Subsidies in the Post-Loss Assessment Structure of Florida s Property Insurance Market

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1 Florida Catastrophic Storm Risk Management Center White Paper Release Date: August 1, 2009 Subsidies in the Post-Loss Structure of Florida s Property Insurance Market

2 EXECUTIVE SUMMARY A study of statutory changes made by the Florida Legislature in the 2007 special session stated among other things, an effect of post-event funding through assessments is to have lower hurricane risk areas subsidize higher risk areas (Towers Perrin Tillinghast, 2007). The financing of hurricane risk remains a high priority for the Florida Legislature. An understanding of the impacts of subsidies and the development of the current Florida property insurance market are important to those involved with public policy issues. This paper addresses the issue of property insurance subsidies in the State of Florida. The paper begins with a brief introduction to subsidies. Next, the paper reviews the Florida property insurance market, focusing on the structures of and post-loss assessment procedures for Citizens Property Insurance Company (Citizens), the Florida Hurricane Catastrophe Fund (FHCF), and the Florida Insurance Guaranty Association (FIGA). Finally, empirical analysis is performed to determine whether subsidies exist within the post-loss assessment structure of the Florida property insurance market and the extent of the subsidies. The objective of the analysis is to determine if the post-loss assessment procedures of Citizens, the FHCF, and FIGA are equitable and/or if subsidies exist that benefit policyholders in some counties to the detriment of policyholders in other counties. The results presented in this paper are dependent on a number of assumptions. These assumptions include the following: the sample housing stock is $300,000 newly constructed masonry houses; each household pays the same automobile insurance premium ($1,656); households do not purchase personal umbrella insurance policies; and 1

3 the current hurricane premiums (both Citizens and private insurers) are accurate measures of the hurricane risk for each county. These simplifying assumptions allow for relative comparisons of subsidies across counties. While robustness tests are conducted regarding some of these assumptions, violations of these assumptions may bias the results cited here. With respect to the post-loss subsidy, the amount that is paid under the existing assessment structure is compared to the amount that would be paid under an assessment structure that is more hurricane risk based to determine if a subsidy exists in the current assessment structure. Two primary scenarios with various combinations of deficits for Citizens, FHCF, and FIGA were constructed. The first scenario (similar to the combined losses of the storms) involves a $4 billion deficit at Citizens, a $15 billion deficit at the FHCF, and no deficit at FIGA. Under the first scenario, private insurer policyholders in 18 counties would receive subsidies and 49 counties would pay subsidies, with some policyholders paying or receiving more than $650 in subsidies in the first year assessments. In that same scenario, Citizens policyholders in nine counties would receive subsidies and 58 counties would pay subsidies with some policyholders paying or receiving more than $1,000 in subsidies. The second scenario evaluated was the 1-in-100 year storm. This scenario resulted in the same counties paying and receiving subsidies. The size of the subsidies increased, however, with the largest subsidies exceeding $1,700. In addition, the FHCF would have to collect a six percent assessment for 23 years to make up its deficit under this scenario. These results are important to insurers, insureds, Floridians, and politicians throughout Florida for a variety of reasons. First, neither Citizens nor the FHCF is 2

4 operating as a true residual market mechanism. Citizens acts as a competitor to private insurers and the FHCF has replaced reinsurers in certain layers in the marketplace. Second, Citizens is unique in that it has the ability to assess private insurers (its competitors) in the event of a deficit through the Citizens Regular. Finally, there has been no empirical analysis to date estimating the size or duration of post-loss (assessment structure) subsidies in this market. The assessment structures of both Citizens and the FHCF allow for assessments outside of the property insurance markets, raising questions as to the target groups associated with this subsidy. Finally, the impact that these subsidies may have on future exposure and coastal development could be substantial. As a result, a thorough understanding of how these assessments are determined is crucial. The authors on this paper are: Cassandra Cole, Ph.D, David Macpherson, Ph.D., Patrick Maroney, J.D., Kathleen McCullough, Ph.D., James W. Newman, Jr., Charles M. Nyce, Ph.D. 3

5 INTRODUCTION Hurricane Andrew struck the southern part of Dade County on August 24, Over 25,000 homes were destroyed and more than 100,000 additional homes were damaged. The Insurance Information Institute estimated insured losses totaled more than $16 billion in 1992 dollars. Several insurers became insolvent and numerous other insurers lost enough capital to affect their ability to maintain operations in Florida. The Florida property insurance market was severely disrupted again after the 2004 and 2005 hurricanes. More than $33 billion in insured losses were sustained by 2.8 million Florida homeowners (My Safe Florida Homes, 2008). Due to the reaction of the property insurance market to these events, property insurance has remained one of the most challenging issues in the Florida economic and political landscapes. The Florida Legislature implemented a broad range of aggressive, creative actions after Hurricane Andrew that put the property insurance market back on reasonably sound footing by In 2006, following the 2004 and 2005 hurricanes, the Legislature appropriated $715 million (Chapter , Laws of Florida) to help Citizens Property Insurance Corporation (Citizens) offset its $1.7 billion deficit. 1 During a Special Session of the Legislature held in January 2007 (Chapter , Laws of Florida), Citizens was allowed to become competitive with the private insurance market. Citizens rates were rolled back to the December 31, 2006 levels, thus removing the rate increases that went into effect on January 1, In addition, the Legislature froze Citizens rates until 2009 [the freeze was extended in 2008 until the end of 2009 (Chapter , Laws of 1 Citizens was originally created as the insurer of last resort to provide property insurance coverage to Floridians who could not obtain coverage from the private market. More recently, the Florida legislature has allowed Citizens to compete directly with other insurers. A more complete discussion of Citizens is provided in a later section. 4

6 Florida)], and the Citizens assessment base was greatly expanded. Finally, the Legislature increased the optional coverage amounts available above the Florida Catastrophic Hurricane Fund (FHCF) mandatory coverage by $12 billion and below the FHCF mandatory coverage by $4 billion. 2 The goals of the Legislature were to stabilize the Florida property insurance market, minimize the rising property insurance rates, and possibly lower rates (due to the substitution of low cost FHCF reinsurance for a portion of the more expensive reinsurance offered by private reinsurers). 3 The result of this activity is that neither Citizens nor the FHCF are operating as true residual market mechanisms. Citizens acts as a competitor to private insurers and the FHCF replaces private reinsurers in certain layers in the marketplace. Of the two, Citizens is unique in that it has the ability to assess private insurers (its competitors) in the event of a deficit through the Citizens Regular. In addition, the assessment structure of both Citizens and the FHCF allow for assessments outside of the property insurance markets, which raises questions as to the target groups associated with this subsidy. Finally, although not discussed in this paper, the impact that these subsidies may have on future exposure and coastal development could be substantial. By definition, subsidies are generally designed to achieve specific public policy goals by, in effect, collecting money from one group and delivering benefits to another group. Subsidies are known to exist in various areas of the economy including insurance. However, there has been no work estimating the size or duration of post-loss (assessment structure) subsidies in the Florida homeowners insurance market. The purpose of this 2 FHCF was created as a mandatory reinsurance mechanism for homeowners insurance companies in Florida. Specifically, FHCF provides reimbursement for a portion of an insurance company s hurricane losses above the company s required FHCF retention level A more detailed discussion of the FHCF is provided in a later section. 3 For a complete discussion of the actions of the Florida Legislature, see Cole, et al (2009). 5

