Florida Hurricane Catastrophe Fund 2005 Ratemaking Formula Report. March 16, 2005

Transcription

1 Florida Hurricane Catastrophe Fund 2005 Ratemaking Formula Report March 16, 2005

2 Agenda 1. Ratemaking Overview 2. What s s New? 3. Sample Policy Changes 4.. Other Topics of Interest 5. Recap 6. Questions 2

3 Ratemaking Overview

4 Ratemaking Overview Where does the FHCF get its funds? Loss & Loss Expense (5%) Operating Expense Mitigation Funding Post Event Assessment Investment Income Premium Income Balance 4 4

5 Ratemaking Overview 1. Trend 6/30/04 exposure data & send to modelers 2. Combine results for industry excess loss costs 3. Add allocated loss adjustment expenses (5%) 4. Misc. technical adjustments Retention & Limit Law & Ordinance Reconciliation to accepted model level (for one model) 5

6 Ratemaking Overview 5. Credit for investment income 6. Fixed loadings Operating expenses Mitigation 7. Rapid cash build-up up factor 8. Credits: BCEG 9. Special rates for Citizens 10. Allocation to Classes: type of business, territory, construction, & deductible 6

7 What s s New?

8 What s s New? Overall Indications FHCF limit: $15 Billion No Transitional Option Exposure growth: construction cost driven Decrease in investment income credit Increase in Post Model Adjustment Factors Rates developed for various different mitigation funding targets and retention/limit levels 8

9 Overall Indications

10 Overall Indications

11 Overall Indications Section I & II Reimbursement Premium 2004 Premium* $618.6 M 2005 Premium $652.9 M (Projected) * adjusted to remove the effect of the transitional option of $11B xs 4.866B in

12 Overall Indications After Adjustment to t Remove Effect of Transitional Option Change from 2004 FHCF Base Rate Change Impact of Citizens Factor Change Overall Rate Change -3.30% +0.02% -3.29% 12

13 Overall Indications Including Effect of Transitional Option Change from 2004 FHCF Base Rate Change Impact of Citizens Factor Change Overall Rate Change -2.86% +0.02% -2.84% 13

14 Overall Indications Section I Rate Changes Type of Business Rate Change from 2004 Excluding Citizens Rate Change from 2004 Including Citizens Residential -5.09% -5.08% Tenants & Inland Marine -4.66% -4.66% Condominiums -5.00% -4.99% Mobile Home +5.41% +5.41% Commercial Habitational +9.69% +9.70% Total Rate Change -3.30% -3.29% 14

15 Limit Level : $11 billion annually. 2004: Limit set at $15 billion, with the ability to grow each year by lesser of exposure or change in cash, with transitional option limit of $11 billion. 2005: $15 billion limit assumed in the rates since cash has decreased due to hurricane payments in

16 Exposure Growth (2003 to 2004) Type of Business** (1 year trends) Total Growth 2004 Exposure Distribution Residential 12.6% 82.2% Tenants & Inland Marine 8.0% 1.4% Condominiums 3.7% 4.6% Mobile Home 2.7% 2.7% Commercial Habitational -1.6% 9.2% Total 10.3% % ** Based on exposure data as of 11/19/04. 16

17 Exposure Growth : Driven by construction costs Boeckh Construction Cost Changes Brick Construction 12.0% 10.0% Countrywide Florida Average 8.0% 6.0% 4.0% 2.0% 0.0%

18 Exposure Growth Impact on Retention Year Retention Percent Change 2002 (actual) $4.011 B N.A (actual 11/18/03) $4.464 B 11.3% 2004 (actual 11/19/04) $4.552 B 2.0% 2004 Transitional Option $4.866 B N.A New Legislation $4.5 B N.A (projected) $4.965 B 10.3% 18

19 Decrease in investment income credit Investment income credit recognizes that FHCF generally holds funds several years before payout. Investment income reduces the premium required. A decrease in the investment credit increases the premium needed. Interest Rate Assumption Return Time Investment Credit 2003 Rating Year 4.25% 7 yrs 20.22% 2004 Rating Year 4.00% 7 yrs 19.18% 2005 Rating Year 3.5% 7 yrs 17.41% 19

20 Interest rate e assumption Monthly FHCF Investment Returns 8% December % June % Investment Yield 5% 4% 3% June - 94 June - 03 June - 04 June % Actual Yield 1% Interest Assumption January - 03 January % January

