HB 3A

1	A bill to be entitled
2	An act relating to hurricane preparedness and insurance;
3	providing a short title; amending s. 215.555, F.S.;
4	deleting a rapid cash buildup requirement from a
5	reimbursement premium formula factor; expanding the State
6	Board of Administration's reinsurance procurement powers
7	and duties for certain purposes; providing for temporary
8	emergency options for additional coverage; providing
9	legislative findings and intent; providing for application
10	of certain provisions; providing additional definitions;
11	providing for a reimbursement contract addendum for
12	certain insurers; providing requirements and procedures
13	under the addendum; providing for certain reimbursement
14	premiums for such insurers; providing for calculation of
15	such premiums; providing for effect on claims-paying
16	capacity of fund; authorizing the board to set retention
17	and capacity levels of the fund; requiring approval by the
18	Legislative Budget Commission; providing a temporary
19	increase in coverage limit options; requiring insurers
20	electing optional coverages offered by the Florida
21	Hurricane Catastrophe Fund to make rate filings that
22	reflect savings or reduction in loss exposure; requiring
23	that the Office of Insurance Regulation specify, by order,
24	the dates on which such filings must be made; requiring
25	certain insurers to make additional rate filings;
26	specifying rate filing requirements; authorizing the
27	Financial Services Commission to grant certain waivers;
28	specifying duties of the office; providing an effective
29	date.
30
31	Be It Enacted by the Legislature of the State of Florida:
32
33	Section 1.  This act may be cited as the "Homeowners Rate
34	Reduction Act."
35	Section 2.  Paragraph (b) of subsection (5) and paragraph
36	(a) of subsection (7) of section 215.555, Florida Statutes, are
37	amended, and subsections (16) and (17) are added to that
38	section, to read:
39	215.555  Florida Hurricane Catastrophe Fund.--
40	(5)  REIMBURSEMENT PREMIUMS.--
41	(b)  The State Board of Administration shall select an
42	independent consultant to develop a formula for determining the
43	actuarially indicated premium to be paid to the fund. The
44	formula shall specify, for each zip code or other limited
45	geographical area, the amount of premium to be paid by an
46	insurer for each $1,000 of insured value under covered policies
47	in that zip code or other area. In establishing premiums, the
48	board shall consider the coverage elected under paragraph (4)(b)
49	and any factors that tend to enhance the actuarial
50	sophistication of ratemaking for the fund, including
51	deductibles, type of construction, type of coverage provided,
52	relative concentration of risks, and other such factors deemed
53	by the board to be appropriate. The formula may provide for a
54	procedure to determine the premiums to be paid by new insurers
55	that begin writing covered policies after the beginning of a
56	contract year, taking into consideration when the insurer starts
57	writing covered policies, the potential exposure of the insurer,
58	the potential exposure of the fund, the administrative costs to
59	the insurer and to the fund, and any other factors deemed
60	appropriate by the board. The formula shall include a factor of
61	25 percent of the fund's actuarially indicated premium in order
62	to provide for more rapid cash buildup in the fund. The formula
63	must be approved by unanimous vote of the board. The board may,
64	at any time, revise the formula pursuant to the procedure
65	provided in this paragraph.
66	(7)  ADDITIONAL POWERS AND DUTIES.--
67	(a)  The board may procure reinsurance from reinsurers
68	acceptable to the Office of Insurance Regulation for the purpose
69	of maximizing the capacity of the fund and may enter into
70	capital market transactions, including, but not limited to,
71	industry loss warranties, catastrophe bonds, side-car
72	arrangements, or financial contracts permissible for the board's
73	usage under s. 215.47(10) and (11), consistent with prudent
74	management of the fund.
75	(16)  TEMPORARY EMERGENCY OPTIONS FOR ADDITIONAL
76	COVERAGE.--
77	(a)  Findings and intent.--
78	1.  The Legislature finds that:
79	a.  Because of temporary disruptions in the market for
80	catastrophic reinsurance, many property insurers were unable to
81	procure reinsurance for the 2006 hurricane season with an
82	attachment point below the insurers' respective Florida
83	Hurricane Catastrophe Fund attachment points, were unable to
84	procure sufficient amounts of such reinsurance, or were able to
85	procure such reinsurance only by incurring substantially higher
86	costs than in prior years.