7 study is to use Florida homeowners premiums to analyze the impact of the post-loss assessment structure of Citizens, FHCF, and FIGA in order to determine if a post-loss subsidy is present. Research in this area is important as greater awareness of the existence, size, and nature of subsidies may guide legislators and others in their efforts to improve and strengthen Florida s property insurance market. In addition, the results of the study may have broader implications. Specifically, an understanding of how the design of entities such as those present in Florida may inherently create subsidies may be useful to legislators in other states that are tasked with designing and/or maintaining similar entities. OVERVIEW OF SUBSIDIES Depending on the context, the term subsidy can carry various meanings and connotations. A unit of the U. S. Department of Energy defined a subsidy as a transfer of economic resources by the Government to the buyer or seller of a good or service that has the effect of reducing the price paid, increasing the price received, or reducing the cost of production of the good or service (U.S. Department of Energy, 1992). A researcher in the field of international trade, after referring to subsidies as emanating from government-directed, market-distorting interventions, stated simply that any such intervention that alters the price of the good artificially should be recognized as a subsidy (Porter, 1997). Subsidies, in insurance or any other area of the economy, are designed to achieve specific public policy goals by effectively collecting money from one group and delivering benefits to another group. It should be noted that there is nothing inherently wrong with subsidies. However, in some cases, subsidies are created as a result of not charging each insured an actuarially 6

8 sound rate, or a rate appropriate to the exposure faced by that insured. The National Flood Insurance Program is an example. While this program was designed to deal with the availability and affordability issues related to property damage from flood, there has been concern raised due to the large volume of subsidized premiums. It is estimated that premiums for these policies are 35 to 40 percent of the actuarial rate and approximately 24 percent of all policies are subsidized (GAO 2003, page2; CBO 2006, page 4). Sometimes subsidies: (1) exist unintentionally; (2) are larger or smaller than planned; (3) do not achieve the intended purpose; and/or (4) have unplanned consequences. These problems may serve as evidence that public policymakers should re-evaluate the structure and implementation of some subsidy programs to assure that they are efficiently and effectively achieving their intended goals with minimal adverse effects. For a more complete discussion of subsidy concepts and subsidies in insurance see Cole et al (2009) and Newman (2009). CURRENT STRUCTURE OF THE FLORIDA PROPERTY INSURANCE MARKET Florida is unique in regards to the number of residual market mechanisms present in the state and the amount of legislative activity involving these mechanisms that has occurred since As such, a basic understanding of the mechanisms is beneficial before examining the issue of the existence of property insurance subsidies in Florida. In addition, a discussion of how deficit assessments for these entities are levied and where the deficit assessment burden falls is provided. 7

9 Deficit Structures and Processes This section contains a review of the structures of Citizens, FHCF, and FIGA. The primary focus relates to their overall structure, assessment base, and assessment structure of each entity. Citizens Structure: Citizens was legislatively created in 2002 and began operating on August 1, 2002 (Chapter , Laws of Florida). The original purpose of Citizens was to provide property insurance coverage to those who could not obtain the coverage from private insurance companies. In so doing, it helped support key components of Florida s economy, (i.e., home construction, real estate sales, mortgage banking, and others, which benefit all Floridians). The number of policyholders insured through Citizens has grown rapidly in the past few years. At the end of 2008, the policy count exceeded one million (Citizens, 2009). Citizens has three distinct accounts, the Personal Lines Account, Commercial Lines Account, and the High-Risk Account. 4 Each account has a separate financial identity and the calculation of deficits and resulting assessments are determined separately for each of the accounts. Citizens Base: The current assessment base definition for Citizens includes all property and casualty lines of insurance except medical malpractice, accident and health, and workers compensation. When Citizens has a financial deficit in any of its three accounts, it has statutory authority (Section (6)(b)2.a, Florida Statutes) to levy different types of assessments. Structure of Citizens s: There are three types of assessments related to Citizens. The first is the Citizens Policyholders Surcharge, levied on Citizens 4 The Personal lines Account (PLA), the Commercial Lines Account (CLA), and the High-Risk Account (HRA) for wind-only policies as defined in Section (6)(b)2, Florida Statutes. 8

10 policyholders for each of Citizens three accounts. The amount of this surcharge reduces the amount of the deficit before Citizens Regular s and Emergency s are considered. The second Citizens assessment is Citizens Regular s. The principal purposes of Regular s are to cover smaller deficits quickly and to generate an early flow of funds to Citizens when larger deficits occur. Regular s are imposed on private insurance companies and collected from policyholders that purchase relevant types of insurance policies from surplus lines insurers. 5 The admitted insurers have the authority (Section , Florida Statutes) to recoup the amount of the Regular s they paid to Citizens by adding a surcharge to the premiums they charge their policyholders. The third Citizens assessment is Citizens Emergency s. The principal purpose of Emergency s is to allow Citizens to make principal and interest payments on debt it issues to pay the claims associated with large hurricane losses when needed. Citizens levies Emergency s not only on private insurance companies policyholders and surplus lines policyholders subject to assessment but on its own policyholders as well. Citizens cannot levy Emergency s unless the maximum Policyholders Surcharge and Regular s are not enough to cover the deficit. The Emergency s are collected when the policies subject to assessment are renewed or when new policies are issued. Figure 1 provides a graphical representation of Citizens maximum attainable assessments in one year based on the assessment structure and 2007 insurance premiums: 5 For a definition of surplus lines see Part VIII of Ch. 626, Florida Statutes. 9

11 1. The Citizens Policyholders Surcharge - Citizens can assess its policyholders up to 15 percent of their premium for each of Citizens three accounts (maximum of 45 percent of premium). 2. The Citizens Regular s Citizens can assess admitted insurers and surplus lines policyholders up to the greater of six percent of premium or six percent of the deficit for each Citizens account. 3. The Citizens Emergency s - Citizens can assess their policyholders, admitted insurers policyholders, and surplus lines policyholders up to the greater of ten percent of premium or ten percent of the deficit for each Citizens account plus an additional amount to cover interest, fees, and other charges related to debt issued to cover hurricane losses. 10

