| 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 |
| 17 | reimbursement premiums and retention and capacity levels |
| 18 | of the fund; requiring approval by the Legislative Budget |
| 19 | Commission; providing a temporary increase in coverage |
| 20 | limit options; requiring insurers electing optional |
| 21 | coverages offered by the Florida Hurricane Catastrophe |
| 22 | Fund to make rate filings that reflect savings or |
| 23 | reduction in loss exposure; requiring that the Office of |
| 24 | Insurance Regulation specify, by order, the dates on which |
| 25 | such filings must be made; requiring certain insurers to |
| 26 | make additional rate filings; specifying rate filing |
| 27 | requirements; authorizing the Financial Services |
| 28 | Commission to grant certain waivers; specifying duties of |
| 29 | the office; providing an effective date. |
| 30 |
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| 31 | Be It Enacted by the Legislature of the State of Florida: |
| 32 |
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| 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 reimbursement premiums of the |
| 243 | fund.--Notwithstanding paragraph (e), for the contract year |
| 244 | commencing June 1, 2007, and thereafter, the board may set the |
| 245 | TEACO reimbursement premiums, consistent with prudent management |
| 246 | of the fund and subject to the approval of the Legislative |
| 247 | Budget Commission. |
| 248 | (h) Setting of retention and capacity levels of the |
| 249 | fund.--For the contract year commencing June 1, 2009, and |
| 250 | thereafter, the board may set the retention and capacity levels |
| 251 | of the fund, consistent with prudent management of the fund and |
| 252 | subject to the approval of the Legislative Budget Commission. |
| 253 | (17) TEMPORARY INCREASE IN COVERAGE LIMIT OPTIONS.-- |
| 254 | (a) Findings and intent.-- |
| 255 | 1. The Legislature finds that: |
| 256 | a. Because of temporary disruptions in the market for |
| 257 | catastrophic reinsurance, many property insurers were unable to |
| 258 | procure sufficient amounts of reinsurance for the 2006 hurricane |
| 259 | season or were able to procure such reinsurance only by |
| 260 | incurring substantially higher costs than in prior years. |
| 261 | b. The reinsurance market problems were responsible, at |
| 262 | least in part, for substantial premium increases to many |
| 263 | consumers and increases in the number of policies issued by |
| 264 | Citizens Property Insurance Corporation. |
| 265 | c. It is likely that the reinsurance market disruptions |
| 266 | will not significantly abate prior to the 2007 hurricane season. |
| 267 | 2. It is the intent of the Legislature to create options |
| 268 | for insurers to purchase a temporary increased coverage limit |
| 269 | above the statutorily determined limit in subparagraph (4)(c)1., |
| 270 | applicable for the 2007 and 2008 hurricane seasons, to address |
| 271 | market disruptions and enable insurers, at their option, to |
| 272 | procure additional coverage from the Florida Hurricane |
| 273 | Catastrophe Fund. |
| 274 | (b) Applicability of other provisions of this |
| 275 | section.--All provisions of this section and the rules adopted |
| 276 | under this section apply to the coverage created by this |
| 277 | subsection unless specifically superseded by provisions in this |
| 278 | subsection. |
| 279 | (c) Additional definitions.--As used in this subsection, |
| 280 | the term: |
| 281 | 1. "FHCF" means Florida Hurricane Catastrophe Fund. |
| 282 | 2. "FHCF reimbursement premium" means the premium paid by |
| 283 | an insurer for its coverage as a mandatory participant in the |
| 284 | FHCF, but does not include additional premiums for optional |
| 285 | coverages. |
| 286 | 3. "Payout multiple" means defined as the number or |
| 287 | multiple created by dividing the statutorily defined claims- |
| 288 | paying capacity as determined in subparagraph (4)(c)1. by the |
| 289 | aggregate reimbursement premiums paid by all insurers estimated |
| 290 | or projected as of calendar year-end. |
| 291 | 4. "TICL" means the temporary increase in coverage limit. |
| 292 | 5. "TICL options" means the temporary increase in coverage |
| 293 | options created under this subsection. |
| 294 | 6. "TICL insurer" means an insurer that has opted to |
| 295 | obtain coverage under the TICL options addendum in addition to |
| 296 | the coverage provided to the insurer under its FHCF |
| 297 | reimbursement contract. |
| 298 | 7. "TICL reimbursement premium" means the premium charged |
| 299 | by the fund for coverage provided under the TICL option. |
| 300 | 8. "TICL coverage multiple" means the coverage multiple |
| 301 | when multiplied by an insurer's reimbursement premium that |
| 302 | defines the temporary increase in coverage limit. |
| 303 | 9. "TICL coverage" means the coverage for an insurer's |
| 304 | losses above the insurer's statutorily determined claims-paying |
| 305 | capacity based on the claims-paying limit in subparagraph |
| 306 | (4)(c)1., which an insurer selects as its temporary increase in |
| 307 | coverage from the fund under the TICL options selected. A TICL |
| 308 | insurer's increased coverage limit options shall be calculated |
| 309 | as follows: |
| 310 | a. The board shall calculate and report to each TICL |
| 311 | insurer the TICL coverage multiples based on three options for |
