Florida Hurrican Catastrophe Fund Advisory Council 5/12/06

In its meeting on May 11, 2006, the Florida Hurricane Catastrophe Fund Advisory Council (“Council”) discussed hurricane losses and the two major problems associated with the 2006 season:

1. The Catastrophe Fund (“CAT Fund”) deficit as a result of 2005 losses; and

2. There are some reserves available to pay claims from the 2004 and 2005 seasons. However, as of June 1, 2006, there will be no cash available to pay anticipated claims from 2006.

Accordingly, the Council addressed the need to create liquidity for the 2006 hurricane season, estimating that $1.9 billion will be needed to pay for the expected 2006 losses. In addition, $1.225 billion is needed for post-event bonding for 2005. Raising $1.225 billion would require a 1% assessment of insurers.

To create liquidity, the Council is considering a “pre-event bond product”, for which it has requested bids. After receipt of the bids, the Council will send final recommendations to the Trustees on May 31.

The Council is also considering either a letter of credit facility with a maximum limit of $2.75 billion or a more traditional loan in a lesser amount.

The Council will review the costs of implementing a standby letter of credit as opposed to traditional loan costs and the costs of the issuance of a bond before deciding which facility to use.

Regardless of the financing mechanism chosen, it is not expected to result in an assessment of insurers. The costs of such a product will come out of the CAT Fund budget.

On another subject, the Council clarified that the rapid cash build up fund can be used to pay prior year losses. It can be used to pay prior claims or future claims because, in either event, the rapid cash buildup may be utilized as a mechanism to reduce assessments. Historically, however, the Council has preferred to use it for losses which have been incurred rather than future losses which are speculative.

The Council also considered a reduction of required bonding by $200 Million.

In other business, the Council passed motions to approve:

Should you have any questions or concerns, please do not hesitate to contact our office.

Regards,

Erin Treacy