issues. 

Chairman Patterson’s updates, which are reprinted below, include information received from Citizens Property Insurance Corporation (“Citizens”) detailing the number of policies by county that are affected by its recently-announced rate increases for commercial residential buildings valued in excess of $10 million.  A chart listing statistics by both county and account type is attached. 

The Florida Senate Committee on Banking and Insurance met today, October 6.  To view the meeting packet, click here.

Additional Interim Legislative Committee Meetings are scheduled to be held during the weeks of November 2-6 and December 7-11, 2009.

 

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

 

To:  House Insurance, Business and Financial Affairs Policy Committee Members

From:  Chairman Pat Patterson

 

INSURANCE

 

Withdrawal of State Farm Florida Insurance Company

An administrative hearing on the withdrawal plan submitted by State Farm and the response to the plan by the Office of Insurance Regulation is set for November 17-20, 2009.  Once the hearing is complete, the administrative law judge will issue a recommended order.  The OIR will then issue a final order which can be appealed by either party.

Editors’ Note:  This hearing has been rescheduled to December 17, 2009.

 

Citizens Property Insurance Corporation (CPIC or Citizens)

As of August 31, 2009, Citizens has approximately 1 million policies with exposure of about $411 billion and premium of $2.2 billion.  Information relating to Citizens’ policy count by policy type and by county can be viewed at www.citizensfla.com/about/corpfinancials.cfm.

HB 1495 ended the three year rate freeze for Citizens and required Citizens to increase rates not more than 10 percent per policy each year starting January 1, 2010 until the rates are actuarially sound.  In addition, HB 1495 allowed Citizens to increase rates to recoup the Florida Hurricane Catastrophe Fund (FHCF) cash build up factor.  To implement the rate increase, Citizens had to make a rate filing by July 15, 2009 for each line of business it writes recommending actuarially sound rates for each line of business Citizens’ writes.  The OIR has 45 days to review the filings after they are made and to issue a final order setting Citizens’ rates.  Citizens has no right to challenge the rates set by the OIR.

In July 2009 Citizens submitted 13 rate filings to the OIR.  In August 2009 Citizens withdrew the rate filings by agreement with the OIR.  In September 2009 some of the withdrawn rate filings were refiled by Citizens and some new rate filings were submitted.  For personal residential multi-peril policies written by Citizens, the statewide average rate change for the filings made in September varies per line of business with a low rate increase of 1 percent for certain mobile home policies and a high of 10.7 percent for certain dwelling policies.  In contrast, the actuarially indicated rate increase for these policies ranged from 0 percent to 92.3 percent.  For commercial residential multi-peril policies written by Citizens, the statewide average rate increase for the filings made in September is 10.1 percent.  The actuarially indicated rate increase for these policies is 17.5 percent.  Rates for personal and commercial wind-only policies and commercial non-residential policies insured by Citizens have not been refiled. 

A public hearing on Citizens’ rate filings for personal residential multi-peril policies is set for October 20, 2009 in Tallahassee.  A separate public hearing on Citizens’ personal and commercial residential wind-only policy rate filings, commercial residential multi-peril policy rate filings, and commercial non-residential policy rate filings will be held in the future.  All the rate changes contained in the rate filings are effective January 1, 2010 for new and renewal business.

Citizens currently has $2.63 billion in surplus in the PLA/CLA (personal lines account and commercial lines account) to pay claims that may occur during the 2009 hurricane season.  Thus, Citizens has sufficient surplus in the PLA/CLA to meet their Florida Hurricane Catastrophe Fund (FHCF) retention and copayment for the PLA/CLA.  The maximum FHCF recovery for the PLA/CLA is $3.1 billion.  Citizens did not purchase private reinsurance for the PLA/CLA for the 2009 hurricane season.  Thus, for the 2009 hurricane season Citizens has a maximum of $5.7 billion to pay claims in the PLA/CLA before assessments have to be levied.  This translates into a one in 65-year probable maximum loss (PML). For losses from $5.7 billion to $6.5 billion (1 in 65 year PML and 1 in 80 year PML), Citizens would levy a Citizens policyholder assessment against its policyholders.  Citizens’ 100-year PML is $7.438 billion as of December 31, 2008.  Thus, in order for Citizens to have resources to pay losses that would result from a one in 100-year hurricane, regular assessments against most property and casualty policyholders, excluding Citizens’ policyholders, would have to be levied. Emergency assessments would not have to be levied until losses reached $10.6 billion, a 1 in 194-year PML.

