Florida Senate - 2010 CS for SB 1460
By the Committee on Banking and Insurance; and Senator Richter
597-02171-10 20101460c1
1 A bill to be entitled
2 An act relating to the contract year for the Florida
3 Hurricane Catastrophe Fund; amending s. 215.555, F.S.;
4 revising the method by which an insurer’s retention is
5 calculated; defining the term “contract year”;
6 revising contract years relating to minimum retention
7 levels; extending the expiration date of certain
8 provisions of state law; increasing the maximum
9 financial obligations of the State Board of
10 Administration with respect to all contracts covering
11 a particular contract year; providing an exception;
12 providing for the determination of claims-paying
13 capacity when such exception occurs; revising contract
14 years with respect to the annual increase in the cash
15 buildup factor used to determine the actuarially
16 indicated premium to be paid to the fund; revising the
17 contract years during which the board must offer
18 certain optional coverage; conforming provisions to
19 changes made by the act; revising contract years for
20 which a TICL options addendum must provide for
21 reimbursement of TICL insurers for covered events;
22 providing additional legislative findings and intent;
23 requiring that the board adopt the reimbursement
24 contract for a particular year by a specified date of
25 the immediately preceding contract year; requiring
26 that insurers writing covered policies execute such
27 contract by a specified date of the immediately
28 preceding contract year; requiring that the effective
29 date of such contract conform to specified provisions
30 of state law; requiring that the board publish certain
31 information in the Florida Administrative Weekly on or
32 before a specified deadline; providing an effective
33 date.
34
35 Be It Enacted by the Legislature of the State of Florida:
36
37 Section 1. Paragraph (e) of subsection (2), paragraphs (b),
38 (c), and (d) of subsection (4), paragraph (b) of subsection (5),
39 and paragraphs (c), (d), (e), (f), and (g) of subsection (17) of
40 section 215.555, Florida Statutes, are amended, paragraph (o) is
41 added to subsection (2) of that section, and subsection (18) is
42 added to that section, to read:
43 215.555 Florida Hurricane Catastrophe Fund.—
44 (2) DEFINITIONS.—As used in this section:
45 (e) “Retention” means the amount of losses below which an
46 insurer is not entitled to reimbursement from the fund. An
47 insurer’s retention shall be calculated as follows:
48 1. The board shall calculate and report to each insurer the
49 retention multiples for that year. For the contract year
50 beginning June 1, 2005, the retention multiple shall be equal to
51 $4.5 billion divided by the total estimated reimbursement
52 premium for the contract year; for subsequent years, the
53 retention multiple shall be equal to $4.5 billion, adjusted
54 based upon the reported exposure for the contract year occurring
55 2 years before from the particular prior contract year to
56 reflect the percentage growth in exposure to the fund for
57 covered policies since 2004, divided by the total estimated
58 reimbursement premium for the contract year. Total reimbursement
59 premium for purposes of the calculation under this subparagraph
60 shall be estimated using the assumption that all insurers have
61 selected the 90-percent coverage level. In 2010, the contract
62 year begins June 1, 2010, and ends December 31, 2010. In 2011
63 and thereafter, the contract year begins January 1 and ends
64 December 31.
65 2. The retention multiple as determined under subparagraph
66 1. shall be adjusted to reflect the coverage level elected by
67 the insurer. For insurers electing the 90-percent coverage
68 level, the adjusted retention multiple is 100 percent of the
69 amount determined under subparagraph 1. For insurers electing
70 the 75-percent coverage level, the retention multiple is 120
71 percent of the amount determined under subparagraph 1. For
72 insurers electing the 45-percent coverage level, the adjusted
73 retention multiple is 200 percent of the amount determined under
74 subparagraph 1.
75 3. An insurer shall determine its provisional retention by
76 multiplying its provisional reimbursement premium by the
77 applicable adjusted retention multiple and shall determine its
78 actual retention by multiplying its actual reimbursement premium
79 by the applicable adjusted retention multiple.
80 4. For insurers who experience multiple covered events
81 causing loss during the contract year, beginning June 1, 2005,
82 each insurer’s full retention shall be applied to each of the
83 covered events causing the two largest losses for that insurer.
