Property and Casualty JUA Board of Governors Meeting 8/30/06

A meeting of the Board of Governors of the Property and Casualty Joint Underwriting Association (JUA) was held today, August 30, 2006.

Dan Sumner, staff member for the JUA, presented to the Board a proposed budget to apply to the Board for the period from its first meeting, August, 25, 2006, through October 31, 2006. After deliberation and review, the Board unanimously passed a resolution adopting a budget for this period in the total amount of $154,250. A summary of the budget items are as follows:

Various Board meeting expenses, including travel,

shipping, copying and recording costs……………………..$50,800

Professional expenses: legal; accounting and

information technology………………………………………….$45,950

Florida Auto JUA reimbursements………………………………..$4,000

Risk Underwriting Committee compensation and

travel reimbursement…………………………………………….$13,500

Actuarial services……………………………………………………..$40,000

It was recognized that this is a projected budget and that the actual amounts may differ.

The Board previously approved ICAT Specialty Insurance Company (ICAT), on a conditional basis, as an authorized servicing carrier for the JUA to offer wind only policies to eligible insureds. It was reported that the committee appointed by the Board to work with ICAT and the Office of Insurance Regulation (OIR) has been in the process of reviewing and negotiating various components of the ICAT program, including the following: Program Manager Agreement; Claims Administration Agreement; Trust Agreement; Reinsurance Quota Share Agreement; Policy forms; Underwriting standards; Service standards; Claims administration standards; and templates for reports and submissions. With regard to the policy forms, the JUA is modifying the currently approved ICAT forms for application to the JUA business.

Mr. Sumner summarized several issues that are either being proposed or are under consideration with regard to the JUA’s program:

1. Roofs would be insured at actual cash value rather than on a replacement cost basis.

2. Business interruption coverage (if it is to be offered) would be offered to owners only if the insured also obtains coverage on the structure and contents. Business interruption coverage would be offered to tenants only if the insured obtains coverage for contents.

3. The underwriting standards and policy would clearly state that property coverage must be on a total insured value basis only, subject to the maximum limit of $1 Million. The JUA coverage is not intended to be primary coverage in front of excess coverage so that insureds could buy back deductibles applicable under larger policies.

4. In order to be eligible, both the insured as well as the agent would have to sign an attestation that coverage is not available in the voluntary market as required by the Emergency Rule.

5. The agent’s commission would be 7%. It was acknowledged that this commission is below market which, according to Belinda Miller from OIR, is approximately 10%. This lower commission would provide incentive for agents to place the coverage in the voluntary market.

Several points of clarification and discussion occurred during this approximate three hour meeting. Some of the key points are as follows:

The policy form is an ICAT form with a notation that the policy is through the JUA. This is a 100% reinsurance arrangement and ICAT does not take any of the risk. This is a wind only program and there has been no decision made as to future program features or modifications which may occur.

The Board recognized that many owners of multiple properties form separate limited liability companies (LLC) to own each individual property. The issue as to eligibility relates to whether each LLC can be individually insured for any property valued up to $1 Million or whether the JUA will impose certain restrictions on common or majority ownership of LLCs in order to prevent large commercial real estate owners or tenants from forming separate LLCs as a way assure eligibility for JUA coverage. The Board discussed this issue at length and requested that counsel propose eligibility language to be included in the underwriting standards that will attempt to assure that small business owners can be eligible for coverage under the LLC form of ownership while, at the same time, assuring that larger business and property owners and tenants cannot manipulate the system through formation of separate LLCs under common ownership to obtain JUA coverage that they would otherwise be ineligible for.

Ms Miller indicated that OIR has received proposals from Service Insurance Company (Service) and Bankers Insurance Company (Bankers) to participate as service providers in this program . The Board did not entertain specific presentations from either company. However, a representative from Service indicated that they are available to act as a second service provider under the ICAT program and could arrange to offer a full, multi-peril program. Bankers’ representative indicated they could offer a full coverage program and advised against a wind only offering.

Service is B rated by AM Best and Bankers is an A- rated company. ICAT is not AM Best rated.