21 Post Model Adjustment FactorF Demand Surge 21

22 Post Model Adjustment FactorF 2004 Selection: 4.8% 2005 Selection: 10.0% Used to cover phenomena not projected by models (ie., Demand Surge and Special Insurances Coverages) 2003/04 FHCF Ratemaking Year Losses Modeler Increase Due to Demand Surge EQE FHCF Layer Loss 12.96% AIR FHCF Layer Loss 18.55% 2005/06 FHCF Ratemaking Year Losses Modeler Increase Due to Demand Surge RMS FHCF Layer Loss 5.95% 22

23 Per Company Limit and Retention Adjustment No Change Need to adjust modeled industry losses to recognize that retentions and limits apply on an individual company basis. ARA result may be lower due to smaller estimated share of losses near retention. Special Study 2000 RMS 2001 EQE ARA 2005 Indicated Adjustment 4.62% 1.23% -4.07% Selected Adjustment 4.62% 2.93% 2.93% 2.93% 1.59% 1.59% 23

24 Citizens Special Rating Factor Decreased Marginally Citizens may receive extra coverage beyond their limit if there is excess capacity after an event. Method to calculate this factor refined in 2004 to explicitly recognize the relationship between the extra premium & Citizens retention/limit. t. Slight increase due to a decreased fixed expense loading for Citizens rate e impact: : 0.02%. Overall l rate r t impact: -0.01% Year Model Old Method Refined Methodt Selected FactorF r RMS 12.84% % % EQE 17.02% 11.46% 13.78% % % ARA 13.70% 10.08% 10.24% %. 6 24

25 Mitigation Funding, Limit & Retention Level Rates produced assuming: - Mitigation Funding = $10 million - Limit = $15 billion - Retention = $4.965 billion Adjustment factors created to accommodate alternative assumptions. 25

26 Rate Changes & Premium Amounts at Varying Mitigation Funding & Limit/Retention Levels Scenario 2005 Ratemaking Formula Report 1 Coverage Provided $15B xs $3B {Per Event Retention} Impact of Various Retention Levels on Rates Overall Premium $899,404,089 Overall Rate Change 33.22% 2 $15B xs $3.5B {Per Event Retention} $843,780, % 3 $15B xs $4B {Per Event Retention} $770,899, % 4 $15B xs $4.5B {Per Event Retention} $706,920, % 5* $15B xs $4.965B {Per Event Retention} $652,936, % 6 $15B xs $3B {Per Event Retention Drops to 33% on 3rd Event} $901,384, % 7 $15B xs $3.5B {Per Event Retention Drops to 33% on 3rd Event} $845,495, % 8 $15B xs $4B {Per Event Retention Drops to 33% on 3rd Event} $772,299, % 9 $15B xs $4.5B {Per Event Retention Drops to 33% on 3rd Event} $708,056, % 10 $15B xs $4.965B {Per Event Retention Drops to 33% on 3rd Event} $653,886, % 11 $15B xs $2B {Aggregate Retention} $1,169,671, % 12 $15B xs $3B {Aggregate Retention} $964,422, % 13 $15B xs $3.5B {Aggregate Retention} $908,440, % 14 $15B xs $4B {Aggregate Retention} $832,874, % 15 $15B xs $4.5B {Aggregate Retention} $765,873, % 16 $15B xs $4.965B {Aggregate Retention} $708,680, % * Base scenario for developing rates 26

27 Sample Policy Changes

28 Sample Policy Indications - Residential City 2004 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $17 1 $16 <$1> <5.9%> Orlando 1 $17 2 $25 $8 47.1% Tampa 4 $60 5 $55 <$5> < 8.3%> Pensacola 5 $75 5 $55 <$20> <26.7%> Palm Beach 14 $ $281 $21 8.1% Miami 19 $ $422 $3 0.7% Assumptions : 90% coverage; frame; $204,000 exposure; ; 2% deductible 28

29 Sample Policy Indications - Residential - Pools City 200 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $14 1 $12 <$2> <14.3%> Orlando 1 $14 2 $19 $5 35.7% Tampa 4 $47 5 $42 <$5> <10.6%> Pensacola 5 $60 5 $42 <$18> <30.0%> Palm Beach 14 $ $214 $7 3.4% Miami 19 $ $321 <$12> <3.6%> Assumptions: 90% coverage; masonry; $204,000 exposure; 2% deductible 29

30 Sample Policy Indications - Commercial City 2004 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $27 1 $25 <$2> <7.4%> Orlando 1 $27 2 $39 $ % Tampa 4 $93 5 $86 <$7> <7.5%> Pensacola 5 $117 5 $86 <$31> <26.5%> Palm Beach 14 $ $443 $36 8.8% Miami 19 $ $664 $8 1.2% Assumptions: 90% coverage; joisted masonry; $500,000 exposure; 3% deductible 30