87	b.  The reinsurance market problems were responsible, at
88	least in part, for substantial premium increases to many
89	consumers and increases in the number of policies issued by the
90	Citizens Property Insurance Corporation.
91	c.  It is likely that the reinsurance market disruptions
92	will not significantly abate prior to the 2007 hurricane season.
93	2.  It is the intent of the Legislature to create a
94	temporary emergency program, applicable to the 2007 and 2008
95	hurricane seasons, to address these market disruptions and
96	enable insurers, at their option, to procure additional coverage
97	from the Florida Hurricane Catastrophe Fund.
98	(b)  Applicability of other provisions of this
99	section.--All provisions of this section and the rules adopted
100	under this section apply to the program created by this
101	subsection unless specifically superseded by this subsection.
102	(c)  Additional definitions.--As used in this subsection,
103	the term:
104	1.  "TEACO options" means the temporary emergency
105	additional coverage options created under this subsection.
106	2.  "TEACO insurer" means an insurer that has opted to
107	obtain coverage under the TEACO options in addition to the
108	coverage provided to the insurer under its reimbursement
109	contract.
110	3.  "TEACO reimbursement premium" means the premium charged
111	by the fund for coverage provided under the TEACO options.
112	4.  "TEACO retention" means the amount of losses below
113	which a TEACO insurer is not entitled to reimbursement from the
114	fund under the TEACO option selected. A TEACO insurer's
115	retention options shall be calculated as follows:
116	a.  The board shall calculate and report to each TEACO
117	insurer the TEACO retention multiples. There shall be four TEACO
118	retention multiples for defining coverage. Each multiple shall
119	be calculated by dividing $2 billion, $3 billion, $4 billion, or
120	$5 billion by the total estimated TEACO reimbursement premium
121	assuming all insurers selected that option. Total estimated
122	TEACO reimbursement premium for purposes of the calculation
123	under this sub-subparagraph shall be calculated using the
124	assumption that all insurers have selected a specific TEACO
125	retention multiple option and have selected the 90-percent
126	coverage level.
127	b.  The TEACO retention multiples as determined under sub-
128	subparagraph a. shall be adjusted to reflect the coverage level
129	elected by the insurer. For insurers electing the 90-percent
130	coverage level, the adjusted retention multiple is 100 percent
131	of the amount determined under sub-subparagraph a. For insurers
132	electing the 75-percent coverage level, the retention multiple
133	is 120 percent of the amount determined under sub-subparagraph
134	a. For insurers electing the 45-percent coverage level, the
135	adjusted retention multiple is 200 percent of the amount
136	determined under sub-subparagraph a.
137	c.  An insurer shall determine its provisional TEACO
138	retention by multiplying its provisional TEACO reimbursement
139	premium by the applicable adjusted TEACO retention multiple and
140	shall determine its actual TEACO retention by multiplying its
141	actual TEACO reimbursement premium by the applicable adjusted
142	TEACO retention multiple.
143	d.  For TEACO insurers who experience multiple covered
144	events causing loss during the contract term beginning June 1,
145	2007, and ending March 31, 2008, or the contract year beginning
146	June 1, 2008, the insurer's full TEACO retention shall be
147	applied to each of the covered events causing the two largest
148	losses for that insurer. For other covered events resulting in
149	losses, the TEACO option does not apply and the insurer's
150	retention shall be one-third of the full retention as calculated
151	under paragraph (2)(e).
152	5.  "TEACO addendum" means an addendum to the reimbursement
153	contract reflecting the obligations of the fund and TEACO
154	insurers under the program created by this subsection.
155	(d)  TEACO addendum.--
156	1.  The TEACO addendum shall provide for reimbursement of
157	TEACO insurers for covered events occurring between June 1,
158	2007, and May 31, 2008, and between June 1, 2008, and May 31,
159	2009, in exchange for the TEACO reimbursement premium paid into
160	the fund under paragraph (e). Any insurer writing covered
161	policies has the option of choosing to accept the TEACO
162	addendum.
