Florida Senate - 2020                        COMMITTEE AMENDMENT
       Bill No. SB 1334
                              LEGISLATIVE ACTION                        
                    Senate             .             House              

       The Committee on Banking and Insurance (Rouson) recommended the
    1         Senate Amendment (with directory and title amendments)
    3         Delete lines 149 - 163
    4  and insert:
    5         (b) The State Board of Administration shall select an
    6  independent consultant to develop a formula for determining the
    7  actuarially indicated premium to be paid to the fund. The rate
    8  formula must shall specify, for each zip code or other limited
    9  geographical area, the amount of premium to be paid by an
   10  insurer for each $1,000 of insured value under covered policies
   11  in that zip code or other area. In establishing premiums, the
   12  board shall consider the coverage elected under paragraph (4)(b)
   13  and any factors that tend to enhance the actuarial
   14  sophistication of ratemaking for the fund, including
   15  deductibles, type of construction, type of coverage provided,
   16  relative concentration of risks, and other such factors deemed
   17  by the board to be appropriate. Beginning in the 2020-2021
   18  contract year, the fund’s formula may provide for a rapid cash
   19  build-up factor of up to 25 percent only when the available cash
   20  balance as of December 31 of the previous year is less than 70
   21  percent of the statutory capacity. For the purpose of
   22  calculating the rapid cash build-up factor trigger, the
   23  available cash balance may not be reduced by reserves for
   24  projected participating insurer reimbursements The formula must
   25  provide for a cash build-up factor. For the 2009-2010 contract
   26  year, the factor is 5 percent. For the 2010-2011 contract year,
   27  the factor is 10 percent. For the 2011-2012 contract year, the
   28  factor is 15 percent. For the 2012-2013 contract year, the
   29  factor is 20 percent. For the 2013-2014 contract year and
   30  thereafter, the factor is 25 percent. The rate formula may
   31  provide for a procedure to determine the premiums to be paid by
   32  new insurers that begin writing covered policies after the
   33  beginning of a contract year, taking into consideration when the
   34  insurer starts writing covered policies, the potential exposure
   35  of the insurer, the potential exposure of the fund, the
   36  administrative costs to the insurer and to the fund, and any
   37  other factors deemed appropriate by the board. The formula must
   38  be approved by unanimous vote of the board. The board may, at
   39  any time, revise the formula pursuant to the procedure provided
   40  in this paragraph.
   41         (f)The Office of Insurance Regulation shall retain an
   42  independent consultant to audit the formula developed under this
   43  subsection beginning with the 2021 contract year and every 3
   44  years thereafter. The audit may not be performed by the
   45  independent consultant who developed the formula. The audit must
   46  evaluate whether the formula uses actuarially sound principles
   47  and whether insurers are paying an actuarially indicated
   48  premium. The Office of Insurance Regulation shall also recommend
   49  factors, if any, which would enhance the actuarial
   50  sophistication of ratemaking for the fund. The Office of
   51  Insurance Regulation shall report the findings of the audit and
   52  any recommendation to the Financial Services Commission, the
   53  President of the Senate, and the Speaker of the House of
   54  Representatives on or before March 1 of the year after the
   55  contract year audited.
   57         (a)Findings and intent.
   58         1.The Legislature finds that:
   59         a.Because of temporary disruptions in the market for
   60  catastrophic reinsurance, many property insurers were unable to
   61  procure affordable reinsurance for the 2019 hurricane season
   62  with an attachment point below the insurers’ respective Florida
   63  Hurricane Catastrophe Fund attachment points, were unable to
   64  procure sufficient amounts of such reinsurance, or were able to
   65  procure such reinsurance only by incurring substantially higher
   66  costs than in prior years.
   67         b.The reinsurance market problems were responsible, at
   68  least in part, for substantial premium increases to many
   69  consumers and potential increases in the number of policies
   70  issued by the Citizens Property Insurance Corporation.
   71         c.It is likely that the reinsurance market disruptions
   72  will not significantly abate before the 2020 hurricane season.
   73         2.It is the intent of the Legislature to create a
   74  temporary emergency program, applicable to the 2020, 2021, and
   75  2022 hurricane seasons, to address these market disruptions and
   76  enable insurers, at their option, to procure additional coverage
   77  from the Florida Hurricane Catastrophe Fund.
   78         (b)Applicability of other provisions of this section.All
   79  other provisions of this section and the rules adopted under
   80  this section apply to the program created by this subsection
   81  unless specifically superseded by this subsection.