84 For each other covered event resulting in losses, the insurer’s
85 retention shall be reduced to one-third of the full retention.
86 The reimbursement contract shall provide for the reimbursement
87 of losses for each covered event based on the full retention
88 with adjustments made to reflect the reduced retentions on or
89 after January 1 of the contract year provided the insurer
90 reports its losses as specified in the reimbursement contract.
91 (o) “Contract year” means the period beginning on June 1 of
92 a specified calendar year and ending on May 31 of the following
93 calendar year.
94 (4) REIMBURSEMENT CONTRACTS.—
95 (b)1. The contract shall contain a promise by the board to
96 reimburse the insurer for 45 percent, 75 percent, or 90 percent
97 of its losses from each covered event in excess of the insurer’s
98 retention, plus 5 percent of the reimbursed losses to cover loss
99 adjustment expenses.
100 2. The insurer must elect one of the percentage coverage
101 levels specified in this paragraph and may, upon renewal of a
102 reimbursement contract, elect a lower percentage coverage level
103 if no revenue bonds issued under subsection (6) after a covered
104 event are outstanding, or elect a higher percentage coverage
105 level, regardless of whether or not revenue bonds are
106 outstanding. All members of an insurer group must elect the same
107 percentage coverage level. Any joint underwriting association,
108 risk apportionment plan, or other entity created under s.
109 627.351 must elect the 90-percent coverage level.
110 3. The contract shall provide that reimbursement amounts
111 shall not be reduced by reinsurance paid or payable to the
112 insurer from other sources.
113 4. Notwithstanding any other provision contained in this
114 section, the board shall make available to insurers that
115 purchased coverage provided by this subparagraph in 2008,
116 insurers qualifying as limited apportionment companies under s.
117 627.351(6)(c), and insurers that have been approved to
118 participate in the Insurance Capital Build-Up Incentive Program
119 pursuant to s. 215.5595 a contract or contract addendum that
120 provides an additional amount of reimbursement coverage of up to
121 $10 million. The premium to be charged for this additional
122 reimbursement coverage shall be 50 percent of the additional
123 reimbursement coverage provided, which shall include one prepaid
124 reinstatement. The minimum retention level that an eligible
125 participating insurer must retain associated with this
126 additional coverage layer is 30 percent of the insurer’s surplus
127 as of December 31, 2008, for the 2009-2010 contract year; as of
128 December 31, 2009, for the 2010-2011 contract year beginning
129 June 1, 2010, and ending December 31, 2010; and as of December
130 31, 2010, for the 2011-2012 2011 contract year. This coverage
131 shall be in addition to all other coverage that may be provided
132 under this section. The coverage provided by the fund under this
133 subparagraph shall be in addition to the claims-paying capacity
134 as defined in subparagraph (c)1., but only with respect to those
135 insurers that select the additional coverage option and meet the
136 requirements of this subparagraph. The claims-paying capacity
137 with respect to all other participating insurers and limited
138 apportionment companies that do not select the additional
139 coverage option shall be limited to their reimbursement
140 premium’s proportionate share of the actual claims-paying
141 capacity otherwise defined in subparagraph (c)1. and as provided
142 for under the terms of the reimbursement contract. The optional
143 coverage retention as specified shall be accessed before the
144 mandatory coverage under the reimbursement contract, but once
145 the limit of coverage selected under this option is exhausted,
146 the insurer’s retention under the mandatory coverage will apply.
147 This coverage will apply and be paid concurrently with mandatory
148 coverage. This subparagraph expires on May 31, 2012 December 31,
149 2011.
150 (c)1. The contract shall also provide that the obligation
151 of the board with respect to all contracts covering a particular
152 contract year shall not exceed the actual claims-paying capacity
153 of the fund up to a limit of $17 billion for that contract year,
154 unless the board determines that there is sufficient estimated
155 claims-paying capacity to provide $17 billion of capacity for
156 the current contract year and an additional $17 billion of
157 capacity for subsequent contract years. If the board makes such
158 a determination, the estimated claims-paying capacity for the
159 particular contract year shall be determined by adding to the
160 $17 billion limit one-half of the fund’s estimated claims-paying
161 capacity in excess of $34 billion. However, $15 billion for that
162 contract year adjusted based upon the reported exposure from the
163 prior contract year to reflect the percentage growth in exposure
164 to the fund for covered policies since 2003, provided the dollar
165 growth in the limit may not increase in any year by an amount
166 greater than the dollar growth of the balance of the fund as of
167 December 31, less any premiums or interest attributable to
168 optional coverage, as defined by rule which occurred over the
169 prior calendar year.