163	2.  The TEACO addendum shall contain a promise by the board
164	to reimburse the TEACO insurer for 45 percent, 75 percent, or 90
165	percent of its losses from each covered event in excess of the
166	insurer's TEACO retention, plus 5 percent of the reimbursed
167	losses to cover loss adjustment expenses. The percentage shall
168	be the same as the coverage level selected by the insurer under
169	paragraph (4)(b).
170	3.  The TEACO addendum shall provide that reimbursement
171	amounts shall not be reduced by reinsurance paid or payable to
172	the insurer from other sources.
173	4.  The TEACO addendum shall also provide that the
174	obligation of the board with respect to all TEACO addenda shall
175	not exceed an amount equal to two times the difference between
176	the industry retention level calculated under paragraph (2)(e)
177	and the $2 billion, $3 billion, $4 billion, or $5 billion
178	industry TEACO retention level options actually selected, but in
179	no event may the board's obligation exceed the actual claims-
180	paying capacity of the fund plus the additional capacity created
181	in paragraph (f). If the actual claims-paying capacity and the
182	additional capacity created under paragraph (f) fall short of
183	the board's obligations under the reimbursement contract, each
184	insurer's share of the fund's capacity shall be pro rated based
185	on the premium an insurer pays for its normal reimbursement
186	coverage and the premium paid for its optional TEACO coverage as
187	each such premium bears to the total premiums paid to the fund
188	times the available capacity.
189	5.  The priorities, schedule, and method of reimbursements
190	under the TEACO addendum shall be the same as provided under
191	subsection (4).
192	6.  A TEACO insurer's maximum reimbursement under the TEACO
193	addendum shall be calculated by multiplying the insurer's share
194	of the estimated total TEACO reimbursement premium as calculated
195	under sub-subparagraph (c)4.a. by an amount equal to two times
196	the difference between the industry retention level calculated
197	under paragraph (2)(e) and the $2 billion, $3 billion, $4
198	billion, or $5 billion industry TEACO retention level specified
199	in sub-subparagraph (c)4.a. as selected by the TEACO insurer.
200	(e)  TEACO reimbursement premiums.--
201	1.  Each TEACO insurer shall pay to the fund, in the manner
202	and at the time provided in the reimbursement contract for
203	payment of reimbursement premiums, a TEACO reimbursement premium
204	calculated as specified in this paragraph.
205	2.  The TEACO reimbursement premiums shall be calculated
206	based on the assumption that, if all insurers entering into
207	reimbursement contracts under subsection (4) also accepted the
208	TEACO option:
209	a.  The industry TEACO reimbursement premium associated
210	with the $2 billion retention option would be equal to 50
211	percent of the difference between the industry retention level
212	calculated under paragraph (2)(e) and the $2 billion industry
213	TEACO retention level.
214	b.  The industry TEACO reimbursement premium associated
215	with the $3 billion retention option would be equal to 40
216	percent of the difference between the industry retention level
217	calculated under paragraph (2)(e) and the $3 billion industry
218	TEACO retention level.
219	c.  The TEACO reimbursement premium associated with the $4
220	billion retention option would be equal to 35 percent of the
221	difference between the industry retention level calculated under
222	paragraph (2)(e) and the $4 billion industry TEACO retention
223	level.
224	d.  The TEACO premium associated with the $5 billion
225	retention option would be equal to 30 percent of the difference
226	between the industry retention level calculated under paragraph
227	(2)(e) and the $5 billion industry TEACO retention level.
228	3.  Each insurer's TEACO premium shall be calculated based
229	on its share of the total TEACO reimbursement premiums based on
230	its coverage selection under the TEACO addendum.
231	(f)  Effect on claims-paying capacity of the fund.--For the
232	contract term commencing June 1, 2007, and the contract year
233	commencing June 1, 2008, the program created by this subsection
234	shall increase the claims-paying capacity of the fund as
235	provided in subparagraph (4)(c)1. by an amount equal to two
236	times the difference between the industry retention level
237	calculated under paragraph (2)(e) and the $2 billion industry
238	TEACO retention level specified in sub-subparagraph (c)4.a. The
239	additional capacity shall apply only to the additional coverage
240	provided by the TEACO option and shall not otherwise affect any
241	insurer's reimbursement from the fund.