12 Figure 1: Citizens Maximum Income One Year Citizens' Deficit ($B Emergency - Non- HO Emergency - Citizens and HO 6 4 Regular - Non-HO 2 0 Regular - HO Citizens' Surcharge FHCF Structure: FHCF was created by the Florida Legislature in 1993 as a mandatory reinsurance mechanism for property insurance companies in Florida (Chapter , Laws of Florida). It provides reimbursement for a portion of an insurance company s hurricane losses above the company s required FHCF retention. Insurance companies that write covered policies must enter into a contract with the FHCF and pay an annual premium for the coverage. Since 1995, covered policies have been limited to those providing coverage for personal and commercial residential properties (Chapter , Laws of Florida). The FHCF is exempt from federal income taxation. Therefore, the FHCF can accumulate premium payments from year to year on a tax-free basis to pay catastrophe 6 The values here are based on the 2007 premiums for the state of Florida in the assessable lines as reported to the NAIC (authors calculations). 11

13 losses when they occur. While the FHCF charges premiums for the coverage it provides, much of its capacity to meet its obligations to insurance companies is based on the assessments it is authorized to levy on insurance companies. The FHCF has charged rates for its coverage substantially below the rates charged for comparable coverage by private reinsurance companies. 7 By charging below-market rates, the FHCF has helped hold Florida residential property insurance rates lower than they would have been otherwise. While the Florida Legislature s principal purposes in establishing the FHCF were to provide additional reinsurance capacity and help stabilize Florida s property insurance market (Section (1), Florida Statutes), the beneficial effect of the FHCF charging below-market rates became apparent over time (Committee on Banking and Insurance, 2007). FHCF Base: The FHCF s assessment base is very similar to Citizens current assessment base. Specifically, included are all lines of property and casualty insurance written by authorized insurance companies in Florida, except for workers compensation insurance, medical malpractice, and accident and health insurance. Structure of FHCF s: The FHCF s ability to borrow is a function of the FHCF s assessment rates, the size of the FHCF Base, and conditions in national and international credit markets. The assessments levied by the FHCF are called Emergency s (FHCF Emergency s) but they are not the same as the 7 The FHCF is required by statute to charge an actuarially indicated premium to insurance companies purchasing FHCF coverage. The FHCF s traditional approach to developing actuarially indicated rates was to add an administrative cost factor to the average annual hurricane loss estimates developed from a weighted average of several hurricane models. The reasons why the FHCF can comply with the statutory standard and still have rates as much as one third to one fourth of the rates charged by private reinsurance companies are as follows: (1) the FHCF is exempt from federal income taxation; (2) the FHCF has very low administrative expenses; (3) the FHCF has no underwriting or marketing expenses because it is a mandatory insurance program; and (4) the FHCF does not include a profit load or contingency factor in its rates. Finally, the FHCF rates do not recognize its reliance on future debt issues, which will be repaid by Emergency s, to cover large parts of the coverage it provides. 12

14 Citizens Emergency s. The Florida Legislature increased the FHCF s assessment authority during the 2004 Regular Session (Chapter , Laws of Florida) by allowing assessments of up to six percent for hurricane losses in one season and up to an aggregate of ten percent for hurricane losses in multiple years. FIGA Structure: The Florida Legislature joined many other states in 1970 to address concerns about the adverse effects of insolvent insurance companies by creating the Florida Insurance Guaranty Association (Chapter 70-20, Laws of Florida). The purpose of FIGA was to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer (Section (1), Florida Statutes). FIGA does not accumulate funds in advance of an insurance company s insolvency. Therefore, when an insurance company insolvency occurs, FIGA must obtain the funds it needs through pro-rata assessments levied by the state insurance department on insurance companies subject to assessment. Insurance companies may be required to pay these assessments in as little as 30 days. Depending on the number and size of property insurance companies that become insolvent following hurricanes striking Florida in the future, FIGA may need to levy its own FIGA Regular s and FIGA Emergency s to meet its hurricane claims payment obligations under Florida law. FIGA Base: FIGA has three separate accounts (Section (2), Florida Statutes): (1) the automobile liability account; (2) the automobile physical damage account; and (3) the account for all other insurance required to be part of FIGA. 8 Only insurers writing business in the lines of insurance included in the account in which the insolvent company was writing business can be assessed. For the purposes of this study, 8 The all other account does not include workers compensation. 13

15 only the all other account is relevant since it includes the property insurance lines of business. Structure of FIGA s: FIGA has the ability to levy two assessments. The first two percent assessment is now called Regular s (FIGA Regular s), while the second two percent assessment is called Emergency s (FIGA Emergency s). The FIGA Regular s levied against any one insurer shall not exceed in any one year more than 2 percent of that insurer s net direct written premiums in this state for the kinds of insurance included within such account during the calendar year next preceding the date of such assessments (Section (3)(a), Florida Statutes). The FIGA Emergency s can be used to pay hurricane claims directly or be assigned to the governmental unit issuing bonds to assist FIGA so that the governmental unit can provide for the payment of the principal of, redemption premium, if any, and interest on such bonds, the cost of issuance of such bonds, and the funding of any reserves and other payments required under the bond resolution or trust indenture pursuant to which the bonds have been issued. (Section (3)(e)1.b, Florida Statutes). Table 1 summarizes the maximum assessments to which two sample households are subject. The table shows the potential assessment levels for a Florida household with homeowners coverage through Citizens and one that is insured in the private market. As shown in the table, a Citizens policyholder could be required to pay 85 percent of their homeowners premium and 54 percent of their auto premium in assessments in the year following a major hurricane striking Florida. Those assessments are in addition to the premiums ordinarily paid. 14