The Board discussed the merits of offering a wind only policy as opposed to a full coverage policy. Countering opinions were raised as to whether offering a wind only policy will prompt carriers in the private market to non-renew policies which now include wind coverage and to exclude the wind coverage in subsequent writings. Also, as a point of difference, it was observed that the writing of multi-peril policies will require additional logistical components, such as different claims handling capacity. In the end, it was recognized that the most immediate concern is offering wind coverage at this time of year.

The Board unanimously passed a Motion to proceed with the wind only policy under the ICAT program while continuing to review and consider other options and programs, including proposals for the offering of multi-peril coverage.

The issue was again raised that it would not be prudent to retain multiple servicing carriers if the JUA is required to pay a minimum fee, especially in view of the expected small volume of policies to be issued. The ICAT minimum fee is being reviewed and negotiated. The JUA will continue discussions with Service and Bankers and invites other carriers to submit proposals. OIR indicated that it had a call with Everest National Insurance but no proposal has been submitted to date.

The Board unanimously passed a Motion to include business interruption as part of the coverages to be offered under this program up to a maximum of $250,000 in limits. In this regard, it was submitted that many small business owners cannot obtain business interruption coverage, that this coverage is often required by lenders for financing purposes, and that the lack of this coverage causes many to close their businesses after a disaster because there is no money to pay salaries and expenses.

The Board discussed that all agents to be appointed by the JUA will need to be on the Market Assistance Plan registry and will need to be appointed by at least three authorized carriers as well as have availability to the surplus lines market so that they will be in a position to submit the required attestation of unavailability of coverage. All agents will be required to have at least $100,000 in commercial property insurance underwriting experience.

OIR indicated that it is currently reviewing the rates, forms and underwriting standards filed on behalf of the JUA for the ICAT program and this should be done by next week. The Board engaged in discussion with Ms. Miller and Tom Streukens from OIR regarding the fact that the Board would like to have their actuary review and approve the rates requested. There are obvious timing issues in that the actuary, who has yet to be retained, would have little time to complete the review prior to OIR approval and the roll out of the program.

Members of the Board suggested having OIR provisionally approve the rates and that policies be issued at the provisional rates with a notice that the rates may change upon further review and determination by the JUA and OIR. OIR indicated they could not do this, but the JUA could make another rate filing to apply to new and renewal policies prospectively, if its actuary determines that the filed rates are not actuarially sound. Changing the rates mid-term would create other operational issues, such as possibly affecting whether a risk is actually eligible for coverage with the JUA. OIR indicated that they do their own analysis of actuarial soundness and approve on that basis. The Board intends to have its own actuary review the rates and will make a new filing, if necessary.

A Motion was unanimously passed by the Board to proceed with the OIR rate filing with leave to amend the requested rates within 30 days from the date the JUA’s rates are approved by OIR.

The Board also considered the issue of insureds cancelling their policies after the hurricane season has passed. It will consider provision to assure that not all premium shall be deemed to be unearned and subject to refund if the policy is in effect at any time during the hurricane season. This will create a penalty to assure that insureds are discouraged from early cancellation of policies after the hurricane season has ended.

The Board requested that counsel research whether the JUA and its insureds would be subject to the normal assessments applicable to the voluntary market.

Susanne Murphy, counsel for Citizens Property Insurance Corporation, indicated to the Board that Citizens and the Market Assistance Plan are committed and available to work together with the JUA in order to assure that this program is successful, stressing the need for good communication with the public and agents so they understand the program and its eligibility requirements.

The Board did not consider any alternatives at this meeting regarding the funding of its start-up expenses and possible future claims. This issue will be considered soon.

The meeting was adjourned and will reconvene on Wednesday, September 6, 2006 at 10:00 at the OIR offices in Tallahassee. A call in number will be available for anyone who would like to attend the meeting telephonically. We will provide the call in information for this meeting as soon as it is available. In addition, we will provide any publically available materials regarding today’s meeting as soon as that information is available.

If you have any comments or questions, please do not hesitate to contact this office.

Regards,

Rich Fidei