   82         (c)Optional coverage.For the contract year commencing
   83  June 1, 2020, and ending May 31, 2021, the contract year
   84  commencing June 1, 2021, and ending May 31, 2022, and the
   85  contract year commencing June 1, 2022, and ending May 31, 2023,
   86  the board shall offer for each of such years the optional
   87  coverage as provided in this subsection.
   88         (d)Additional definitions.—As used in this subsection, the
   89  term:
   90         1.“TEACO addendum” means an addendum to the reimbursement
   91  contract reflecting the obligations of the fund and TEACO
   92  insurers under the program created by this subsection.
   93         2.“TEACO insurer” means an insurer that has opted to
   94  obtain coverage under the TEACO options in addition to the
   95  coverage provided to the insurer under its reimbursement
   96  contract.
   97         3.“TEACO options” means the temporary emergency additional
   98  coverage options created under this subsection.
   99         4.“TEACO reimbursement premium” means the premium charged
  100  by the fund for coverage provided under the TEACO options.
  101         5.“TEACO retention” means the amount of losses below which
  102  a TEACO insurer is not entitled to reimbursement from the fund
  103  under the TEACO option selected. A TEACO insurer’s retention
  104  options shall be calculated as follows:
  105         a.The board shall calculate and report to each TEACO
  106  insurer the TEACO retention multiples. There shall be three
  107  TEACO retention multiples for defining coverage. Each multiple
  108  shall be calculated by dividing $3 billion, $4 billion, or $5
  109  billion by the total estimated TEACO reimbursement premium,
  110  assuming all insurers selected that option. The total estimated
  111  TEACO reimbursement premium, for purposes of the calculation
  112  under this sub-subparagraph, shall be calculated using the
  113  assumption that all insurers have selected a specific TEACO
  114  retention multiple option and have selected the 90-percent
  115  coverage level.
  116         b.The TEACO retention multiples as determined under sub
  117  subparagraph a. shall be adjusted to reflect the coverage level
  118  elected by the insurer. For insurers electing the 90-percent
  119  coverage level, the adjusted retention multiple is 100 percent
  120  of the amount determined under sub-subparagraph a. For insurers
  121  electing the 75-percent coverage level, the retention multiple
  122  is 120 percent of the amount determined under sub-subparagraph
  123  a. For insurers electing the 45-percent coverage level, the
  124  adjusted retention multiple is 200 percent of the amount
  125  determined under sub-subparagraph a.
  126         c.An insurer shall determine its provisional TEACO
  127  retention by multiplying its provisional TEACO reimbursement
  128  premium by the applicable adjusted TEACO retention multiple and
  129  shall determine its actual TEACO retention by multiplying its
  130  actual TEACO reimbursement premium by the applicable adjusted
  131  TEACO retention multiple.
  132         d.For a TEACO insurer that experiences multiple covered
  133  events causing loss during the contract year, the insurer’s full
  134  TEACO retention shall be applied to each of the covered events
  135  causing the two largest losses for that insurer. For other
  136  covered events resulting in losses, the TEACO option does not
  137  apply and the insurer’s retention shall be one-third of the full
  138  retention as calculated under paragraph (2)(e).
  139         (e)TEACO addendum.
  140         1.The TEACO addendum shall provide for reimbursement of
  141  TEACO insurers for covered events occurring during the contract
  142  year in exchange for the TEACO reimbursement premium paid into
  143  the fund under paragraph (f). Any insurer writing covered
  144  policies has the option of choosing to accept the TEACO addendum
  145  for any of the three contract years that the coverage is
  146  offered.
  147         2.The TEACO addendum shall contain a promise by the board
  148  to reimburse the TEACO insurer for 45 percent, 75 percent, or 90
  149  percent of its losses from each covered event in excess of the
  150  insurer’s TEACO retention, plus 10 percent of the reimbursed
  151  losses to cover loss adjustment expenses. The percentage shall
  152  be the same as the coverage level selected by the insurer under
  153  paragraph (4)(b).
  154         3.The TEACO addendum shall provide that reimbursement
  155  amounts shall not be reduced by reinsurance paid or payable to
  156  the insurer from other sources.
  157         4.The TEACO addendum shall also provide that the
  158  obligation of the board with respect to all TEACO addenda shall
  159  not exceed an amount equal to two times the difference between
  160  the industry retention level calculated under paragraph (2)(e)
  161  and the $3 billion, $4 billion, or $5 billion industry TEACO
  162  retention level options actually selected, but in no event may
  163  the board’s obligation exceed the actual claims-paying capacity
  164  of the fund plus the additional capacity created in paragraph
  165  (g). If the actual claims-paying capacity and the additional
  166  capacity created under paragraph (g) fall short of the board’s
  167  obligations under the reimbursement contract, each insurer’s
  168  share of the fund’s capacity shall be prorated based on the
  169  premium an insurer pays for its normal reimbursement coverage
  170  and the premium paid for its optional TEACO coverage as each
  171  such premium bears to the total premiums paid to the fund times
  172  the available capacity.