16 Table 1: Summary of Maximum s Panel A: Household #1 - Citizens Policies Held: Citizens' HO Policy Personal Auto Policies Personal Umbrella Liability Policy Potential s Citizens Policyholder Surcharge Citizens Regular Citizens Regular Citizens Emergency Citizens Emergency Citizens Emergency FHCF Emergency FHCF Emergency FHCF Emergency FIGA Regular FIGA Regular FIGA Emergency FIGA Emergency Likely Maximum (as a percentage of premium on the policy) Year 1 85% (Citizens - 75%, FHCF- 6%, FIGA - 4%) 54% (Citizens - 48%, FHCF - 6%) 58% (Citizens - 48%, FHCF - 6%, FIGA - 4%) Year 2+ 40% (Citizens - 30%, FHCF - 6%, FIGA - 4%) 36% (Citizens - 30%, FHCF - 6%) 40% (Citizens - 30%, FHCF - 6%, FIGA - 4%) Panel B: Household #2 - Private Homeowners' Policy Policies Held: Private Insurer's HO Policy Personal Auto Policies Personal Umbrella Liability Policy Potential s Citizens Regular Citizens Regular Citizens Regular Citizens Emergency Citizens Emergency Citizens Emergency FHCF Emergency FHCF Emergency FHCF Emergency FIGA Regular FIGA Regular FIGA Emergency FIGA Emergency Likely Maximum (as a percentage of premium on the policy) Year 1 58% (Citizens - 48%, FHCF- 6%, FIGA - 4%) 54% (Citizens - 48%, FHCF - 6%) 58% (Citizens - 48%, FHCF - 6%, FIGA - 4%) Year 2+ 40% (Citizens - 30%, FHCF - 6%, FIGA - 4%) 36% (Citizens - 30%, FHCF - 6%) 40% (Citizens - 30%, FHCF - 6%, FIGA - 4%) 15

17 EMPIRICAL ANALYSIS The purpose of the analysis in this section is to determine whether and to what extent postloss subsidies exist. The focus is on whether the manner in which deficit assessments imposed on typical policyholders by Citizens, FHCF, and FIGA creates subsidies to the benefit of policyholders in some of Florida s counties and to the detriment of policyholders in other counties. The results provide insight into whether the deficit assessment procedures set forth in Florida statutes for these entities produce assessments that are fair and equitable to all policyholders in the state. Data and Summary Information The analysis is conducted at the county level. However, the full dataset is based on company level data, by county, aggregated to the county level. Premium data for three types of homes for each of the major insurers in the state were obtained from the Florida Office of Insurance Regulation (OIR). Specifically, hurricane, non-hurricane, and full premium data were collected by territory. The three home types considered were based on a $300,000 new construction home, a $300,000 home constructed prior to 2001 unmitigated, and a $300,000 home constructed prior to 2001 mitigated. The rating variables for the three home types are provided in Table 2. 16

18 Table 2: Rating Factors for Sample Properties Rating Variable Property A Property B Property C Replacement Cost (Coverage A) $300,000 $300,000 $300,000 Year Built Construction Masonry Masonry Masonry Hip Roof? No No No Hurricane Deductible 2% 2% 2% All-Other-Perils Deductible $500 $500 $500 Age of Insured Claims in Past 3 Years None None None Credit Score Neutral Neutral Neutral Protection Class Other Structures(Coverage B) 10% 10% 10% Contents (Coverage C) 50% 50% 50% Loss of Use (Coverage D) 20% 20% 20% Liability $100,000 $100,000 $100,000 Medical Expense $1,000 $1,000 $1,000 Ordinance and Law Coverage 25% 25% 25% Windstorm Mitigation Credits N/A None Maximum In addition, data related to the number of policies in force in each county for a given insurer were used. This included total policies written both with wind and without wind coverage. The initial sample of insurers was based on the data available from the OIR on their policy premium comparisons website (Florida Office of Insurance Regulation, 2009). This contained the state s largest insurers. Only insurers in which the territories provided for the insurer could be matched to the appropriate counties were included. 9 In total, 25 insurers were included in the sample. A listing of these firms can be found in Appendix A. The firms make up more than 60 percent of the marketplace based on policies in force, direct premiums written, and exposure. 9 USAA is not included in the analysis due to the fact that its insureds are limited to individuals with military affiliations. 17

19 Average hurricane, non-hurricane, and total premiums for each of the housing benchmarks are included in Table 3. Average premiums are based on an average for all insurers in the state weighted by policies in force as of the fourth quarter of As shown in this table, the cost of property insurance coverage for new homes is generally less than that for older homes. Also, the cost of coverage for non-mitigated older homes is more than that for mitigated homes in every county. Table 3: Average Premiums for Three Housing Benchmarks Newly Constructed Pre-2001 (Not Mitigated) Pre-2001 (Mitigated) Nonhurr. Non- Non- County Hurr. Total Hurr. hurr. Total Hurr. hurr. Total Alachua $ 289 $ 855 $ 1,143 $ 521 $ 1,392 $ 1,913 $ 337 $ 1,034 $ 1,372 Baker $ 222 $ 928 $ 1,150 $ 394 $ 1,418 $ 1,811 $ 264 $ 1,033 $ 1,297 Bay $ 1,288 $ 966 $ 2,255 $ 2,593 $ 1,630 $ 4,222 $ 1,315 $ 997 $ 2,311 Bradford $ 253 $ 809 $ 1,062 $ 435 $ 1,244 $ 1,680 $ 287 $ 909 $ 1,196 Brevard $ 1,268 $ 769 $ 2,037 $ 2,955 $ 1,452 $ 4,408 $ 1,282 $ 795 $ 2,076 Broward $ 2,330 $ 974 $ 3,305 $ 5,679 $ 1,885 $ 7,564 $ 2,462 $ 1,057 $ 3,519 Calhoun $ 437 $ 818 $ 1,256 $ 919 $ 1,318 $ 2,237 $ 488 $ 884 $ 1,372 Charlotte $ 1,302 $ 789 $ 2,091 $ 3,083 $ 1,477 $ 4,560 $ 1,348 $ 849 $ 2,197 Citrus $ 652 $ 895 $ 1,547 $ 1,160 $ 1,473 $ 2,634 $ 679 $ 1,028 $ 1,706 Clay $ 235 $ 692 $ 927 $ 427 $ 1,141 $ 1,568 $ 282 $ 829 $ 1,111 Collier $ 1,731 $ 834 $ 2,565 $ 4,209 $ 1,567 $ 5,776 $ 1,680 $ 861 $ 2,541 Columbia $ 225 $ 897 $ 1,121 $ 378 $ 1,347 $ 1,725 $ 259 $ 1,013 $ 1,272 Dade $ 2,790 $ 1,336 $ 4,126 $ 6,044 $ 2,485 $ 8,530 $ 3,014 $ 1,470 $ 4,484 DeSoto $ 659 $ 737 $ 1,395 $ 1,283 $ 1,362 $ 2,646 $ 753 $ 850 $ 1,604 Dixie $ 785 $ 876 $ 1,661 $ 1,394 $ 1,415 $ 2,809 $ 846 $ 1,007 $ 1,854 Duval $ 383 $ 671 $ 1,054 $ 803 $ 1,159 $ 1,962 $ 489 $ 744 $ 1,233 Escambia $ 1,446 $ 837 $ 2,283 $ 3,445 $ 1,487 $ 4,933 $ 1,465 $ 843 $ 2,308 Flagler $ 576 $ 599 $ 1,176 $ 1,236 $ 1,059 $ 2,295 $ 623 $ 697 $ 1,320 Franklin $ 1,796 $ 1,214 $ 3,010 $ 3,299 $ 2,027 $ 5,326 $ 1,862 $ 1,333 $ 3,195 Gadsden $ 391 $ 857 $ 1,248 $ 794 $ 1,380 $ 2,175 $ 451 $ 974 $ 1,425 Gilchrist $ 308 $ 973 $ 1,281 $ 557 $ 1,448 $ 2,006 $ 333 $ 1,076 $ 1,409 Glades $ 772 $ 705 $ 1,477 $ 1,486 $ 1,311 $ 2,797 $ 848 $ 806 $ 1,655 Gulf $ 1,490 $ 1,147 $ 2,637 $ 2,835 $ 1,904 $ 4,739 $ 1,564 $ 1,232 $ 2,796 Hamilton $ 240 $ 968 $ 1,207 $ 390 $ 1,394 $ 1,785 $ 257 $ 1,061 $ 1,318 Hardee $ 580 $ 702 $ 1,282 $ 1,180 $ 1,299 $ 2,479 $ 661 $ 778 $ 1,440 Hendry $ 794 $ 686 $ 1,480 $ 1,521 $ 1,295 $ 2,816 $ 866 $ 773 $ 1,638 Hernando $ 960 $ 1,536 $ 2,495 $ 1,579 $ 2,513 $ 4,092 $ 1,088 $ 1,861 $ 2,949 Highlands $ 592 $ 700 $ 1,292 $ 1,174 $ 1,276 $ 2,450 $ 655 $ 846 $ 1,500 Hillsborough $ 744 $ 1,591 $ 2,335 $ 1,195 $ 2,433 $ 3,628 $ 830 $ 1,818 $ 2,648 Holmes $ 337 $ 909 $ 1,247 $ 673 $ 1,314 $ 1,987 $ 338 $ 937 $ 1,275 Indian River $ 1,956 $ 697 $ 2,653 $ 5,046 $ 1,401 $ 6,447 $ 1,907 $ 707 $ 2,613 Jackson $ 437 $ 750 $ 1,187 $ 912 $ 1,259 $ 2,171 $ 498 $ 820 $ 1,318 Jefferson $ 505 $ 767 $ 1,272 $ 1,017 $ 1,370 $ 2,387 $ 577 $ 889 $ 1,467 Lafayette $ 343 $ 986 $ 1,329 $ 710 $ 1,487 $ 2,197 $ 383 $ 1,047 $ 1,429 Lake $ 303 $ 864 $ 1,167 $ 544 $ 1,388 $ 1,932 $ 351 $ 1,045 $ 1,396 18

