Florida Hurricane Catastrophe Fund

Transcription

1 State Board of Administration Florida Hurricane Catastrophe Fund Financial and Political Impact of Hurricane Irma RAA Cat Risk Management Conference February 13, 2018

2 WHAT IS THE FHCF? State Tax-Exempt Trust Fund created by the Florida Legislature in 1993 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 reimbursement program for insurers for catastrophic hurricane losses administered by the State Board of Administration (SBA). Similar in function to private reinsurance, but a government program governed by statute and administrative rules. FHCF is critical to the health of the Florida economy both before and after a catastrophic hurricane 2

3 WHY WAS THE FHCF CREATED? Following Hurricane Andrew, reinsurance capacity contracted. Insurers attempted (or threatened) to withdraw from the state and/or cancel or non-renew policyholders in large numbers. State action was needed to stabilize the marketplace. The state program was created to: Add insurance capacity Help build a stable and competitive residential property insurance market for the long term Provide a stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses Lessen the impact of market shocks after major events when they occur in the future Be exempt from federal taxation 3

4 FLORIDA RESIDENTIAL PROPERTY INSURANCE MARKETPLACE Private Reinsurers (approx. 100) FHCF ($17 B in coverage; approx. 50% reinsurance market share) Approximately $1.1 billion FHCF reimbursement premium (about 11% of total residential premium) Private Insurers (approx. 6.0 million policies) Citizens (approx. 500,000 policies; 8.5% policy mkt share) FIGA Florida Insurance Guaranty Assoc. Residential Policyholders (6.5 million risks; 157 Insurers) $10.2 billion total residential premium (estimated), representing approximately $2.1 trillion of insured property value Sources: Office of Insurance Regulation, Florida Hurricane Catastrophe Fund, Citizens Property Insurance Corporation, and Aon Benfield 4

5 LOSS REIMBURSEMENTS Participating insurers are reimbursed on a paid basis Limited Liability equal to cash and the amount we are able to bond (up to $17B limit) but there is a responsibility to take reasonable steps to: Maximize capacity Ensure we can perform and pay claims timely and sufficiently Pay on an on-going basis Emergency assessments - If cash is insufficient to continue to pay claims, the FHCF must issue revenue bonds which are paid with emergency assessments on a broad base of Florida policyholders 5

6 FHCF S FINANCIAL STRENGTH FOR The FHCF is fully liquid up to and slightly over its maximum limit for the contract year: $17.0B Maximum Statutory Limit $15.0B Projected Year-End Fund Balance $2.7B Pre-Event Bonds $1.0B Risk Transfer No post-event bonds outstanding Emergency assessments ended 0% on all policies new or renewed on or after 1/1/15 6

7 FHCF S FINANCIAL STRENGTH FOR The FHCF is slightly below its maximum limit for the contract year: $17.0B Maximum Statutory Limit $14.1B Projected Year-End Fund Balance $ 2.2 B Pre-Event Bonds? Risk Transfer unknown at this time No post-event bonds outstanding Emergency assessments ended 0% on all policies new or renewed on or after 1/1/15 7

8 FHCF RATEMAKING The FHCF must use the results of the Commission to the extent feasible. In establishing reimbursement premiums for the Florida Hurricane Catastrophe Fund, the State Board of Administration must, to the extent feasible, employ actuarial methods, principles, standards, models, or output ranges found by the Commission to be accurate or reliable. Section )(c), Florida Statutes. 5 Accepted Hurricane Models AIR Worldwide Corporation (AIR) Applied Research Associates (ARA) EQECAT (EQE) Florida Public Hurricane Loss Model (FPM) Risk Management Solutions (RMS) 8

9 2004 & 2005 FHCF LOSSES $ Billion Total Residential Losses (Reported to the FHCF) $9.4 Billion Total FHCF Paid Losses 2004 $ Billion 2005 $ Billion 2004 $3.860 Billion 2005 $5.536 Billion 9

10 HURRICANE HERMINE Landfall on September 1, 2016 No Hurricane Hermine loss reimbursement requests received to date 10

11 HURRICANE MATTHEW Eye by-passed Florida on October 7, 2016 No Hurricane Matthew loss reimbursement requests received to date 11

12 HURRICANE IRMA First Landfall on September 10, 2017 at Cudjoe Key as Cat 4 Second Landfall at Marco Island as Cat 3 12

13 HURRICANE IRMA LOSSES as of 12/31/17 For Illustration Purposes Only Industry FHCF Total Incurred Residential Loss $8.458 Billion Total Incurred Residential Loss $2.040 Billion Reported Losses $6.344 Billion 75.0% Reported Losses $0.852 Billion 41.8% Paid Losses $2.995 Billion 35.4% Paid Losses $0.098 Billion 5.8% FHCF Cash Balance available to pay claims $15.0 Billion 13

14 THREE ROLES 1. Administer the FHCF 2. Staff the Florida Commission on Hurricane Loss Projection Methodology (FCHLPM) 3. Administer the SBA s Insurance Capital Build-Up Incentive Program 14

15 FLORIDA COMMISSION ON HURRICANE LOSS PROJECTION METHODOLOGY Created by the Legislature as an independent commission in 1995 Twelve member panel of experts To provide the most actuarially sophisticated guidelines and standards for the projection of hurricane and flood losses Housed within/staffed by the State Board of Administration (SBA) SBA Trustees annually appoint the Chair Funded out of the Florida Hurricane Catastrophe Fund No other state has a process like Florida In a FL rate filing, insurers must use models found acceptable by the commission Structure and process designed to address the Black Box issue On-site audit (Professional Team) Trade secret sessions (2005) 15

16 CONSIDERATIONS AND TRADEOFFS The FHCF statute and rules reflect a balancing of complex and competing interests. Cash (pay premiums now) Full and rapid claims payment Debt (pay assessments later) Fraud prevention Small, lightly capitalized Florida domestic insurers FHCF: Reimburse only for physical damage to residential property Large, wellcapitalized national insurers FHCF: Provide full range of reimbursement provided by traditional reinsurance Insurers Reinsurers Coastal Inland Maximize capacity for the short term Maximize stability for the long term 16

17 17 CONTACT INFORMATION Anne Bert Chief Operating Officer Telephone: (850) Fax: (850) Website: Address: Florida Hurricane Catastrophe Fund State Board of Administration of Florida 1801 Hermitage Boulevard Tallahassee, Florida

18 Citizens Property Insurance Corporation Barry Gilway President, CEO and Executive Director February 2018