In the HRA (high risk account), Citizens has $1.6 billion in surplus to pay claims that may occur during the 2009 hurricane season.  Citizens did not purchase private reinsurance for the HRA exposure so reinsurance recoveries in 2009 include only a recovery from the Florida Hurricane Catastrophe Fund.  Due to the lack of funds available, the HRA would have to levy a Citizens policyholder assessment in order to raise funds to meet the FHCF retention.  In addition, a Citizens policyholder surcharge and a regular assessment would have to be levied in order for Citizens to pay its copayment to the FHCF.  Thus, Citizens would have to levy two assessments before receiving FHCF reimbursement for claims.  The maximum FHCF recovery for the HRA is $6.3 billion.  The two assessment levies, the FHCF recoveries, and Citizens’ surplus provide sufficient funds to cover a 1 in 60-year PML and allow Citizens to obtain $10.4 billion to pay claims.  Emergency assessments would not have to be levied until losses reached $10.4 billion, a 1 in 60-year PML.  The HRA’s one in 100-year probable maximum loss is $14.646 billion as of December 31, 2008.      

 

(Supplement provided at the request of Chairman Patterson by Christine Turner Ashburn, Citizens’ Director of Legislative and External Affairs)

As allowed by law, and as approved by the Citizens Board and authorized by the Office of Insurance Regulation (Office) in 2006, the rates that Citizens charges for commercial residential buildings valued in excess of $10 million are not filed with or approved by the Office.  Recently, we completed an actuarial review of these rates in an effort to determine what changes, if any, were necessary.  The analysis found that significant increases are indicated for buildings valued in excess of $10 million in both the Commercial Residential Wind Only (CR-W) and Commercial Residential Multi-peril (CR-M) programs.  As of June 30, 2009 Citizens writes 1,362 A-rated policies with 1,626 buildings that total more than $41 billion in exposure, which represents more than 30% of our total commercial residential exposure.
 
Since these rates are not subject to traditional review or approval by the Office, they are not subject to the rate freeze or the 10% cap that has been imposed on Citizens’ filed and approved rates. With this in mind, and in recognition of the fact that Citizens continues to write more than 67% of the commercial residential market, it is important that we move towards achieving actuarially sound rates for both CR-W and CR-M buildings valued in excess of $10 million.  Therefore, effective for new business November 1, 2009 and renewal business with effective dates beginning January 1, 2010, rates for these risks will increase by approximately 20%. We have been in communication with the Office throughout this process and have relayed these increases to them. 
 
Please do not hesitate to contact me, or refer any consumers who call, with any questions or concerns at (850) 513-3746.
 
Sincerely,
 
Christine Turner Ashburn, Director of Legislative and External Affairs
Citizens Property Insurance Corporation

 

Florida Hurricane Catastrophe Fund (FHCF or Fund)

For the 2009-2010 Fund contract year which runs from June 1, 2009 to May 31, 2010, 195 insurance companies participate in the FHCF.  A majority of the participating companies selected the 90 percent Fund coverage amount, meaning the Fund will reimburse the insurer 90 percent of their losses once the insurer meets their Fund retention.  For the current contract year and thereafter, the Temporary Increase in Coverage Limit (TICL coverage) option was reduced from $12 billion to $10 billion as a result of HB 1495.  Seventy three companies selected TICL coverage for this contract year, with 61 of the 73 insurers selecting their share of the full $10 billion limit available.  Thus, approximately $5.6 billion of the $10 billion in TICL coverage was selected this year by insurers.  No insurers selected the Temporary Emergency Additional Coverage Option (TEACO coverage).  Twenty five companies out of 55 eligible companies selected the additional $10 million Coverage Option.  

Based on the coverage options selected by insurers, the Fund’s maximum potential capacity for the 2009-2010 contract year is $23.173 billion.  This capacity is made up of $17.175 billion of mandatory coverage, $5.557 billion of TICL coverage selected, and $441 million of the $10 million option.  