170 2. In May and October of the contract year, the board shall
171 publish in the Florida Administrative Weekly a statement of the
172 fund’s estimated borrowing capacity, the fund’s estimated
173 claims-paying capacity, and the projected balance of the fund as
174 of December 31. After the end of each calendar year, the board
175 shall notify insurers of the estimated borrowing capacity,
176 estimated claims-paying capacity, and the balance of the fund as
177 of December 31 to provide insurers with data necessary to assist
178 them in determining their retention and projected payout from
179 the fund for loss reimbursement purposes. In conjunction with
180 the development of the premium formula, as provided for in
181 subsection (5), the board shall publish factors or multiples
182 that assist insurers in determining their retention and
183 projected payout for the next contract year. For all regulatory
184 and reinsurance purposes, an insurer may calculate its projected
185 payout from the fund as its share of the total fund premium for
186 the current contract year multiplied by the sum of the projected
187 balance of the fund as of December 31 and the estimated
188 borrowing capacity for that contract year as reported under this
189 subparagraph.
190 (d)1. For purposes of determining potential liability and
191 to aid in the sound administration of the fund, the contract
192 shall require each insurer to report such insurer’s losses from
193 each covered event on an interim basis, as directed by the
194 board. The contract shall require the insurer to report to the
195 board no later than December 31 of each year, and quarterly
196 thereafter, its reimbursable losses from covered events for the
197 year. The contract shall require the board to determine and pay,
198 as soon as practicable after receiving these reports of
199 reimbursable losses, the initial amount of reimbursement due and
200 adjustments to this amount based on later loss information. The
201 adjustments to reimbursement amounts shall require the board to
202 pay, or the insurer to return, amounts reflecting the most
203 recent calculation of losses.
204 2. In determining reimbursements pursuant to this
205 subsection, the contract shall provide that the board shall pay
206 to each insurer such insurer’s projected payout, which is the
207 amount of reimbursement it is owed, up to an amount equal to the
208 insurer’s share of the actual premium paid for that contract
209 year, multiplied by the actual claims-paying capacity available
210 for that contract year.
211 3. The board may reimburse insurers for amounts up to the
212 published factors or multiples for determining each
213 participating insurer’s retention and projected payout derived
214 as a result of the development of the premium formula in those
215 situations in which the total reimbursement of losses to such
216 insurers would not exceed the estimated claims-paying capacity
217 of the fund. Otherwise, the projected payout such factors or
218 multiples shall be reduced uniformly among all insurers to
219 reflect the estimated claims-paying capacity.
220 (5) REIMBURSEMENT PREMIUMS.—
221 (b) The State Board of Administration shall select an
222 independent consultant to develop a formula for determining the
223 actuarially indicated premium to be paid to the fund. The
224 formula shall specify, for each zip code or other limited
225 geographical area, the amount of premium to be paid by an
226 insurer for each $1,000 of insured value under covered policies
227 in that zip code or other area. In establishing premiums, the
228 board shall consider the coverage elected under paragraph (4)(b)
229 and any factors that tend to enhance the actuarial
230 sophistication of ratemaking for the fund, including
231 deductibles, type of construction, type of coverage provided,
232 relative concentration of risks, and other such factors deemed
233 by the board to be appropriate. The formula must provide for a
234 cash build-up factor. For the 2009-2010 contract year, the
235 factor is 5 percent. For the 2010-2011 contract year beginning
236 June 1, 2010, and ending December 31, 2010, the factor is 10
237 percent. For the 2011-2012 2011 contract year, the factor is 15
238 percent. For the 2012-2013 2012 contract year, the factor is 20
239 percent. For the 2013-2014 2013 contract year and thereafter,
240 the factor is 25 percent. The formula may provide for a
241 procedure to determine the premiums to be paid by new insurers
242 that begin writing covered policies after the beginning of a
243 contract year, taking into consideration when the insurer starts
244 writing covered policies, the potential exposure of the insurer,
245 the potential exposure of the fund, the administrative costs to
246 the insurer and to the fund, and any other factors deemed
247 appropriate by the board. The formula must be approved by
248 unanimous vote of the board. The board may, at any time, revise
249 the formula pursuant to the procedure provided in this
250 paragraph.