20 Lee $ 1,315 $ 842 $ 2,157 $ 3,238 $ 1,500 $ 4,739 $ 1,355 $ 911 $ 2,266 Leon $ 273 $ 670 $ 943 $ 506 $ 1,127 $ 1,633 $ 329 $ 809 $ 1,138 Levy $ 686 $ 768 $ 1,454 $ 1,346 $ 1,296 $ 2,641 $ 734 $ 872 $ 1,605 Liberty $ 420 $ 979 $ 1,399 $ 883 $ 1,492 $ 2,375 $ 451 $ 1,044 $ 1,495 Madison $ 374 $ 826 $ 1,200 $ 803 $ 1,375 $ 2,177 $ 434 $ 907 $ 1,341 Manatee $ 1,318 $ 853 $ 2,170 $ 3,005 $ 1,483 $ 4,489 $ 1,311 $ 884 $ 2,195 Marion $ 287 $ 848 $ 1,135 $ 518 $ 1,351 $ 1,869 $ 332 $ 1,028 $ 1,360 Martin $ 1,984 $ 632 $ 2,617 $ 4,551 $ 1,287 $ 5,837 $ 1,910 $ 632 $ 2,542 Monroe $ 3,841 $ 1,144 $ 4,985 $ 7,859 $ 2,158 $ 10,017 $ 4,283 $ 1,336 $ 5,619 Nassau $ 529 $ 708 $ 1,237 $ 1,028 $ 1,210 $ 2,239 $ 532 $ 806 $ 1,338 Okaloosa $ 1,387 $ 872 $ 2,258 $ 3,386 $ 1,559 $ 4,946 $ 1,395 $ 893 $ 2,288 Okeechobee $ 740 $ 700 $ 1,440 $ 1,459 $ 1,297 $ 2,756 $ 808 $ 795 $ 1,603 Orange $ 334 $ 932 $ 1,266 $ 585 $ 1,507 $ 2,092 $ 411 $ 1,083 $ 1,494 Osceola $ 346 $ 844 $ 1,190 $ 686 $ 1,395 $ 2,081 $ 394 $ 1,029 $ 1,422 Palm Beach $ 2,395 $ 782 $ 3,177 $ 5,849 $ 1,580 $ 7,429 $ 2,349 $ 829 $ 3,178 Pasco $ 1,341 $ 1,744 $ 3,085 $ 2,217 $ 2,865 $ 5,082 $ 1,490 $ 2,061 $ 3,551 Pinellas $ 1,233 $ 1,096 $ 2,329 $ 2,514 $ 1,814 $ 4,328 $ 1,278 $ 1,174 $ 2,452 Polk $ 487 $ 1,496 $ 1,983 $ 836 $ 2,379 $ 3,215 $ 602 $ 1,820 $ 2,423 Putnam $ 274 $ 803 $ 1,077 $ 446 $ 1,227 $ 1,673 $ 313 $ 938 $ 1,251 Santa Rosa $ 1,369 $ 920 $ 2,289 $ 3,224 $ 1,623 $ 4,848 $ 1,384 $ 939 $ 2,323 Sarasota $ 1,230 $ 814 $ 2,044 $ 2,640 $ 1,430 $ 4,070 $ 1,278 $ 876 $ 2,154 Seminole $ 332 $ 928 $ 1,260 $ 583 $ 1,528 $ 2,111 $ 423 $ 1,075 $ 1,498 St. Johns $ 548 $ 573 $ 1,121 $ 1,084 $ 1,014 $ 2,097 $ 585 $ 622 $ 1,207 St. Lucie $ 1,891 $ 698 $ 2,589 $ 4,680 $ 1,379 $ 6,059 $ 1,850 $ 715 $ 2,565 Sumter $ 282 $ 868 $ 1,150 $ 597 $ 1,506 $ 2,103 $ 310 $ 1,282 $ 1,593 Suwannee $ 414 $ 907 $ 1,321 $ 848 $ 1,463 $ 2,310 $ 472 $ 984 $ 1,456 Taylor $ 634 $ 754 $ 1,389 $ 1,154 $ 1,322 $ 2,475 $ 697 $ 861 $ 1,557 Union $ 261 $ 922 $ 1,183 $ 483 $ 1,382 $ 1,864 $ 280 $ 995 $ 1,275 Volusia $ 825 $ 671 $ 1,496 $ 1,891 $ 1,247 $ 3,138 $ 893 $ 749 $ 1,642 Wakulla $ 991 $ 838 $ 1,829 $ 2,350 $ 1,472 $ 3,822 $ 1,068 $ 971 $ 2,040 Walton $ 1,414 $ 1,072 $ 2,485 $ 2,666 $ 1,793 $ 4,459 $ 1,484 $ 1,170 $ 2,654 Washington $ 418 $ 951 $ 1,369 $ 827 $ 1,428 $ 2,255 $ 443 $ 999 $ 1,442 While a full analysis of all three benchmarks is conducted, the remaining discussion here and in the following sections focuses on the $300,000 newly constructed home. 10 Table 4 provides more detailed summary premium information, reporting the average premium information for the entire sample as well as separately for Citizens and the private market. As seen in this table, there is considerable variation in premiums across the state. Clay, Leon, Duval, Bradford, and Putnam counties have the lowest average total premiums, ranging from $927 to $1,077. Pasco, Palm Beach, Broward, Dade, and Monroe 10 This group was selected as the benchmark given that much of the information quoted by the OIR is based on this sample home. 19