This contract year each insurer will absorb its share of the industry retention of $7.223 billion prior to the FHCF reimbursing losses. 

The Fund believes it can raise about $16 billion to reimburse insurers for this contract year.  This consists of $8 billion in liquid cash resources ($4.504 billion in cash and $3.5 billion in pre-event bonding) and $8 billion in estimated bonding capacity.  The Fund estimates it would take an industry loss exceeding $15.71 billion to exhaust currently available resources and the probability of that magnitude of loss happening is around 5.3 percent. 

The Fund’s capacity of $23.173 billion minus its claims paying resources of $16 billion is the Fund’s potential shortfall. Thus, the Fund’s potential shortfall for this contract year is $7.173 billion.  The Fund’s potential shortfall last contract year was $18.5 billion.

 

Windstorm Mitigation Discounts

The Florida Commission on Hurricane Loss Projection Methodology (Commission) formed a Windstorm Mitigation Committee (Committee) to meet the statutory directive in HB 1495 for the Commission to review discounts, credits, other rate differentials, and reductions in deductibles relating to windstorm mitigation.  The Committee held all-day meetings in August and in September.  The Committee received testimony from invited parties and the public at both meetings.  The testimony included a summary of the windstorm mitigation discount law, a summary of the Florida Building Code, and presentations by interested parties.  Twenty five persons representing the following groups testified during the two meetings: the Office of Insurance Regulation, property insurance companies in the private market, Citizens Property Insurance Corporation, insurance agents, windstorm mitigation inspectors, hurricane modeling companies, the My Safe Florida Home Program, homeowners, and actuaries. The Committee meets again on October 29, 2009.  Information about the Committee meetings, including information submitted to the Committee, can be viewed at the Committee’s website at http://www.sbafla.com/methodology/wmc.asp.

After reviewing the meeting testimony and data as well as any other information the Commission deems appropriate, the Commission will present a report, by February 1, 2010, to the Governor, the Cabinet, the President of the Senate, and the Speaker of the House of Representatives. The report will include recommendations on improving the process of assessing, determining, and applying windstorm mitigation discounts, credits, other rate differentials, and appropriate reductions in deductibles pursuant to s. 627.0629, F.S.

 

MORTGAGE BROKERING & MORTGAGE LENDING

Turning to banking and financial regulation, you will recall that the 2009 Legislature passed CS/CS/SB 2226 which made sweeping changes to Chapter 494, Florida Statutes.  The bill was signed into law by Governor Crist on June 29, 2009.  The primary purpose of this legislation was to bring ch. 494, F.S., into compliance with the S.A.F.E. Mortgage Licensing Act of 2008 (SAFE Act).  The SAFE Act requires states to implement minimum licensing standards, national testing and education, and begin participating in the Nationwide Mortgage Licensing System (NMLS). 

The Office of Financial Regulation (OFR) has taken several significant steps towards implementing the changes in ch. 494, F.S.  These include: posting information to the OFR’s website; review of administrative rules for proposed changes; preparation for mailing notices to licensees; sending a comparative exhibit to the Department of Housing and Urban Development (HUD) for SAFE compliance review; identifying technology changes needed to the Regulatory Enforcement and Licensing System (REAL); and, responding to requests for interpretations.

Review of an independent credit report by the OFR is part of initial licensure and the annual license renewal process.  HB 7115, which would have provided a public records exemption for credit reports utilized as part of the licensing process, passed the House during the 2009 legislative session; however, it died in Messages.  Legislation to protect personal and private information associated with the credit report will be introduced for the 2010 Session.

 

BUSINESS & PROFESSIONAL REGULATION

Finally, in the area of business and professional regulation, the Department of Business and Professional Regulation has begun implementing the many changes required by the passage of HB 425 which dealt with a variety of reorganization and streamlining issues. No major problems have been reported in this regard. The Department reports that they are now considering additional steps to reduce unnecessary regulation and will seek to have legislation filed for the 2010 Legislative Session.

I hope you have found this information helpful. I look forward to working with each of you as we move forward in addressing these and other important issues in 2010.

 

Sincerely,
Pat Patterson, Chair
Insurance, Business & Financial Affairs Policy Committee

 

To unsubscribe from this newsletter, please send an e-mail to ccochran@cftlaw.com