Meeting Notice — Insurance & Banking Subcommittee, House of Representatives (September 18, 2019)
Summary
Meeting packet for the Insurance & Banking Subcommittee of the Florida House of Representatives Commerce Committee, Wednesday, September 18, 2019, 3:00 pm - 5:00 pm, in Sumner Hall (404 HOB), chaired by Byron Donalds with Jose R. Oliva as Speaker. The agenda lists an Insurance Consumer Advocate overview by Tasha Carter of the Florida Department of Financial Services and an update by Anne Bert, Chief Operating Officer of the Florida Hurricane Catastrophe Fund (FHCF). The FHCF slides describe its purpose of reimbursing residential property insurers for part of their catastrophic hurricane losses. They report estimated ultimate FHCF losses of $1.450 billion for Hurricane Michael, with $645 million reimbursed as of September 11, 2019, and $5 billion for Hurricane Irma.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Meeting Notice — Insurance & Banking Subcommittee, House of Representatives (September 18, 2019).”
Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2019-09-18-3013-insurance-banking-subcommittee-meeting-packets-mtg1225-6ac27314eb/
, SHA-256 e1bb741f82c0f4ad40d28201787c991c4429f20114de3ffb7158d3b41c540ee9.Full text
Insurance & Banking
Subcommittee
Wednesday, September 18, 2019
3:00 pm - 5:00 pm
Sumner Hall (404 HOB)
Jose Oliva Byron Donalds
Speaker Chair
Committee Meeting Notice
HOUSE OF REPRESENTATIVES
Insurance & Banking Subcommittee
Start Date and Time: Wednesday, Septembe r 18, 2019 03 :00 pm
End Date and Time: Wednesday, September 18, 2019 05:00 pm
Location: Sumner Hall (404 HOB )
Duration: 2.00 hrs
Upd at e by th e Florida Hurrican e Catastrophe Fund
Insurance Consumer Advocate Overvie w
NOTICE FINALIZED on 09/11/2019 4:04PM by Harrell.Lindsey
Leagis@ Page 1 of 1
09/ 11/ 2019 4:36 :35 PM
The Florida House of Representatives
Commerce Committee
Insurance & Banking Subcommittee
Jose R. Oliva Byron Donalds
Speaker Chair
AGENDA
September 18, 2019
404 House Office Building
3:00 PM - 5:00 PM
I. Call to Order & Roll Call
II. Insurance Consumer Advocate Overview
Tasha Carter - Florida's Insurance Consumer Advocate
Florida Department of Financial Services
Ill. Update by the Florida Hurricane Catastrophe Fund
Anne Bert - Chief Operating Officer
Florida Hurricane Catastrophe Fund
State Board of Administration of Florida
IV. Adjournment
303 House Office Building, 402 South Monroe Street, Tallahassee, Florida 32399-1 300
(850) 717-487 1 Fax: (850) 4 13-04 19
Insurance Consumer Advocate Overview
w
I-
<(
w
u w
0 ......- w.
1--l
>
Q)
~ .....
0 ~
co
u z
~~
0 0
<( u > 0
m lJ
<(
LL ::, i:c:
~~ en en .....
0 0::
w Q
... 0::
LU E
Q)
E-4
z N0
o~ ~
~ $ ~ -
~
. I- :::,
V)
c
~
w :::> z co
<(
... 0::
<( u
0 P-1
m w
c: u Q)
V) ~
> z Q m u
c
Oi
<(
z ~
~
co
0:: <( w I .....
w 0 w ... V)
:::,
V)
~
~~ u c. c
> u z en
w <(
I-
-
.V) 1--l
0 w <( co
Q c: 1--j
<(
Cl lJ
-a:
0 u ::,
en
·-.....
-u..0
........ z z 0
< <(
0::
:::>
V)
w
en
:,
0
J:
~
0
z
.....- - - - - - - - D E P A R T M E N T OF FINANCIAL SE RVIC ES - - - - - - - -..