31 Sample Policy Indications - Mobile Home City 2004 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $13 1 $13 $0 0.0% Orlando 1 $13 2 $21 $8 61.5% Tampa 4 $45 5 $46 $1 2.2% Pensacola 5 $57 5 $46 <$11> <19.3%> Palm Beach 14 $ $237 $ % Miami 19 $ $356 $ % Assumptions: 90% coverage; FTD pre-7/94; $64,000 exposure; $500 ded. 31

32 Sample Policy Indications Tenants & Inland Marine City 2004 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $3 1 $2 <$1> <33.3%> Orlando 1 $3 2 $4 $1 33.3% Tampa 4 $10 5 $8 <$2> <20.0%> Pensacola 5 $13 5 $8 <$5> <38.5%> Palm Beach 14 $45 15 $44 <$1> <2.2%> Miami 19 $73 19 $65 <$8> <11.0%> Assumptions: 90% coverage; masonry; $56,000 exposure; $500 ded. 32

33 Sample Policy Indications - Condominiums City 2004 Territory 2004 Prem 2005 Territory 2005 Prem Change ($) Change (%) Jacksonville 1 $4 1 $3 <$1> <25.0%> Orlando 1 $4 2 $5 $1 25.0% Tampa 4 $13 5 $11 <$2> <15.4%> Pensacola 5 $17 5 $11 <$6> <35.3%> Palm Beach 14 $58 15 $58 $0 0.0% Miami 19 $94 19 $88 <$6> <6.4%> Assumptions: 90% coverage; masonry; $80,000 exposure; $500 ded. 33

34 Other Topics of Interest

35 Modeled Losses ($M) Exposure $1,279 $1,438 Gross losses $2,208 $2,267 FHCF Layer losses $704.4 $

36 Modeled Losses Gross Single Event Severity Distribution (100% Coverage, no LAE) $60 $50 Loss ($B) $40 $30 $20 $10 $ (Incl. ALE) 2004 (Incl. ALE) 2003 (Incl. ALE) Return Time (Years) 36

37 $16.7B 2005 Ratemaking Formula Report The Covered Layer 2004 Transitional Option $21.009B 2005 (projected) Transitional Option of $11 Billion for Loss + LAE $15 Billion for Loss + LAE % $4.866B % Retained $4.965B Retained 37

38 $20.6B 2005 Ratemaking Formula Report The Covered Layer 2004 Layer $21.009B 2005 (projected) $15 Billion for Loss + LAE $15 Billion for Loss + LAE % % $4.5B Retained $4.965B Retained 38

39 Allocation of Excess Losses s to Type of o Business % of Excess Losses Res. Ten. & IM Condos MH Com. Total 2004 Indicated Selected Indicated Selected Rate Chg (overall) -5.08% -4.66% -4.99% +5.41% +9.70% -3.29% 39

40 Allocation of Excess Losses s to Type of o Business 100% 90% 12.54% 11.88% Commercial Mobile Home Condominiums Ten & IM Residential 4.53% 4 55% 80% 5.04% 5 26%.91% 1.10% 70% 76.98% 77.20% 60% 50% 2005 Indicated 2005 Selected 40

41 Loadings and Factors Adjustment Change Adj. to gross losses -2.7% -1.7% -39.6% Post-model 4.8% 10.0% % Retention + Limit 1.6% 1.6% 0.0% Citizens Extended Coverage 10.2% 10.3% +0.1% Investment Income -19.2% -17.4% -9.2% Operating expense $5.06 M $5.60 M +$0.54M Mitigation $10.0M $10.0M $0.0 41

42 Building Code Effectiveness eness Grading Credits: 4, 8, 12% Year Credit Level Premium Credit ($000s) Exposure ($B) Risks (000s) % $3,856 $ , 8, 12% $4,993 $ , 8, 12% $5,182 $ , 8, 12% $7,895 $ , 8, 12% $8,651 $ , 8, 12% $12,595 $ , Projected Premium Credit is $12,765,285 42

43 Rapid Cash Build-up up FactorF Florida Hurricane Catastrophe Fund 2005 Ratemaking Report Projected Cash Balances by Potential Rapid Cash Build-up Factor (Dollar Values in Millions) Projected Percent Additional Total 12/31/2005 Change FHCF FHCF Cash in Cash Factor Premium Premium Balance* Balance 0.0% $0.0 $652.9 $3, % 1.0% $6.5 $659.5 $3, % 2.0% $13.1 $666.0 $3, % 5.0% $32.6 $685.6 $3, % 7.5% $49.0 $701.9 $3, % 10.0% $65.3 $718.2 $3, % 15.0% $97.9 $750.9 $3, % 20.0% $130.6 $783.5 $3, % 25.0% $163.2 $816.2 $3, % 35.0% $228.5 $881.5 $3, % 50.0% $326.5 $979.4 $4, % 60.0% $391.8 $1,044.7 $4, % 70.0% $457.1 $1,110.0 $4, % 80.0% $522.3 $1,175.3 $4, % 90.0% $587.6 $1,240.6 $4, % 100.0% $652.9 $1,305.9 $4, % * 12/31/04 approximate cash balance of $3.1 B projected forward with the premium, investment income and rapid cash buildup factors added and mitigation of $10M and fixed expenses of $5.6M removed 43