251 (17) TEMPORARY INCREASE IN COVERAGE LIMIT OPTIONS.—
252 (c) Optional coverage.—For the 2009-2010, 2010-2011, 2011
253 2012, 2012-2013, and 2013-2014 contract years year commencing
254 June 1, 2007, and ending May 31, 2008, the contract year
255 commencing June 1, 2008, and ending May 31, 2009, the contract
256 year commencing June 1, 2009, and ending May 31, 2010, the
257 contract year commencing June 1, 2010, and ending December 31,
258 2010, the contract year commencing January 1, 2011, and ending
259 December 31, 2011, the contract year commencing January 1, 2012,
260 and ending December 31, 2012, and the contract year commencing
261 January 1, 2013, and ending December 31, 2013, the board shall
262 offer, for each of such years, the optional coverage as provided
263 in this subsection.
264 (d) Additional definitions.—As used in this subsection, the
265 term:
266 1. “FHCF” means Florida Hurricane Catastrophe Fund.
267 2. “FHCF reimbursement premium” means the premium paid by
268 an insurer for its coverage as a mandatory participant in the
269 FHCF, but does not include additional premiums for optional
270 coverages.
271 3. “Payout multiple” means the number or multiple created
272 by dividing the statutorily defined claims-paying capacity as
273 determined in subparagraph (4)(c)1. by the aggregate
274 reimbursement premiums paid by all insurers estimated or
275 projected as of calendar year-end.
276 4. “TICL” means the temporary increase in coverage limit.
277 5. “TICL options” means the temporary increase in coverage
278 options created under this subsection.
279 6. “TICL insurer” means an insurer that has opted to obtain
280 coverage under the TICL options addendum in addition to the
281 coverage provided to the insurer under its FHCF reimbursement
282 contract.
283 7. “TICL reimbursement premium” means the premium charged
284 by the fund for coverage provided under the TICL option.
285 8. “TICL coverage multiple” means the coverage multiple
286 when multiplied by an insurer’s reimbursement premium that
287 defines the temporary increase in coverage limit.
288 9. “TICL coverage” means the coverage for an insurer’s
289 losses above the insurer’s statutorily determined claims-paying
290 capacity based on the claims-paying limit in subparagraph
291 (4)(c)1., which an insurer selects as its temporary increase in
292 coverage from the fund under the TICL options selected. A TICL
293 insurer’s increased coverage limit options shall be calculated
294 as follows:
295 a. The board shall calculate and report to each TICL
296 insurer the TICL coverage multiples based on 12 options for
297 increasing the insurer’s FHCF coverage limit. Each TICL coverage
298 multiple shall be calculated by dividing $1 billion, $2 billion,
299 $3 billion, $4 billion, $5 billion, $6 billion, $7 billion, $8
300 billion, $9 billion, $10 billion, $11 billion, or $12 billion by
301 the total estimated aggregate FHCF reimbursement premiums for
302 the 2007-2008 contract year, and the 2008-2009 contract year.
303 b. For the 2009-2010 contract year, the board shall
304 calculate and report to each TICL insurer the TICL coverage
305 multiples based on 10 options for increasing the insurer’s FHCF
306 coverage limit. Each TICL coverage multiple shall be calculated
307 by dividing $1 billion, $2 billion, $3 billion, $4 billion, $5
308 billion, $6 billion, $7 billion, $8 billion, $9 billion, and $10
309 billion by the total estimated aggregate FHCF reimbursement
310 premiums for the 2009-2010 contract year.
311 c. For the 2010-2011 contract year beginning June 1, 2010,
312 and ending December 31, 2010, the board shall calculate and
313 report to each TICL insurer the TICL coverage multiples based on
314 eight options for increasing the insurer’s FHCF coverage limit.
315 Each TICL coverage multiple shall be calculated by dividing $1
316 billion, $2 billion, $3 billion, $4 billion, $5 billion, $6
317 billion, $7 billion, and $8 billion by the total estimated
318 aggregate FHCF reimbursement premiums for the contract year.