I INSURANCE CONSUMER ADVOCATE
..... CREATED BY FLORIDA LEGISLATURE IN 1992
• Section 627 .0613 , Florida Statutes
..... OVERSEEN BY THE CHIEF FINANCIAL OFFICER
• Appo i nted by Chief Financial Officer Jimmy Patron is
• Reports Directly to the Chief Financial Officer
• Works Independently from the Department of Financial Services
..... ROLE OF THE INSURANCE CONSUMER ADVOCATE
• Represent the General Public before the Department and OIR
• Examine Rate and Form Fi lings Submitted to OIR
• Recommend Actions to the Department and OIR
• Represent the Public on Appointed Boards and Public Forums
AnvocAii\
'FL,(rt4
- - - - - - - - - C F O JIMMY PATRONIS 2
- - - - - - - - - D E P A R T M E N T OF FINANC I AL SE RV I C ES - - - - - - - -..
I INSURANCE CONSUMER ADVOCATE
..... SEEKS PUBLIC INPUT
..... SERVES AS OFFICIAL REPRESENTATIVE FOR INSURANCE CONSUMERS
• For Actions or Proceed i ngs Before the Department or OIR
• Any Proceed i ng Before DOAH Relating To Subject Matter Under DFS/OIR
"A Voice for Florida's Insurance Consumers"
AnvocAii\
II OAITMIN1 o, FINAN CIA l UUtCU
FL,(/,4
. . . _ - - - - - - C F O JIMMY PATRONIS 3
- - - - - - - - - D E P A R T M E N T OF FINANCIAL S E R V I C E S - - - - - - - -...
I VISION OF THE INSURANCE CONSUMER ADVOCATE
The Vision of the ICA centers around 3 primary principles:
• BALANCING FLORIDA ' S INSURANCE MARKET I
IDENTIFYING TRENDS AND IMPROVING MARKET PRACTICES
REPRESENTING THE CONSUMER ' S INTEREST IN RATE AND FORM FILINGS
Additional focus areas:
..... INCREASING CONSUMER AWARENESS AND EDUCATION
..... ASSISTING CONSUMERS WITH INSURANCE - RELATED MATTERS
..... ENGAGING LEGISLATIVELY TO REPRESENT FLORIDA ' S INSURANCE
CONSUMERS
AnVocAii\
-µ,~
......- - - - - - C F O JIMMY PATRONIS 4
ADVOCA;f,i\
FLORIDA DEPARTMENT OF FI NANCIAL SERVICES
.,.
- Tak~
OFFICE THE INSURANCE CONSUMER ADVOCATE
850.413.5923
TASHA CARTER
FLORIDA'S INSURANCE CONSUMER ADVOCATE
Tasha.Carter@MyFloridaCFO.com
. . . . _ - - - - - C F O JIMMY PATRONIS s
Florida Hurricane Catastrophe Fund
STATE BOARD OF ADMINISTRATION
FLORIDA HURRICANE
CATASTROPHE FUND
HOUSE INSURANCE & BANKING SUBCOMMITTEE
SEPTEMBER 18, 2019
Florida Hurricane Catastrophe Fund Basics
o The FHCF was created after Hurricane Andrew with an exclusive
statutory purpose of protecting and advancing the state's
interest in maintaining residential property insurance capacity.
o This purpose is accomplished by:
• Providing a stable, ongoing, and predictable source of reimbursement
to Florida residential property insurers for a portion of their
catastrophic hurricane losses at a stable and predictable price,
ultimately providing market stability
• Being sustainable for the long-term
o How it is sized, structured, and operated is critical.
o The intent of the Legislature was for it to be tax exempt;
therefore, it was structured as a state trust fund under direction
and control of the SBA with this specific purpose.
Florida Hurricane Catastrophe Fund Basics
o All residential property insurance companies must
participate. Provide wind only coverage.
o Annually, participating insurers (by law):
• Execute the Reimbursement Contract by March 1
• Report their exposures of insured values by Sept 1
o Funded by an "actuarially indicated" premium collected
from the participants based on their exposure data. This
represents their proportionate share of residential risk
exposure in the State.
o This premium determines their retention (like a deductible)
and their coverage limit.