242	(g)  Setting of retention and capacity levels of the
243	fund.--For the contract year commencing on April 1, 2009, and
244	thereafter, the board may set the retention and capacity levels
245	of the fund, consistent with prudent management of the fund and
246	subject to the approval of the Legislative Budget Commission.
247	(17)  TEMPORARY INCREASE IN COVERAGE LIMIT OPTIONS.--
248	(a)  Findings and intent.--
249	1.  The Legislature finds that:
250	a.  Because of temporary disruptions in the market for
251	catastrophic reinsurance, many property insurers were unable to
252	procure sufficient amounts of reinsurance for the 2006 hurricane
253	season or were able to procure such reinsurance only by
254	incurring substantially higher costs than in prior years.
255	b.  The reinsurance market problems were responsible, at
256	least in part, for substantial premium increases to many
257	consumers and increases in the number of policies issued by
258	Citizens Property Insurance Corporation.
259	c.  It is likely that the reinsurance market disruptions
260	will not significantly abate prior to the 2007 hurricane season.
261	2.  It is the intent of the Legislature to create options
262	for insurers to purchase a temporary increased coverage limit
263	above the statutorily determined limit in subparagraph (4)(c)1.,
264	applicable for the 2007 and 2008 hurricane seasons, to address
265	market disruptions and enable insurers, at their option, to
266	procure additional coverage from the Florida Hurricane
267	Catastrophe Fund. It is the further intent of the Legislature to
268	structure this coverage in a manner that requires insurers to
269	pay premiums that are comparable to the premiums the insurer
270	would have paid for comparable reinsurance coverage but for the
271	current emergency in the reinsurance market and also in a manner
272	that minimizes subsidies from the general public over the long
273	run by providing the optional increase in coverage limit for 2
274	years.
275	(b)  Applicability of other provisions of this
276	section.--All provisions of this section and the rules adopted
277	under this section apply to the coverage created by this
278	subsection unless specifically superseded by provisions in this
279	subsection.
280	(c)  Additional definitions.--As used in this subsection,
281	the term:
282	1.  "FHCF" means Florida Hurricane Catastrophe Fund.
283	2.  "FHCF reimbursement premium" means the premium paid by
284	an insurer for its coverage as a mandatory participant in the
285	FHCF, but does not include additional premiums for optional
286	coverages.
287	3.  "Payout multiple" means defined as the number or
288	multiple created by dividing the statutorily defined claims-
289	paying capacity as determined in subparagraph (4)(c)1. by the
290	aggregate reimbursement premiums paid by all insurers estimated
291	or projected as of calendar year-end.
292	4.  "TICL" means the temporary increase in coverage limit.
293	5.  "TICL options" means the temporary increase in coverage
294	options created under this subsection.
295	6.  "TICL insurer" means an insurer that has opted to
296	obtain coverage under the TICL options addendum in addition to
297	the coverage provided to the insurer under its FHCF
298	reimbursement contract.
299	7.  "TICL reimbursement premium" means the premium charged
300	by the fund for coverage provided under the TICL option.
301	8.  "TICL coverage multiple" means the coverage multiple
302	when multiplied by an insurer's reimbursement premium that
303	defines the temporary increase in coverage limit.
304	9.  "TICL coverage" means the coverage for an insurer's
305	losses above the insurer's statutorily determined claims-paying
306	capacity based on the claims-paying limit in subparagraph
307	(4)(c)1., which an insurer selects as its temporary increase in
308	coverage from the fund under the TICL options selected. A TICL
309	insurer's increased coverage limit options shall be calculated
310	as follows:
311	a.  The board shall calculate and report to each TICL
312	insurer the TICL coverage multiples based on three options for
313	increasing the insurer's FHCF coverage limit. Each TICL coverage
314	multiple shall be calculated by dividing $1 billion, $2 billion,
315	$3 billion, or $4 billion by the total estimated aggregate FHCF
316	reimbursement premiums for the 2007-2008 reimbursement contract
317	year and for the 2008-2009 reimbursement contract year.
318	b.  The TICL insurer's increased coverage shall be the FHCF
319	reimbursement premium multiplied by the TICL coverage multiple.