| 312 | increasing the insurer's FHCF coverage limit. Each TICL coverage |
| 313 | multiple shall be calculated by dividing $1 billion, $2 billion, |
| 314 | $3 billion, or $4 billion by the total estimated aggregate FHCF |
| 315 | reimbursement premiums for the 2007-2008 reimbursement contract |
| 316 | year and for the 2008-2009 reimbursement contract year. |
| 317 | b. The TICL insurer's increased coverage shall be the FHCF |
| 318 | reimbursement premium multiplied by the TICL coverage multiple. |
| 319 | In order to determine an insurer's total limit of coverage, an |
| 320 | insurer shall add its TICL coverage multiple to its payout |
| 321 | multiple. The total shall represent a number that, when |
| 322 | multiplied by an insurer's FHCF reimbursement premium for a |
| 323 | given reimbursement contract year, defines an insurer's total |
| 324 | limit of FHCF reimbursement coverage for that reimbursement |
| 325 | contract year. |
| 326 | 10. "TICL options addendum" means an addendum to the |
| 327 | reimbursement contract reflecting the obligations of the fund |
| 328 | and insurers selecting an option to increase an insurer's FHCF |
| 329 | coverage limit. |
| 330 | (d) TICL options addendum.-- |
| 331 | 1. The TICL options addendum shall provide for |
| 332 | reimbursement of TICL insurers for covered events occurring |
| 333 | between June 1, 2007, and May 31, 2008, and between June 1, |
| 334 | 2008, and May 31, 2009, in exchange for the TICL reimbursement |
| 335 | premium paid into the fund under paragraph (e). Any insurer |
| 336 | writing covered policies has the option of selecting an |
| 337 | increased limit of coverage under the TICL options addendum and |
| 338 | shall select such coverage at the time that it executes the FHCF |
| 339 | reimbursement contract. |
| 340 | 2. The TICL addendum shall contain a promise by the board |
| 341 | to reimburse the TICL insurer for 45 percent, 75 percent, or 90 |
| 342 | percent of its losses from each covered event in excess of the |
| 343 | insurer's retention, plus 5 percent of the reimbursed losses to |
| 344 | cover loss adjustment expenses. The percentage shall be the same |
| 345 | as the coverage level selected by the insurer under paragraph |
| 346 | (4)(b). |
| 347 | 3. The TICL addendum shall provide that reimbursement |
| 348 | amounts shall not be reduced by reinsurance paid or payable to |
| 349 | the insurer from other sources. |
| 350 | 4. The priorities, schedule, and method of reimbursements |
| 351 | under the TICL addendum shall be the same as provided under |
| 352 | subsection (4). |
| 353 | (e) TICL reimbursement premiums.-- |
| 354 | 1. Each TICL insurer shall pay to the fund, in the manner |
| 355 | and at the time provided in the reimbursement contract for |
| 356 | payment of reimbursement premiums, a TICL reimbursement premium |
| 357 | calculated as specified in this paragraph. |
| 358 | 2. Each insurer's TICL premium shall be calculated based |
| 359 | on the additional limit of increased coverage that it selects. |
| 360 | Such limit is determined by multiplying the TICL multiple |
| 361 | associated with one of the four options times the insurer's FHCF |
| 362 | reimbursement premium. For the amount of increased coverage |
| 363 | based on the option of using $1 billion to derive the TICL |
| 364 | multiple, the rate-on-line for such coverage shall be 20 |
| 365 | percent. For the option using $2 billion, the rate-on-line shall |
| 366 | be 17.5 percent, for the option using $3 billion, the rate-on- |
| 367 | line shall be 15 percent, and for the option using $4 billion, |
| 368 | the rate-on line shall be 14 percent. |
| 369 | (f) Effect on claims-paying capacity of the fund.--For the |
| 370 | contract terms commencing June 1, 2007, and June 1, 2008, the |
| 371 | program created by this subsection shall increase the claims- |
| 372 | paying capacity of the fund as provided in subparagraph (4)(c)1. |
| 373 | by an amount not to exceed $4 billion dollars and shall depend |
| 374 | on the TICL coverage options selected and the number of insurers |
| 375 | that select the TICL optional coverage. The additional capacity |
| 376 | shall apply only to the additional coverage provided under the |
| 377 | TICL options and shall not otherwise affect any insurer's |
| 378 | reimbursement from the fund if the insurer chooses not to select |
| 379 | the temporary option to increase its limit of coverage under the |
| 380 | FHCF. |
| 381 | Section 3. An insurer that elects the TEACO or TICL |
| 382 | coverage option required to be offered by the Florida Hurricane |
| 383 | Catastrophe Fund under s. 215.555(16) and (17), Florida |
| 384 | Statutes, must make a rate filing with the Office of Insurance |
| 385 | Regulation which reflects 100 percent of the savings or the |
| 386 | reduction in loss exposure to the insurer. At a minimum, the |
| 387 | insurer must provide a 25-percent reduction in premium based on |
| 388 | the savings obtained under the TEACO or TICL coverage option. |
| 389 | The Financial Services Commission may grant a waiver of the 25- |
| 390 | percent reduction requirement for good cause and if the insurer |
| 391 | has made best efforts to meet the 25 percent reduction |
| 392 | requirement. The office shall specify, by order, the date or |
| 393 | dates on which such filings must be made, in order to provide |
| 394 | rate relief to policyholders as soon as practicable. |
| 395 | Section 4. This act shall take effect upon becoming a law. |