.3,
Florida Hurricane Catastrophe Fund Basics
o Individual company losses are reimbursed in excess of
their retentions, up to their coverage limit based on their
coverage option selected - 45%, 75% or 90% (like a co-
payment)
o When premium revenues are not sufficient to cover
losses, the FHCF may issue bonds backed by emergency
assessments on a wide range of property/casualty
. .
insurance premiums
o Premiums paid by insurers are generally lower than
premiums for comparable private sector reinsurance
Florida Hurricane Catastrophe Fund Basics
o Premiums are prospective only ... this year's premiums can't
be used to pay prior year losses
o Structured to build up its cash balance and minimize
reliance on debt and assessments
o Total coverage is limited by statute to $17 billion for any
one hurricane season
o FHCF is exempt from federal taxes under an IRS Private
Letter Ruling
Florida Hurricane Catastrophe Fund Basics
o Oversight and ·Accountability:
• Administered by the State Board of Administration(SBA) Trustees
(Governor, Chief Financial Officer, and Attorney General)
• FHCF Advisory Council - 9 members appointed by the Trustees
• SBA Audit Committee - 3 members appointed by the Trustees
• SBA Risk and Compliance Programs
• External Audits of the FHCF:
o Financial Statement Audit - annual
o SOC 1 audit of the FHCF's Administrator, Paragon Strategic
Solutions - annual
o SBA Internal Audit
o Auditor General of the State of Florida
Implementation of HB 301
HB 301 increased the required loss adjustment expense (LAE)
allowance in the FHCF Reimbursement Contract from 5% to 10% of
reimbursed losses, beginning with the 2019-2020 contract year {begins
June 1, 2019)
Timeline
February 1, 2019 -Statutory deadline for adoption by the SBA Trustees
of 2019-2020 Reimbursement Contract (per Statute)
March 1, 2019 -Last day for participating insurers to execute FHCF
Reimbursement Contract for 2019-2020 (per Statute)
March 19, 2019 -Premium Formula for 2019-2020 and rule revisions
presented in rule development workshop and FHCF Advisory Council
meeting; Advisory Council recommends approval
Implementation of HB 301
March 27, 2019 - Draft rates posted on FHCF website in excel format
April 2, 2019 -Premium Formula approved by statutorily required
unanimous vote of the SBA Trustees (Governor, Chief Financial Officer,
and Attorney General)
April 11, 2019 -HB 301 (2nd Engrossed) passed by House
May 3, 2019 -HB 301 (2nd Engrossed) passed by Senate
Implementation of HB 301
May 30, 2019 -Three 2019-2020 rules and Premium Formula revised and
presented at rule development workshop and FHCF Advisory Council
meeting; Advisory Council recommends approval
• Revised Rule 19-8.010 provided an additional LAE allowance of 5% of
reimbursed losses for the 2019-2020 Reimbursement Contract, in
addition to the 5% already provided, to total 10% of reimbursed losses
• Revised Premium Formula included an overall increase of 2.18% {$26
million) to account for the increase in expected losses attributable to the
LAE increase
June 1, 2019 -Effective date of coverage under 2019-2020 Reimbursement
Contract
June 18, 2019 -HB 301 signed by the Governor
July 25, 2019 -Revised 2019-2020 rules and Premium Formula approved by
SBA Trustees, including unanimous vote to approve Premium Formula
Implementation of HB 301
2020-2021 Contract Vear Rulemaking Begins
August 23, 2019 -Revised Rule 19-8.010, FAC, incorporating the
proposed Reimbursement Contract for 2020-2021, presented at rule
development workshop and FHCF Advisory Council meeting, Advisory
Council recommends approval
• The Reimbursement Contract for 2020-2021 includes an LAE
allowance of l0% of reimbursed losses, as required by HB 301
September 24, 2019 (projected) -Revised rule and 2020-2021
Reimbursement Contract to be considered by SBA Trustees
February 1, 2020 -Statutory deadline for adoption of 2020-2021
Reimbursement Contract
Implementation of HB 301
Retroactive legislation may potentially be disruptive to some
companies and to the market
• Can create uncertainties and disadvantages for the insurers
• Most Florida property reinsurance is placed on or before June 1
• When FHCF coverage is changed after the Reimbursement
Contract is executed, insurers might not be able to change their
private reinsurance in time to take advantage of the expected
cost shift
Requirements of FHCF Rates
o Section 215.555(5 ), F.S., establishes the requirements for
FHCF ratemaking
o The Premium Formula must be developed by an independent
consultant selected by the SBA
• The SBA competitive procurement process is used to select the
independent consultant
o The Premium Formula requires the unanimous approval of
the SBA Trustees (Governor, Chief Financial Officer, and
Attorney General)
Requirements of FHCF Rates
o "Actuarially Indicated" rates are required
• Statutory definition: "Actuarially indicated" means ... an amount
determined according to principles of actuarial science to be
adequate, but not excessive, in the aggregate, to pay current
and future obligations and expenses of the fund, including
additional amounts if needed to pay debt service ... , and
determined according to principles of actuarial science to
reflect each insurer's relative exposure to hurricane losses.