21 counties have the highest average total premiums, ranging from $3,085 to $4,985. Figure 2 shows the location of each county in the state of Florida. Table 4: Average Hurricane, Non-hurricane, and Total Premiums for the Private Market and Citizens Newly Constructed $300,000 Home 11 Hurricane Premiums Non-hurricane Premiums Total Premiums County All Private Citizens All Private Citizens All Private Citizens Alachua $ 289 $ 280 $ 395 $ 855 $ 820 $ 1,266 $ 1,143 $ 1,099 $ 1,661 Baker $ 222 $ 189 $ 425 $ 928 $ 836 $ 1,479 $ 1,150 $ 1,025 $ 1,904 Bay $ 1,288 $ 1,115 $ 1,746 $ 966 $ 824 $ 1,343 $ 2,255 $ 1,940 $ 3,089 Bradford $ 253 $ 220 $ 428 $ 809 $ 683 $ 1,468 $ 1,062 $ 903 $ 1,896 Brevard $ 1,268 $ 1,241 $ 1,377 $ 769 $ 705 $ 1,031 $ 2,037 $ 1,946 $ 2,407 Broward $ 2,330 $ 2,234 $ 2,445 $ 974 $ 833 $ 1,144 $ 3,305 $ 3,067 $ 3,589 Calhoun $ 437 $ 438 $ 436 $ 818 $ 689 $ 1,426 $ 1,256 $ 1,127 $ 1,862 Charlotte $ 1,302 $ 1,287 $ 1,337 $ 789 $ 731 $ 928 $ 2,091 $ 2,018 $ 2,265 Citrus $ 652 $ 587 $ 1,086 $ 895 $ 858 $ 1,149 $ 1,547 $ 1,445 $ 2,235 Clay $ 235 $ 226 $ 374 $ 692 $ 658 $ 1,218 $ 927 $ 884 $ 1,592 Collier $ 1,731 $ 1,652 $ 2,077 $ 834 $ 768 $ 1,123 $ 2,565 $ 2,420 $ 3,200 Columbia $ 225 $ 197 $ 405 $ 897 $ 818 $ 1,421 $ 1,121 $ 1,015 $ 1,826 Dade $ 2,790 $ 2,453 $ 3,024 $ 1,336 $ 1,050 $ 1,534 $ 4,126 $ 3,503 $ 4,558 DeSoto $ 659 $ 604 $ 902 $ 737 $ 652 $ 1,115 $ 1,395 $ 1,256 $ 2,017 Dixie $ 785 $ 583 $ 980 $ 876 $ 671 $ 1,075 $ 1,661 $ 1,254 $ 2,054 Duval $ 383 $ 373 $ 533 $ 671 $ 645 $ 1,024 $ 1,054 $ 1,018 $ 1,557 Escambia $ 1,446 $ 1,357 $ 1,771 $ 837 $ 695 $ 1,354 $ 2,283 $ 2,052 $ 3,124 Flagler $ 576 $ 544 $ 773 $ 599 $ 573 $ 760 $ 1,176 $ 1,117 $ 1,533 Franklin $ 1,796 $ 1,298 $ 2,266 $ 1,214 $ 832 $ 1,575 $ 3,010 $ 2,130 $ 3,841 Gadsden $ 391 $ 398 $ 371 $ 857 $ 749 $ 1,193 $ 1,248 $ 1,147 $ 1,564 Gilchrist $ 308 $ 254 $ 399 $ 973 $ 809 $ 1,249 $ 1,281 $ 1,064 $ 1,648 Glades $ 772 $ 662 $ 1,079 $ 705 $ 634 $ 904 $ 1,477 $ 1,296 $ 1,983 Gulf $ 1,490 $ 1,091 $ 1,849 $ 1,147 $ 765 $ 1,491 $ 2,637 $ 1,856 $ 3,340 Hamilton $ 240 $ 189 $ 461 $ 968 $ 819 $ 1,615 $ 1,207 $ 1,007 $ 2,076 Hardee $ 580 $ 546 $ 900 $ 702 $ 657 $ 1,122 $ 1,282 $ 1,202 $ 2,022 Hendry $ 794 $ 717 $ 1,071 $ 686 $ 617 $ 930 $ 1,480 $ 1,334 $ 2,001 Hernando $ 960 $ 765 $ 1,151 $ 1,536 $ 1,993 $ 1,088 $ 2,495 $ 2,758 $ 2,238 Highlands $ 592 $ 573 $ 777 $ 700 $ 667 $ 1,014 $ 1,292 $ 1,240 $ 1,791 Hillsborough $ 744 $ 708 $ 876 $ 1,591 $ 1,590 $ 1,592 $ 2,335 $ 2,298 $ 2,468 Holmes $ 337 $ 320 $ 395 $ 909 $ 824 $ 1,199 $ 1,247 $ 1,144 $ 1,594 Indian River $ 1,956 $ 1,794 $ 2,593 $ 697 $ 588 $ 1,129 $ 2,653 $ 2,382 $ 3,721 Jackson $ 437 $ 449 $ 373 $ 750 $ 668 $ 1,188 $ 1,187 $ 1,117 $ 1,561 Jefferson $ 505 $ 461 $ 768 $ 767 $ 681 $ 1,275 $ 1,272 $ 1,142 $ 2,043 Lafayette $ 343 $ 310 $ 421 $ 986 $ 775 $ 1,485 $ 1,329 $ 1,085 $ 1,906 Lake $ 303 $ 289 $ 439 $ 864 $ 813 $ 1,383 $ 1,167 $ 1,102 $ 1,822 Lee $ 1,315 $ 1,309 $ 1,333 $ 842 $ 795 $ 971 $ 2,157 $ 2,104 $ 2,303 Leon $ 273 $ 265 $ 350 $ 670 $ 624 $ 1,145 $ 943 $ 889 $ 1,495 Levy $ 686 $ 508 $ 913 $ 768 $ 661 $ 904 $ 1,454 $ 1,168 $ 1,817 Liberty $ 420 $ 389 $ 500 $ 979 $ 735 $ 1,590 $ 1,399 $ 1,124 $ 2,090 Madison $ 374 $ 366 $ 411 $ 826 $ 691 $ 1,407 $ 1,200 $ 1,057 $ 1, Appendix F contains similar premium tables for older homes (mitigated and unmitigated). 20

