Florida Hurricane Catastrophe Fund Advisory Council Approves October 2010 Estimated Claims Paying Capacity Report, Insurer Reporting Requirements Rule Amendments

 

 

The Florida Hurricane Catastrophe Fund (“FHCF”) Advisory Council (“Council”) met in Tallahassee yesterday, October 19, 2010, during which it approved two items:

• The FHCF October 2010 Estimated Claims Paying Capacity Report; and
• Filing a Rule Hearing Notice on changes to proposed Rules 19-8.030 and 19-8.029 relating to insurer reporting requirements and responsibilities, respectively.

Below is a brief summary of the discussions and actions that occurred during the meeting. 

David Walker, Council Chair, opened and presided over the meeting.  After approval of the minutes, he recognized John Forney of Raymond James and Associates for a financial market overview.    

 

Financial Market Overview

Mr. Forney noted that, while the recession is technically over, several economic fundamentals remain weak.  United States debt issuance is at record levels and, as a result, high investment returns are less likely.  Both insurers and reinsurers have been following the trend toward conservative investment strategies.  On a positive note, Mr. Forney stated that the municipal bond market, from which the FHCF traditionally issues debt, is stable.  This should enable the FHCF to access the necessary funds to pay its obligations if needed. 

 

FHCF Portfolio Update

Rob Smith of the Florida State Board of Administration (“SBA”) provided an update on FHCF portfolios, which include an operating fund of $5.02 billion and a 2007-A pre-event financing note at $3.5 billion. The funds are managed very conservatively, he explained.

 

Claims Paying Capacity

In May and October of each year, the FHCF is required to report its claims paying capacity. 

Mr. Forney reviewed FHCF claims paying capacity for 2010, explaining that it was sufficient to cover the FHCF’s potential total 2010 obligations, which could be as much as $18.776 billion.  However, to meet all obligations, the FHCF would need to secure post-event bonding at $9.363 billion, which he said should not be a problem, given current market conditions.  Mr. Forney estimated that the 2010 FHCF obligations will be approximately $19 billion.  This comprises $17 billion in the FHCF’s mandatory coverage layer and an expected $2 billion from the Temporary Increase in Coverage Layer.  

The Council unanimously approved the report.

 

2011/2012 Data Call and Inspection Process Update

An inspection company representative reviewed the FHCF’s wind mitigation inspection and re-inspection trends and activities.  According to his data, approximately one quarter of the homes inspected have three or more significant inspection “defects.”  Approximately 40 percent of these inspections have manifested homes with limited defects resulting primarily from unprotected openings.  FHCF Chief Operating Officer Jack Nicholson noted that having accurate inspections and data results is critical to ensuring a fair mitigation credit system.  

A history and review of the inspection process was given.  In 2007, the Florida Office of Insurance Regulation’s (“OIR”) Uniform Mitigation Verification Inspection Form OIR-B1-1802 (“Form”) became the industry standard for determining mitigation discounts.  The Form was recently amended to require more specific data and is currently undergoing additional changes through OIR rulemaking to further improve the quality of collected data. 

 

FHCF 2011 Data Call Changes

The 2011 FHCF Data Call contains four significant changes, which will now require insurers to provide additional information:

• Construction type “Masonry” has been split into two categories (“Masonry” and “Masonry with Reinforced Concrete Roof”).  Construction type “Superior” has been split into two categories (“Superior” and “Superior with Reinforced Concrete Roof”) for the following FHCF types of business:  Commercial, Condominium Unit Owners and Tenants.

• The FHCF Florida Building Code Indicator codes and instructions have been revised.

• The FHCF Structure Opening Protection field has been revised to dependent on whether or not a company gives its policyholder a credit.

• The FHCF Roof-Wall Connection and Roof Deck Attachment fields have been eliminated.

The Council approved a motion to request SBA approval to file a notice for a hearing on changes to proposed Rules 19-8.029 and 19-8.030 and for final adoption of both if the hearing is not requested. These proposed Rules establish deadlines, reporting requirements and other insurer requirements for FHCF participation.

 

Chief Operating Officer’s Report

Dr. Nicholson commented briefly about the ongoing legal proceedings with Sunshine State Insurance Company.  At issue is whether the FHCF is obligated to pay related attorneys’ fees.  Without elaborating, he maintained that payment of attorneys’ fees in this case is not covered by the FHCF.

He also noted that the emergency assessment increase of 1.3 percent will be effective January 1, 2011.  The emergency assessments resulted from losses during the 2005 storm season. 

In concluding his report, Dr. Nicholson recognized Leonard Schulte as the new FHCF Director of Legal Analysis and Risk Evaluation, after which the Council adjourned.

The meeting documents are attached for review.  This includes the agenda, presentations, changes to proposed Rule 19-18.030, the FHCF Data Call sheet and other related materials.

 

Should you have any questions, please feel free to contact Colodny Fass.