Florida Hurricane Catastrophe Fund Ninth Annual Participating Insurers Workshop Report

The Florida Hurricane Catastrophe Fund (“FHCF”) held its Ninth Annual Participating Insurers Workshop in Orlando, Florida on June 11 and 12, 2009. 

The Workshop information and agenda can be viewed by clicking here.  An event summary is below:

FHCF Chief Operating Officer Jack Nicholson opened the Workshop.  Next, Florida Senate Banking and Insurance Committee Chairman Garrett Richter (R-Naples) updated conference participants on the political landscape relating property insurance during Florida’s 2009 Regular Legislative Session.  Notably, Senator Richter stated that, while the passage of House Bill 1495 (also known as the omnibus property insurance bill) is somewhat helpful to ensure a stable Florida property insurance market, additional work is needed. 

Dr. Nicholson and Florida Public Finance Director John Forney provided an update on the FHCF.  Dr. Nicholson stated that the FHCF is capable of paying obligations up to an estimated $16 billion.  However, this amount is significantly less than the total FHCF exposure. 

Dr. Nicholson addressed the impact of the financial markets on the FHCF and the efforts to address FHCF capacity.  The financial markets have significantly hindered the FHCF’s ability to adequately access capital to fully meet its funding requirements. He said that it is unlikely that the FHCF could promptly and adequately access bond markets in order to meet its current obligations. 

The FHCF has taken some steps to address these issues.  In HB 1495, which was recently signed into law by Florida Governor Charlie Crist, the Temporary Increase in Coverage Layer (“TICL”) of FHCF was decreased by $2 billion and the cost for TICL coverage increased.  The FHCF also is looking to purchase financial and/or reinsurance products and concurrently seeking federal support. 

Mr. Forney addressed financial issues relating to the FHCF’s bonding capacity.  Theoretically, the FHCF could reimburse all its obligations.  However, current market conditions negatively impact its practical ability to meet its obligations in a timely manner.  Mr. Forney also noted that Citizens Property Insurance Company is heavily dependent upon the FHCF.

The next presentation was entitled “Impact of Financial Markets on Insurance and Reinsurance Industries.”  Panelists included Aon Benfield Analytics CEO Bryon Ehrhart; RenRe Ventures President Jay Nichols and Guy Carpenter CEO David Priebe.  Reinsurance Association of America President Frank Nutter served as moderator.

The Panel discussed the tightness of current market conditions and the expense of accessible capital due to decreased supply and increased demand.  In Florida, capital is departing the market. 

The Panelists expect the capital markets to open over time, but demand will continue to increase in Florida, particularly if the State continues to deregulate.  However, one large storm could drastically impact future market conditions.  Positively, the Panel noted that the recently-legislated move of the FHCF renewal date to January 1 will provide greater certainty for Florida’s reinsurance market.  In conclusion, the Panelists noted that the reinsurance market is fragile, but not broken.

An update was given on 2009 Florida insurance legislation that included an overview of HB 1495; House Bill 853, which deregulates the surplus lines insurance market; House Bill 903, which  addresses caps on workers’ compensation attorney fees; and House Bill 1171, which, if signed by the Governor, would authorize select large insurers to charge rates that cannot be disapproved by the Florida Office of Insurance Regulation for excessiveness.

A panel discussion was presented on “Subsidies in the Florida Property Insurance Market” by Florida Catastrophic Storm Risk Management Center Director Patrick Maroney; Florida State University College of Business, Department of Risk Management Professor Kathryn Magee Kip;and Florida State University Catastrophic Storm Risk Management Center Associate Director Charles Nyce.

This presentation was based upon a post-loss subsidy analysis that can be viewed by clicking here.  In Florida, inland properties subsidize coastal risks.  The analysis provides specific figures relating to the subsidization. 

Paragon executive actuaries Andy Rapoport and Josie Fix provided a report entitled “2009-2010 FHCF Premium Formula: Rates, Retention Multiples and Payout Multiples.” 

It was noted that 93 percent of the FHCF reinsurers are paid for losses and loss adjustment expenses.  Ninety-two percent of the FHCF income is comprised of collected premiums, and the remaining eight percent is derived from investment income.    

A report on the 2009-2010 Reimbursement Contract and Data Call Changes was provided by FHCF Director of Examination Gina Wilson, together with Paragon executives Martin Helgestad and Kathy Mackenthum.  This year’s contract has minimal substantive changes. 

HB 1495 changes the FHCF reimbursement dates and provides that the $10 million coverage available to limited apportionment companies and select other insurers is reimbursed simultaneously with the mandatory layer. 

Regarding the data call changes, it was noted that a large dollar threshold was added to the exposure fluctuations.  A new assumption agreement has been effected with Citizens Property Insurance Corporation, with new mitigation fields included as rating factors.

The exposure examination program, loss reimbursement examinations and commutations were discussed.  Advanced exam preparation instructions are located on the FHCF Web site.  Importantly, the FHCF can withhold reimbursements for noncompliance of examination requirements.  It was noted that the most common error made in examinations is misapplication of the deductible. 

Following the presentations, Dr. Nicholson concluded the meeting by thanking his staff, speakers and all involved in the conference.

 

The above is a brief summary of the discussions that occurred during the meeting.  It is not a comprehensive analysis of the all the issues that were addressed during the meeting, many of which are technical in nature.  If you have any questions or would like additional information, please feel free to contact Colodny Fass.

 

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