22 Manatee $ 1,318 $ 1,285 $ 1,403 $ 853 $ 796 $ 1,002 $ 2,170 $ 2,081 $ 2,405 Marion $ 287 $ 276 $ 402 $ 848 $ 808 $ 1,268 $ 1,135 $ 1,084 $ 1,670 Martin $ 1,984 $ 1,854 $ 2,576 $ 632 $ 565 $ 938 $ 2,617 $ 2,420 $ 3,513 Monroe $ 3,841 $ 3,091 $ 3,998 $ 1,144 $ 654 $ 1,246 $ 4,985 $ 3,745 $ 5,244 Nassau $ 529 $ 430 $ 881 $ 708 $ 630 $ 982 $ 1,237 $ 1,060 $ 1,863 Okaloosa $ 1,387 $ 1,320 $ 1,760 $ 872 $ 789 $ 1,336 $ 2,258 $ 2,108 $ 3,096 Okeechobee $ 740 $ 658 $ 1,050 $ 700 $ 622 $ 996 $ 1,440 $ 1,280 $ 2,046 Orange $ 334 $ 331 $ 423 $ 932 $ 911 $ 1,428 $ 1,266 $ 1,242 $ 1,851 Osceola $ 346 $ 345 $ 355 $ 844 $ 818 $ 1,296 $ 1,190 $ 1,163 $ 1,651 Palm Beach $ 2,395 $ 2,411 $ 2,365 $ 782 $ 703 $ 931 $ 3,177 $ 3,114 $ 3,295 Pasco $ 1,341 $ 955 $ 1,718 $ 1,744 $ 1,977 $ 1,516 $ 3,085 $ 2,932 $ 3,234 Pinellas $ 1,233 $ 1,213 $ 1,259 $ 1,096 $ 976 $ 1,245 $ 2,329 $ 2,189 $ 2,504 Polk $ 487 $ 479 $ 557 $ 1,496 $ 1,438 $ 1,988 $ 1,983 $ 1,917 $ 2,545 Putnam $ 274 $ 247 $ 367 $ 803 $ 692 $ 1,181 $ 1,077 $ 939 $ 1,548 Santa Rosa $ 1,369 $ 1,269 $ 1,829 $ 920 $ 818 $ 1,389 $ 2,289 $ 2,087 $ 3,218 Sarasota $ 1,230 $ 1,186 $ 1,298 $ 814 $ 751 $ 911 $ 2,044 $ 1,936 $ 2,208 Seminole $ 332 $ 331 $ 378 $ 928 $ 911 $ 1,441 $ 1,260 $ 1,242 $ 1,819 St. Johns $ 548 $ 519 $ 778 $ 573 $ 548 $ 782 $ 1,121 $ 1,067 $ 1,560 St. Lucie $ 1,891 $ 1,737 $ 2,537 $ 698 $ 595 $ 1,127 $ 2,589 $ 2,331 $ 3,664 Sumter $ 282 $ 274 $ 399 $ 868 $ 842 $ 1,250 $ 1,150 $ 1,116 $ 1,649 Suwannee $ 414 $ 388 $ 515 $ 907 $ 686 $ 1,765 $ 1,321 $ 1,074 $ 2,280 Taylor $ 634 $ 524 $ 1,040 $ 754 $ 638 $ 1,184 $ 1,389 $ 1,162 $ 2,224 Union $ 261 $ 222 $ 414 $ 922 $ 775 $ 1,501 $ 1,183 $ 997 $ 1,915 Volusia $ 825 $ 785 $ 943 $ 671 $ 603 $ 873 $ 1,496 $ 1,388 $ 1,815 Wakulla $ 991 $ 872 $ 1,216 $ 838 $ 669 $ 1,159 $ 1,829 $ 1,542 $ 2,374 Walton $ 1,414 $ 1,055 $ 1,836 $ 1,072 $ 781 $ 1,415 $ 2,485 $ 1,836 $ 3,250 Washington $ 418 $ 394 $ 508 $ 951 $ 790 $ 1,572 $ 1,369 $ 1,184 $ 2,080 21

23 Figure 2: Counties in the State of Florida 22

24 Methodology and Results 12 The post-loss subsidy analysis explores the extent to which the current structure of postloss assessments creates subsidies in the Florida property insurance market. As described earlier, the post-loss assessments for Citizens, FHCF, and FIGA are based on full premium rather than on the hurricane portion of the premium. To determine if a subsidy exists in the current assessment structure, the amount that is paid under the current structure is compared to the amount paid under an assessment structure that is based on hurricane premium. In other words, the difference between what a policyholder pays under the current assessment structure and what a policyholder would pay if the assessment structure were based on hurricane risk (called the hurricane risk-based assessment) is the post-loss subsidy that is being paid by the policyholder. 13 The calculations for the subsidies created by the structure of the residual market mechanisms are discussed separately due to differences in maximum assessments and assessment bases. Citizens Subsidy: As noted earlier, Citizens can utilize three different assessments: the Citizens Policyholder Surcharge, the Citizens Regular s, and the Citizens Emergency s. Each of these assessments is applied to different assessment bases. Within these assessment bases, some of the total premiums paid reflect hurricane risk (Citizens policyholders, private insurer s homeowners policies) and others do not (automobile insurance premiums, personal umbrella liability coverage). A priori, there is 12 The results for the $300,000 homes constructed prior to 2001, both mitigated and not mitigated, can be found in Appendix B. 13 The hurricane premium paid by each policyholder represents a reported measure of the hurricane risk of each location. The assumption is made that these premiums are accurate and truly reflective of the exposure faced by residents in the county. However, it is possible due to a variety of issues, hurricane and nonhurricane related premiums may not be accurate based on exposures for that county. In other words, pre-loss subsidies may exist due to improper pricing. Due to data constraints and difficulties in determining the true price of hurricane coverage, this issue is not empirically addressed in this study. The issue of pre-loss subsidies is further discussed in the conclusion. 23

