Florida Hurricane Catastrophe Fund Increases Rate, Seeks $2 Billion in Risk Transfer

 

An increase of 0.43 percent in the Florida Hurricane Catastrophe Fund (“FHCF”) rate for the 2015 FHCF Contract Year was recommended to the FHCF Advisory Council at its meeting last week on March 24, 2015.  The rate was based on a $17 billion coverage limit and a $6.898 billion per-event retention, which would drop to $2.299 billion for a participating insurer’s third-largest and subsequent events (one-third of $6.898 billion).

The information was presented to the Advisory Council in the FHCF’s 2015 Ratemaking Formula report, a copy of which can be accessed by clicking here.

No adjustments were made to reflect any additional expenses to enhance FHCF financial capacity during and subsequent to the 2015 FHCF Contract Year, aside from the carrying cost estimates for the $2 billion in pre-event notes obtained in April 2013.

The rating formula is expected to produce $1.301 billion in total FHCF premium, compared with $1.284 billion for the 2014 FHCF Contract Year.  The increase in overall premium would be 1.37 percent and is based on projected growth in exposure of 0.94 percent combined with the 0.43 percent overall rate increase.

No change has been made in the statutory mandated cash build-up factor of 25 percent from 2014 to 2015. 

It was explained that two major factors are affecting the FHCF coverage layer for the 2015 Contract Year:

• Pursuant to Section 215.555, Florida Statutes, the industry retention is equal to $4.5 billion, adjusted for the increase in reported exposure from 2004 through 2013. Inasmuch as exposures have grown 53.3 percent over this period, the modeled retention for 2015 is $6.898 billion.
• Also according to law, the FHCF limit is equal to $17 billion until there is sufficient estimated claims-paying capacity to fund $17 billion of loss in subsequent FHCF Contract Years.  Inasmuch as Florida’s State Board of Administration (“SBA”) has not made this determination, the FHCF limit for 2015 is $17 billion.

The above changes will vary by deductible, construction and territory.  For 2015, the FHCF applied the same methodology as used in the previous eight years to develop territory relativities.

To view the complete March 24 Advisory Council meeting materials, click on the hyperlinks below:

• 3-24-15 Agenda
• FHCF Presentation
• 3-24-15 Ratemaking Formula Presentation
• 2015 Ratemaking Formula Report

 

Florida Hurricane Catastrophe Fund Seeking Options on $2.2 Billion in Alternative Risk Transfer, Pre-Event Financing

Hours prior to the FHCF’s Advisory Council meeting on March 24, the Florida Cabinet voted to delegate authority to FHCF Chief Operating Officer Jack Nicholson to consider, negotiate and execute certain risk transfer agreements and pre-event financing to maximize the FHCF’s claims-paying capacity by up to $2.2 billion for the 2015-2016 Contract Year.

Dr. Nicholson must now return to the Cabinet at a future meeting with available options and pricing. 

To view the complete State Board of Administration meeting materials as presented to the Cabinet on March 24, click here.

Meanwhile, State Representative Frank Artiles penned a scathing editorial opinion on the risk transfer proposal, saying that “The proposed transfer of billions in risk from the Florida Hurricane Catastrophe Fund to the private offshore global reinsurance market is nothing more than corporate welfare  . . .”

To read Representative Artiles op-ed in its entirety, click here.

 

 

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

 

 

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