Florida Hurricane Catastrophe Fund 2012/2013 Reimbursement Contract Reviewed at Rule Development Workshop, Advisory Council

 

The Florida Hurricane Catastrophe Fund (“FHCF”) held a Rule Development Workshop yesterday, September 29, 2011, on proposed Rule 19-8.010, which pertains to the 2012/2013 FHCF Reimbursement Contract. 

FHCF Senior Attorney Tracy Allen explained that most of the changes to the Rule, along with the resulting Reimbursement Contract changes, either clarify or delete obsolete language. 

Following are some of the more substantial proposed Rule changes:

• Reimbursement Contract Article VIII section (1):
  • The word “previous” is replaced with the word “any,” which will allow Florida’s State Board of Administration (“SBA”) to offset amounts payable by a company against any FHCF Contract, not solely the prior year’s Contract.
• Reimbursement Contract Article X section (3) paragraph (a):
  • The word “reimbursements” is replaced by the words “any payments,” which will allow the SBA to withhold any payment from a provider for non-compliance with Section 215.555, Florida Statutes, instead of only having authority to withhold reimbursement payments.
• Reimbursement Contract Article X section (3) paragraph (d) sub-paragraph (2):
  • Will be amended to prohibit contact with actuarial panels after the submission of a case by parties in disputes over the present value of outstanding claims and losses.
• Addendum No. 1 to the Reimbursement Contract, Optional Temporary Increase in Coverage Limit (“TICL”) coverage:
  • Reduces the TICL options and increases the premium, pursuant to CS/CS/CS/HB 1495 from the 2009 Florida Legislative Session.

The Workshop agenda and materials are attached in PDF format.

FHCF Advisory Council Discusses “Right-Size” Plan

The FHCF Advisory Council met yesterday afternoon, at the outset of which Council member Campbell Cawood expressed concern over a portion of the May 17, 2011 meeting minutes that had reported FHCF’s claims-paying capacity as $12 billion.  Mr. Cawood explained that his contention was due to the fact that the FHCF’s advisors had otherwise reported a range of FHCF claims-paying capacity of $4 billion to $23 billion. 

FHCF Chief Operating Officer Dr. Jack Nicholson responded that the purpose of reporting the capacity at $12 billion was to provide the market with a conservative estimate of the FCHF’s claims-paying capacity.  Mr. Cawood requested the meeting minutes be amended to reflect the range of capacity, instead of a conservative estimate.  The amended minutes were approved unanimously. 

The Council the heard a presentation from FHCF staff about the changes to the 2012/2013 FHCF Reimbursement Contract.  During the overview of these changes, Mr. Cawood expressed concern with existing exclusions from FHCF coverage for certain rental properties.  Although these exclusions have in place for some time, Mr. Cawood suggested that excluding properties that are rented more than six times each year prevents homeowners from earning additional income, which is runs counter to the FHCF’s purpose of “making insurance more readily available in Florida.” 

Dr. Nicholson responded to Mr. Cawood that this concern had never been brought forth during the rulemaking process.  Further, Dr. Nicholson explained that differentiating between residential and commercial property is critical, due to the fact that the FCHF is statutorily prohibited from covering commercial property. 

Ms. Allen explained that the six-night standard was developed during the rulemaking process as a “bright-line test” for residential property, and that excluding properties that are rented up to 90 times annually was considered, but rejected.  The Council then unanimously approved the proposed Reimbursement Contract changes.

Dr. Nicholson then provided the Chief Operating Officer’s report, during which he informed the Council of his appearances at legislative committees during the week of September 19, in which he explained to legislators that the FHCF is dangerously overexposed.  He also informed the council that Senator Don Gaetz requested a plan to “right-size” FHCF. 

Dr. Nicholson then laid out a plan to reduce FHCF’s exposure to between $5 and $7 billion, potentially with capacity of $10 billion if bonding is included.  Dr. Nicholson explained that his plan would include a reduction of the TICL layer, an increase of co-pays from 10 percent to 25 percent, an increase in retention requirements, a phase-in a higher cash build-up factor and an increase in assessment capacity. 

Mr. Cawood expressed concern with reducing the FHCF’s capacity and stated that, in his opinion, the FHCF should increase capacity.  Dr. Nicholson explained that the FHCF’s being dangerously exposed could lead to an inability to pay claims.  He also expressed reservations about FHCF’s ability to issue $12 billion in bonds after a catastrophic event. 

Council member John Auer then explained that responsible companies will buy redundant reinsurance, if there is any question of FHCF’s ability to pay claims.  Mr. Auer said that reducing FHCF’s capacity will provide confidence to insurers that it can pay claims and keep the companies from purchasing reinsurance, thereby reducing costs. 

Dr. Nicholson then reported that he no longer anticipates FHCF incurring in any new debt at this time.  FHCF has no need to currently issue new debt, because it collected $50 million more in assessments than estimated, received $125 million in refunds of overpayment, renegotiated the maturity date of a current contract and settled open commutation claims for $212 million less than estimated. 

Dr. Nicholson then announced the next Advisory Council meeting will be held in Tallahassee on October 18.  At that meeting, FHCF advisors will again provide bonding capacity estimates and address some of the concerns expressed about the wide range of capacity previously reported. 

Mr. Auer requested that the advisors meet by teleconference prior to that in an effort to gain some consensus.  Dr. Nicholson advised that a call for that purpose has already been arranged.

 

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