320	In order to determine an insurer's total limit of coverage, an
321	insurer shall add its TICL coverage multiple to its payout
322	multiple. The total shall represent a number that, when
323	multiplied by an insurer's FHCF reimbursement premium for a
324	given reimbursement contract year, defines an insurer's total
325	limit of FHCF reimbursement coverage for that reimbursement
326	contract year.
327	10.  "TICL options addendum" means an addendum to the
328	reimbursement contract reflecting the obligations of the fund
329	and insurers selecting an option to increase an insurer's FHCF
330	coverage limit.
331	(d)  TICL options addendum.--
332	1.  The TICL options addendum shall provide for
333	reimbursement of TICL insurers for covered events occurring
334	between June 1, 2007, and May 31, 2008, and between June 1,
335	2008, and May 31, 2009, in exchange for the TICL reimbursement
336	premium paid into the fund under paragraph (e). Any insurer
337	writing covered policies has the option of selecting an
338	increased limit of coverage under the TICL options addendum and
339	shall select such coverage at the time that it executes the FHCF
340	reimbursement contract.
341	2.  The TICL addendum shall contain a promise by the board
342	to reimburse the TICL insurer for 45 percent, 75 percent, or 90
343	percent of its losses from each covered event in excess of the
344	insurer's retention, plus 5 percent of the reimbursed losses to
345	cover loss adjustment expenses. The percentage shall be the same
346	as the coverage level selected by the insurer under paragraph
347	(4)(b).
348	3.  The TICL addendum shall provide that reimbursement
349	amounts shall not be reduced by reinsurance paid or payable to
350	the insurer from other sources.
351	4.  The priorities, schedule, and method of reimbursements
352	under the TICL addendum shall be the same as provided under
353	subsection (4).
354	(e)  TICL reimbursement premiums.--
355	1.  Each TICL insurer shall pay to the fund, in the manner
356	and at the time provided in the reimbursement contract for
357	payment of reimbursement premiums, a TICL reimbursement premium
358	calculated as specified in this paragraph.
359	2.  Each insurer's TICL premium shall be calculated based
360	on the additional limit of increased coverage that it selects.
361	Such limit is determined by multiplying the TICL multiple
362	associated with one of the four options times the insurer's FHCF
363	reimbursement premium. For the amount of increased coverage
364	based on the option of using $1 billion to derive the TICL
365	multiple, the rate-on-line for such coverage shall be 20
366	percent. For the option using $2 billion, the rate-on-line shall
367	be 17.5 percent, for the option using $3 billion, the rate-on-
368	line shall be 15 percent, and for the option using $4 billion,
369	the rate-on line shall be 14 percent.
370	(f)  Effect on claims-paying capacity of the fund.--For the
371	contract terms commencing June 1, 2007, and June 1, 2008, the
372	program created by this subsection shall increase the claims-
373	paying capacity of the fund as provided in subparagraph (4)(c)1.
374	by an amount not to exceed $4 billion dollars and shall depend
375	on the TICL coverage options selected and the number of insurers
376	that select the TICL optional coverage. The additional capacity
377	shall apply only to the additional coverage provided under the
378	TICL options and shall not otherwise affect any insurer's
379	reimbursement from the fund if the insurer chooses not to select
380	the temporary option to increase its limit of coverage under the
381	FHCF.
382	Section 3.  An insurer that elects the TEACO or TICL
383	coverage option required to be offered by the Florida Hurricane
384	Catastrophe Fund under s. 215.555(16) and (17), Florida
385	Statutes, must make a rate filing with the Office of Insurance
386	Regulation which reflects 100 percent of the savings or the
387	reduction in loss exposure to the insurer. At a minimum, the
388	insurer must provide a 25-percent reduction in premium based on
389	the savings obtained under the TEACO or TICL coverage option.
390	The Financial Services Commission may grant a waiver of the 25-
391	percent reduction requirement for good cause and if the insurer
392	has made best efforts to meet the 25 percent reduction
393	requirement. The office shall specify, by order, the date or
394	dates on which such filings must be made, in order to provide
395	rate relief to policyholders as soon as practicable.
396	Section 4.  This act shall take effect upon becoming a law.

CODING: Words stricken are deletions; words underlined are additions.