Florida Hurricane Catastrophe Fund

Transcription

1 Florida Hurricane Catastrophe Fund Property & Casualty Insurance Reform Committee August 8,

2 What is the FHCF? State Tax-Exempt Trust Fund created by the Florida Legislature for the purpose of providing a stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses in order to provide additional insurance capacity for the state. A state run reinsurance program. Mandatory for insurers writing residential property insurance in Florida. 2

3 FHCF Background Created in the November 1993 Special Legislative Session Administered by the State Board of Administration of Florida (SBA) Office of Insurance Regulation Enforces 3

4 Oversight of the FHCF State Board of Administration of Florida Governor Attorney General Chief Financial Officer Executive Director Senior FHCF Officer Nine (9) member Advisory Council to provide the SBA with advice and information 4

5 Private Reinsurers (approximately 125) Florida Property Insurance Marketplace FHCF $1 billion FHCF Premium (about 13% of the residential premium) Insurers (includes Citizens) $7.76 billion residential premium (estimated) FIGA Florida Insurance Guarantee Association Residential Policyholders (6.35 million risk insured) $1.77 Trillion of insured residential exposures 5

6 How the FHCF Operates Insurers required to report exposures FHCF Premiums based on an insurer s exposure Location, construction, deductibles, & mitigation factors 25% Rapid Cash Build-Up Factor FHCF coverage is determined by FHCF premiums Insurer retention (deductible) is a multiple of FHCF premiums Limit of coverage (payout) is a multiple of FHCF premiums Insurers select coverage above its retention: 45%, 75%, or 90% Coverage for residential structures and their contents as well as additional living expenses (ALE) 6

7 How the FHCF Operates (con t) Loss Adjustment Expense (LAE) is a flat 5%. Losses are reported by year-end 12/31. Cash balance is first used to pay claims. If the cash balance is not sufficient, revenue bonds are required to be issued. To fund revenue bonds, emergency assessments are levied on all P&C lines including surplus lines, but excluding worker s comp, med mal (excluded only until 2007), flood, and accident and health. The maximum emergency assessments are 6% per year and 10% aggregate for all years. 7

8 How the FHCF Operates (con t) SBA is only liable to the extent of its assets and borrowing capacity -- the state is not liable for any shortfall. The maximum limit of liability of the FHCF is currently $15 billion for an initial season (adjusts with exposure growth). Subsequent Season Capacity is estimated at $15 billion (multiseason capacity of about $50 billion). Mitigation the Legislature appropriates a minimum of $10 million annually or up to 35% of investment income unless the actuarial soundness of the fund is jeopardized. 8

9 History of Significant Legislative Changes tax exempt status for the fund and greater equity among insurers public benefits corporation created and provisions necessary to be able to issue tax exempt debt creation of subsequent season capacity 2002 Addition of additional living expense (ALE), collateral protection insurance, and rapid cash buildup factor 2004 Increased limit to $15 billion limit to grow with exposure growth, reset retention to $4.5 billion, increased assessment authority, included surplus lines in assessment base, and other administrative changes Reset the aggregate insurance industry retention to $4.5 billion for Full retention applied to the two largest events for each insurer and then drops down to 1/3 for all other events during a contract year Rapid cash build-up factor of 25%, $10 million additional coverage option for limited apportionment companies (retention 30% of surplus), Citizens and transfer of policies from a liquidated insurer. 9

10 Structure of the FHCF Capacity grows with exposure Growth (or the dollar growth in the cash balance if less. Co-Payments Limit FHCF From Emergency Assessments Bonding Retention increases with exposure growth. Cash Balance Retention Not Drawn to scale. From Reimbursement Premiums 10

11 Initial Season Capacity For the 2006 Hurricane Season (Unofficial Estimate) $22.05 B Overall Industry Loss 39.5 year return time* 1 in 9 yrs Co-Payments $1.75 B Industry *Return time not adjusted for premium/exposure growth. $15 Billion Capacity $14 B Bonding Capacity (Includes Loss Adjustment Expense) $1 B Projected 2006 Year-end Cash Balance $5.3 B Industry Aggregate Retention Not Drawn to scale. 2.93% 11

12 2006 FHCF Coverage* Based on $15 b xs $5.3 b Payout Multiple (projected) Retention Multiples (90%), (75%), (45%) Expected Payout x FHCF Premium FHCF Insurers have three coverage options 45%, 75%, or 90% 10% 90% coverage Retention X FHCF Premium *Not drawn to scale 12

13 2006 FHCF Coverage Example: $1 million FHCF Premium $14,993,200 Payout FHCF 10% 90% coverage Retention $5,272,240 *Not drawn to scale 13

14 Historical Claims Paying Capacity of the Fund 14

15 FHCF 2004 & 2005 Losses 2004 Losses -- $3.85 billion Paid -- $3.616 billion Reported -- $3.836 billion Ultimate FHCF Loss -- $3.85 billion Total Industry Residential Loss -- $ billion 2005 Losses -- $4.5 billion Paid -- $2.992 billion Reported -- $4.138 billion Ultimate FHCF Loss -- $4.5 billion Total Industry Residential Loss -- $9.604 billion 15

16 Bonding 2005 Post-Event Bonding -- $1.35 billion To cover shortfall associated with 2005 losses Pre-Event Bonding -- $2.8 billion To provide for Liquidity for the 2006 hurricane season. 16

17 Terms Reinsurance Terms Additional Living Expense (ALE) Reimbursement Contract Rapid Cash Build-Up Factor Reinsurance Loss Adjustment Expense (LAE) Data Call Year-End Cash Balance Reinsurance Layer Actuarially Indicated Reimbursement Premium Claims Paying Capacity Layer of Coverage Per Occurrence Retention Emergency Assessments Initial Season Capacity Rate-on-Line Aggregate Retention Assessment Base Subsequent Season Capacity Retention Surplus Lines Retention Multiple Future Season Capacity Limit Co-Pay Payout Computer Modeling Terms Return Time Mitigation Payout Multiple Hurricane/Computer Modeling Insurance Industry Terms FHCF Terms Expected Payout Hurricane/Computer Model Florida Guarantee Insurance Association (FIGA Florida Hurricane Catastrophe Fund (FHCF) Exposure Modeling Organizations: AIR, ARA, RMS, EQECAT, FIU Public Model Citizens Property Insurance Corporation (Citizens) State Board of Administration (SBA) Covered Policies Residential Insurance FHCF Finance Corporation Premium Formula 17

18 Contact Information Jack Nicholson Senior FHCF Officer Telephone: (850) Fax: (850) Website: Address: Florida Hurricane Catastrophe Fund State Board of Administration of Florida 1801 Hermitage Boulevard Tallahassee, Florida