44 FHCF F Territories Year Basis 1998 AIR; ground up basis 1999 No change 2000 No change 2001 AIR, EQE, RMS; excess basis; changes tempered AIR, EQE, RMS; excess basis; changes limited to +/-1 rating region 44

45 Territories Florida Hurricane Catastrophe Fund Proposed 2005 Rating Territories by 5-Digit ZIP Code Entire State Proposed 2005 Regions 2005 Rating Regions j:\fhcf\2005\ratemaking\maps\2005tempered.wor (layout1) 2/05 Paragon Strategic Solutions Inc. 45

46 Territories % Rate Changes from 2004 Florida Hurricane Catastrophe Fund Proposed 2005 Percentage Rate Change by 5-Digit ZIP Code Entire State Percent Rate Change Greater Than -25% -25% to -10% -10% to -5% -5% to 0% 0% to 5% 5% to 10% Greater Than 10% j:\fhcf\2005\ratemaking\maps\2005 rate change by zip%.wor (layout1) 2/05 Paragon Strategic Solutions Inc. 46

47 2005 Residential Masonry Base Premium (2% Deductible) Comparison % Change in Rates Maximum Decrease % Maximum Increase 36.59% Percentage of Residential Percentage of Residential Percentage of Group Threshhold Count of ZIP Zip Codes in Exposure Res Exposure in Risk Counts Risk Counts in From To Codes Group (in 000's) Group {Houses} Group 1 Greater Than -25% % 103,113, % 353, % 2-25% -10% % 354,516, % 1,209, % 3-10% -5% % 162,174, % 555, % 4-5% 0% % 142,208, % 471, % 5 0% 5% % 81,037, % 269, % 6 5% 10% % 36,053, % 137, % 7 10% 25% % % % 8 Greater Than 25% % 38,941, % 135, % % 918,045, % 3,132, % New ZIP Codes in % 4,573, % 12, % % 922,618, % 3,144, % Exposure Assumptions Coverages: $ 120 Building Value (in thousands) $ 12 Appurtenant structures $ 60 Contents $ 12 Additional Living Expense $ 204 FHCF Exposure 47

48 Territories $ Rate Changes from 2004 Florida Hurricane Catastrophe Fund Proposed 2005 Dollar Rate Change by 5-Digit ZIP Code Entire State Dollar Rate Change -$40.00 to -$ $25.00 to -$ $10.00 to -$5.01 -$5.00 to $0.00 $0.00 to $5.00 $5.01 to $10.00 $10.01 to $25.00 j:\fhcf\2005\ratemaking\maps\2005 rate change by zip.wor (layout1) 2/05 Paragon Strategic Solutions Inc. 48

49 2005 Residential Masonry Base Premium (2% Deductible)Comparison $ Change in Rates Maximum Decrease ($39.67) Maximum Increase $14.87 Percentage of Residential Percentage of Exposure Percentage of Group Threshhold Count of ZIP Zip Codes in Exposure Res Exposure in Risk Counts Risk Counts in From To Codes Group (in 000's) Group {Houses} Group 1 ($40.00) ($25.01) % 19,715, % 65, % 2 ($25.00) ($10.01) % 176,871, % 554, % 3 ($10.00) ($5.01) ,869, % 907, % 4 ($5.00) $ % 309,556, % 1,062, % 5 $0.00 $ % 81,141, % 283, % 6 $5.01 $ % 25,830, % 83, % 7 $10.01 $ % 49,060, % 175, % 8 $25.01 $ % % % % 918,045, % 3,132, % New ZIP Codes in % 4,573, % 12, % % 922,618, % 3,144, % Exposure Assumptions Coverages: $ 120 Building Value (in thousands) $ 12 Appurtenant structures $ 60 Contents $ 12 Additional Living Expense $ 204 FHCF Exposure 49

50 Recap

51 RecapR Type of Business Rate Change from 2004 Excluding Citizens Rate Change from 2004 Including Citizens Residential -5.09% -5.08% Tenants & Inland Marine -4.66% -4.66% Condominiums -5.00% -4.99% Mobile Home +5.41% +5.41% Commercial Habitational +9.69% +9.70% Total Rate Change -3.30% -3.29% 51

52 Questions