319 d. For the 2011-2012 2011 contract year, the board shall
320 calculate and report to each TICL insurer the TICL coverage
321 multiples based on six options for increasing the insurer’s FHCF
322 coverage limit. Each TICL coverage multiple shall be calculated
323 by dividing $1 billion, $2 billion, $3 billion, $4 billion, $5
324 billion, and $6 billion by the total estimated aggregate FHCF
325 reimbursement premiums for the 2011-2012 2011 contract year.
326 e. For the 2012-2013 2012 contract year, the board shall
327 calculate and report to each TICL insurer the TICL coverage
328 multiples based on four options for increasing the insurer’s
329 FHCF coverage limit. Each TICL coverage multiple shall be
330 calculated by dividing $1 billion, $2 billion, $3 billion, and
331 $4 billion by the total estimated aggregate FHCF reimbursement
332 premiums for the 2012-2013 2012 contract year.
333 f. For the 2013-2014 2013 contract year, the board shall
334 calculate and report to each TICL insurer the TICL coverage
335 multiples based on two options for increasing the insurer’s FHCF
336 coverage limit. Each TICL coverage multiple shall be calculated
337 by dividing $1 billion and $2 billion by the total estimated
338 aggregate FHCF reimbursement premiums for the 2013-2014 2013
339 contract year.
340 g. The TICL insurer’s increased coverage shall be the FHCF
341 reimbursement premium multiplied by the TICL coverage multiple.
342 In order to determine an insurer’s total limit of coverage, an
343 insurer shall add its TICL coverage multiple to its payout
344 multiple. The total shall represent a number that, when
345 multiplied by an insurer’s FHCF reimbursement premium for a
346 given reimbursement contract year, defines an insurer’s total
347 limit of FHCF reimbursement coverage for that reimbursement
348 contract year.
349 10. “TICL options addendum” means an addendum to the
350 reimbursement contract reflecting the obligations of the fund
351 and insurers selecting an option to increase an insurer’s FHCF
352 coverage limit.
353 (e) TICL options addendum.—
354 1. The TICL options addendum shall provide for
355 reimbursement of TICL insurers for covered events occurring
356 during the 2009-2010, 2010-2011, 2011-2012, 2012-2013, and 2013
357 2014 contract years between June 1, 2007, and May 31, 2008,
358 between June 1, 2008, and May 31, 2009, between June 1, 2009,
359 and May 31, 2010, between June 1, 2010, and December 31, 2010,
360 between January 1, 2011, and December 31, 2011, between January
361 1, 2012, and December 31, 2012, or between January 1, 2013, and
362 December 31, 2013, in exchange for the TICL reimbursement
363 premium paid into the fund under paragraph (f) based on the TICL
364 coverage available and selected for each respective contract
365 year. Any insurer writing covered policies has the option of
366 selecting an increased limit of coverage under the TICL options
367 addendum and shall select such coverage at the time that it
368 executes the FHCF reimbursement contract.
369 2. The TICL addendum shall contain a promise by the board
370 to reimburse the TICL insurer for 45 percent, 75 percent, or 90
371 percent of its losses from each covered event in excess of the
372 insurer’s retention, plus 5 percent of the reimbursed losses to
373 cover loss adjustment expenses. The percentage shall be the same
374 as the coverage level selected by the insurer under paragraph
375 (4)(b).
376 3. The TICL addendum shall provide that reimbursement
377 amounts shall not be reduced by reinsurance paid or payable to
378 the insurer from other sources.
379 4. The priorities, schedule, and method of reimbursements
380 under the TICL addendum shall be the same as provided under
381 subsection (4).
382 (f) TICL reimbursement premiums.—Each TICL insurer shall
383 pay to the fund, in the manner and at the time provided in the
384 reimbursement contract for payment of reimbursement premiums, a
385 TICL reimbursement premium determined as specified in subsection
386 (5), except that a cash build-up factor does not apply to the
387 TICL reimbursement premiums. However, the TICL reimbursement
388 premium shall be increased in the 2009-2010 contract year 2009
389 2010 by a factor of two, in the 2010-2011 contract year
390 beginning June 1, 2010, and ending December 31, 2010, by a
391 factor of three, in the 2011-2012 2011 contract year by a factor
392 of four, in the 2012-2013 2012 contract year by a factor of
393 five, and in the 2013-2014 2013 contract year by a factor of
394 six.