  173         5.The priorities, schedule, and method of reimbursements
  174  under the TEACO addendum shall be the same as provided under
  175  subsection (4).
  176         6.A TEACO insurer’s maximum reimbursement under the TEACO
  177  addendum shall be calculated by multiplying the insurer’s share
  178  of the estimated total TEACO reimbursement premium as calculated
  179  under sub-subparagraph (d)5.a. by an amount equal to two times
  180  the difference between the industry retention level calculated
  181  under paragraph (2)(e) and the $3 billion, $4 billion, or $5
  182  billion industry TEACO retention level specified in sub
  183  subparagraph (d)5.a. as selected by the TEACO insurer.
  184         (f)TEACO reimbursement premiums.
  185         1.Each TEACO insurer shall pay to the fund, in the manner
  186  and at the time provided in the reimbursement contract for
  187  payment of reimbursement premiums, a TEACO reimbursement premium
  188  calculated as specified in this paragraph.
  189         2.The TEACO reimbursement premiums shall be calculated
  190  based on the assumption that if all insurers entering into
  191  reimbursement contracts under subsection (4) also accepted the
  192  TEACO option:
  193         a.The industry TEACO reimbursement premium associated with
  194  the $3 billion retention option would be equal to 85 percent of
  195  the difference between the industry retention level calculated
  196  under paragraph (2)(e) and the $3 billion industry TEACO
  197  retention level.
  198         b.The TEACO reimbursement premium associated with the $4
  199  billion retention option would be equal to 80 percent of the
  200  difference between the industry retention level calculated under
  201  paragraph (2)(e) and the $4 billion industry TEACO retention
  202  level.
  203         c.The TEACO reimbursement premium associated with the $5
  204  billion retention option would be equal to 75 percent of the
  205  difference between the industry retention level calculated under
  206  paragraph (2)(e) and the $5 billion industry TEACO retention
  207  level.
  208         3.Each insurer’s TEACO reimbursement premium shall be
  209  calculated based on its share of the total TEACO reimbursement
  210  premiums based on its coverage selection under the TEACO
  211  addendum.
  212         (g)Effect on claims-paying capacity of the fund.—For the
  213  contract term commencing June 1, 2020, the contract year
  214  commencing June 1, 2021, and the contract term beginning June 1,
  215  2022, the program created by this subsection shall increase the
  216  claims-paying capacity of the fund as provided in subparagraph
  217  (4)(c)1. by an amount equal to two times the difference between
  218  the industry retention level calculated under paragraph (2)(e)
  219  and the $3 billion industry TEACO retention level specified in
  220  sub-subparagraph (d)5.a. The additional capacity shall apply
  221  only to the additional coverage provided by the TEACO option and
  222  shall not otherwise affect any insurer’s reimbursement from the
  223  fund.
  225  ====== D I R E C T O R Y  C L A U S E  A M E N D M E N T ======
  226  And the directory clause is amended as follows:
  227         Delete lines 97 - 99
  228  and insert:
  229         Section 1. Paragraph (c) of subsection (2) and paragraph
  230  (b) of subsection (5) of section 215.555, Florida Statutes, are
  231  amended, and paragraph (f) of subsection (5) and subsection (17)
  232  are added to that section, to read:
  234  ================= T I T L E  A M E N D M E N T ================
  235  And the title is amended as follows:
  236         Delete lines 6 - 12
  237  and insert:
  238         policies; providing that the fund’s rate formula may
  239         provide for a rapid cash build-up factor only if
  240         certain conditions are met; specifying a limitation on
  241         calculating the trigger for the cash build-up factor;
  242         requiring the Office of Insurance Regulation to retain
  243         an independent consultant to audit the fund’s
  244         reimbursement premium formula at specified intervals;
  245         specifying requirements for the audit; requiring the
  246         office to report audit findings and certain
  247         recommendations to the Financial Services Commission
  248         and the Legislature; providing legislative findings
  249         and intent; providing applicability; requiring the
  250         State Board of Administration to offer temporary
  251         emergency additional coverage options (TEACO) to
  252         insurers during specified contract years; defining
  253         terms; specifying requirements for the TEACO addendum
  254         to the reimbursement contract; specifying requirements
  255         for, and calculations of, TEACO reimbursement
  256         premiums; specifying the effect of the TEACO program
  257         on the fund’s claims-paying capacity; amending s.
  258         319.30,