25 no expectation that automobile insurance premiums or personal umbrella liability coverage vary based on difference in hurricane risk exposure, across Florida. Therefore, this analysis assumes that the typical household s automobile and umbrella premiums are not hurricane risk based. 14 The second assumption is that the hurricane premium paid as part of total premium paid by Citizens policyholders and by homeowners with private insurer homeowners coverage accurately reflects the hurricane risk. To recover any deficit, Citizens must assess in a particular order, beginning with the Citizens Policyholder Surcharge. If the Citizens Policyholder Surcharge is not sufficient to cover the deficit, Citizens must then utilize the Regular s. Finally, if the combination of the Citizens Policyholder Surcharge and Regular s are not sufficient to cover the deficit, then Citizens may utilize the Emergency s (Section (6)(b)3.d., Florida Statutes). Because the assessment bases for Regular s and Emergency s are broader than just the homeowners line of insurance, some of the assessment base reflects hurricane risk (Citizens and private insurers homeowners insurance premiums) and some does not (personal automobile and personal umbrella premiums). As such, Citizens assessment income can originate from five sources: Source #1 Citizens Policyholder Surcharge: As discussed earlier, when Citizens faces a deficit in any of its three accounts, the first assessment is the Citizens Policyholder 14 For the purposes of this analysis, the premium paid on an umbrella liability policy is assumed to be $0 since most households do not carry umbrella liability. The $1,656 personal automobile premium is the average premium paid per household measured as the total personal automobile premium paid in the state of Florida in 2007 divided by the number of households in the state. These assumptions could bias the results if auto premiums vary in a systematic way relative to coastal exposure or if personal umbrella coverage buying patterns vary relative to coastal exposure. Although automobile insurance rates are higher in the high risk (hurricane risk) area near Miami, automobile rates are also higher in other urban areas that are not as exposed to hurricane risk, such as Orlando and Jacksonville. 24

26 Surcharge. This surcharge can be up to 15 percent of the total premium paid on Citizens policies for each account or 45 percent in aggregate. While the total premium paid on Citizens policies does reflect hurricane risk, it is not solely based on that risk. A more hurricane risk-based assessment could be structured by assessing only the hurricane portion of the premium, rather than the total premium. To ensure that the change from an assessment based on total premium to the hurricane portion of the premium is revenue neutral, the assessment percentage is increased by the ratio of Citizens total premiums to Citizens hurricane premiums. This ratio is approximately based on premiums and premium volume as of December This indicates that approximately 61 cents of every dollar collected by Citizens is hurricane premium. Using this ratio implies that Citizens would need to impose an assessment of 73.2 percent (ratio of times maximum assessment of 45 percent) on the hurricane portion of the premium to collect the same aggregate dollars as assessing 45 percent on total Citizens premiums. Therefore, the new Citizens Policyholder Surcharge, or hurricane risk-based assessment, is up to 73.2 percent of hurricane premiums paid on Citizens policies. Source #2 Citizens Regular s on Private Insurer Homeowners Premiums: The Regular s on private insurer s homeowners policies as currently structured is up to 18 percent of total premium paid on private homeowners premiums. As with the assessment made to Citizens policyholders, a more hurricane riskbased assessment could be structured by assessing only the hurricane portion of the premium, not total premium. Again, to ensure that the change from an assessment based on full premium to the hurricane portion of the premium is revenue neutral with policyholders in the private market, the assessment percentage must be increased by the 25

27 ratio of private insurer s homeowners total premiums to private insurer s homeowners hurricane premiums, which is approximately This indicates that approximately 57 cents of every dollar collected by private insurers is hurricane premium. Using this ratio implies that Citizens would need to impose an assessment of 31.8 percent (ratio of times maximum assessment of 18 percent) on the hurricane portion of the premium to collect the same aggregate dollars as assessing 18 percent on the total premium. Source #3 Citizens Regular s on Non-Homeowners Premiums: The current Regular s on the non-homeowners premiums is up to 18 percent of total premium paid on non-homeowners premiums in the assessment base. The hurricane risk-based assessment is obtained by multiplying the current assessment by the relative hurricane risk as measured by the ratio of the county s average hurricane premium to the weighted statewide average hurricane premium. Source #4 Citizens Emergency s on Citizens Policyholders and Private Homeowners Premiums: Using the same methodology as the Citizens Policyholder Surcharge and the homeowners portion of the Regular s, the ratio of total premiums paid for both Citizens and private insurers homeowners coverage to the hurricane portion of those premiums is used to adjust the assessment from its current structure. Recall, with the current assessment structure, up to 30 percent of total premium paid on Citizens policyholders and private homeowners premiums can be assessed. Using the Citizens ratio of 1.627, and the private insurance ratio of the hurricane risk-based assessment is up to an aggregate of 51.2 percent of hurricane premium paid on Citizens policyholders and private homeowners premiums. 26

28 Source #5 Citizens Emergency s on Non-Homeowners Premiums: Finally, the current Emergency on non-homeowners premiums is up to 30 percent of total premium paid on non-homeowners premiums in the assessment base. The hurricane risk-based assessment is obtained by multiplying the current assessment by the relative hurricane risk. FHCF Subsidy: In addition to assessments for deficits in any of the Citizens accounts, policyholders also are subject to assessments from FHCF when a deficit exists. The FHCF Emergency s are up to six percent of total premiums paid in the assessable lines of insurance (same assessment base as the Citizens Emergency s) for a single storm or up to a total of ten percent of premiums for deficits accumulated during multiple storm years. The same methodology used to reweight the assessments and calculate the subsidies in the Citizen Emergency s is used for the FHCF Emergency s. Specifically, for the homeowners portion of the FHCF Emergency s, the ratio of total premiums paid for both Citizens and private insurers homeowners coverage to the hurricane portion of those premiums is used to adjust the assessment from its current structure of up to six percent of total premium paid on Citizens policyholders and private homeowners premiums to a hurricane risk-based assessment. 15 FIGA Subsidy: The FIGA assessment base does not include private passenger automobile premiums. As such, for the representative household, the only assessable insurance policy would be the homeowner s policy. FIGA can assess up to four percent for storm-related deficits. The ratio of total premiums paid for both Citizens and private insurance 15 Recall that the FHCF Current is up to six percent of total premium paid on non-homeowners premiums in the assessment base. The hurricane risk-based assessment for non-homeowners is obtained by multiplying the current assessment by the relative hurricane risk. 27