HB 949

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

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