395 (g) Effect on claims-paying capacity of the fund.—For the
396 2009-2010, 2010-2011, 2011-2012, 2012-2013, and 2013-2014
397 contract years terms commencing June 1, 2007, June 1, 2008, June
398 1, 2009, June 1, 2010, January 1, 2011, January 1, 2012, and
399 January 1, 2013, the program created by this subsection shall
400 increase the claims-paying capacity of the fund as provided in
401 subparagraph (4)(c)1. by an amount not to exceed $12 billion and
402 shall depend on the TICL coverage options available and selected
403 for the specified contract year and the number of insurers that
404 select the TICL optional coverage. The additional capacity shall
405 apply only to the additional coverage provided under the TICL
406 options and shall not otherwise affect any insurer’s
407 reimbursement from the fund if the insurer chooses not to select
408 the temporary option to increase its limit of coverage under the
409 FHCF.
410 (18) FACILITATION OF INSURERS’ PRIVATE CONTRACT
411 NEGOTIATIONS BEFORE THE START OF THE HURRICANE SEASON.—
412 (a) In addition to the legislative findings and intent
413 provided elsewhere in this section, the Legislature finds that:
414 1.a. Because a regular session of the Legislature begins
415 approximately 3 months before the start of a contract year and
416 ends approximately 1 month before the start of a contract year,
417 participants in the fund always face the possibility that
418 legislative actions will change the coverage provided or offered
419 by the fund with only a few days or weeks of advance notice.
420 b. The timing issues described in sub-subparagraph a. can
421 create uncertainties and disadvantages for the residential
422 property insurers that are required to participate in the fund
423 when such insurers negotiate for the procurement of private
424 reinsurance or other sources of capital.
425 c. Providing participating insurers with a greater degree
426 of certainty regarding the coverage provided or offered by the
427 fund and more time to negotiate for the procurement of private
428 reinsurance or other sources of capital will enable the
429 residential property insurance market to operate with greater
430 stability.
431 d. Increased stability in the residential property
432 insurance market serves a primary purpose of the fund and
433 benefits Florida consumers by enabling insurers to operate more
434 economically. In years when reinsurance and capital markets are
435 experiencing a capital shortage, the last-minute rush by
436 insurers only weeks before the start of the hurricane season to
437 procure adequate coverage in order to meet their capital
438 requirements can result in higher costs that are passed on to
439 Florida consumers. However, if more time is available,
440 residential property insurers should experience greater
441 competition for their business with a corresponding beneficial
442 effect for Florida consumers.
443 2. It is the intent of the Legislature to provide insurers
444 with the terms and conditions of the reimbursement contract well
445 in advance of the insurers’ need to finalize their procurement
446 of private reinsurance or other sources of capital, and thereby
447 improve insurers’ negotiating position with reinsurers and other
448 sources of capital.
449 3. It is also the intent of the Legislature that the board
450 publish the fund’s maximum statutory limit of coverage and the
451 fund’s total retention early enough that residential property
452 insurers can have the opportunity to better estimate their
453 coverage from the fund.
454 (b) The board shall adopt the reimbursement contract for a
455 particular contract year by February 1 of the immediately
456 preceding contract year. However, the reimbursement contract
457 shall be adopted as soon as possible in advance of the 2010-2011
458 contract year.
459 (c) Insurers writing covered policies shall execute the
460 reimbursement contract by March 1 of the immediately preceding
461 contract year and the contract shall have an effective date as
462 defined in paragraph (2)(o).
463 (d) The board shall publish in the Florida Administrative
464 Weekly the maximum statutory adjusted capacity for the mandatory
465 coverage for a particular contract year, the maximum statutory
466 coverage for any optional coverage for the particular contract
467 year, and the aggregate fund retention used to calculate
468 individual insurer’s retention multiples for the particular
469 contract year no later than January 1 of the immediately
470 preceding contract year.
471 Section 2. This act shall take effect upon becoming a law.