Requirements of FHCF Rates
o Premiums must be based on exposures (insured values by
ZIP code, line of business, and construction type) as
reported annually by insurers and must be based on
hurricane loss models approved by the Florida Commission
on Hurricane Loss Projection Methodology
• The FHCF uses all currently-approved models
• The Premium Formula also reflects a statutory "cash build-up"
factor which reduces reliance on debt
• The Premium Formula does not include the profit and
contingency factor used in private sector rates
Requirements of FHCF Rates
No underwriting: The FHCF must provide coverage to each
eligible insurer on identical terms
• No variation in rates
• No variation in coverages {except to reflect the insurer's selected
options)
• Assures that each participant has its fair share of the finite
resources {capacity) available for reimbursement.
• Risk-based rating
Ratemaking Process - Transparency
Opportunities throughout the ratemaking process for public
information and public input:
• Rule development workshop
• Rule Hearing
• FHCF Advisory Council
• Cabinet Meeting/SBA Trustees meeting
• Written comments are also welcomed
The proposed Premium Formula Report is posted on the
Internet in advance of the Advisory Council meeting at which
it will be considered and rates in excel format are posted to
assist companies. The current Premium Formula report is
available on the Internet at
http ://fh cf. pa raga n .a on be nfi e Id. co ml rates-and-
p rem i u m/2019 /
1"6
Consumer and Industry Impacts
In the aggregate, FHCF premiums represent about 10% of the
total cost of residential insurance
• But that cost could be much higher if insurers had to replace FHCF
coverage with private sector reinsurance
• Unlike FHCF risk-based premiums, private sector reinsurance
premiums and availability can vary dramatically from year to year
• The actual impact of FHCF costs on a property owner will vary
depending on how the insurer passes these costs along to
consumers, whether the property is in a high-risk location, the FHCF
coverage percentage selected by their insurer, and other factors
Consumer and Industry Impacts
o In the case of HB 301, the FHCF premium increase for 2019
translates to about a 0.2% average incr~ase for a typical
1
residential premium, but this may be offset by an insurer s
reduced need for reinsurance
o 1
Florida s property insurance market is inherently volatile
because of hurricane risk
o The stability and predictability of FHCF rates and coverage
reduce volatility and help maintain a viable private sector
1
market for homeowner s insurance
FHCF's Financial Strength
o Very strong financial position for the current 2019
hurricane season:
$17.0B Maximum Statutory Limit
$11.188 Projected Year-End Fund Balance
$ 1.658 Pre-event Bonds (final maturity 2021)
$ 0.928 Risk Transfer
o No post-event bonds outstanding
o Emergency assessments ended - 0% on all policies new
or renewed on or after 1/1/15
2019
Ground Up Return Probability $178 FHCF Capacity as of July l l,
Losses Time (%) (Loss Adjustment Expense 10% allowance is included in the capacity)
($8} (Years) . .
Assumption: Ultimate Losses of $5.08 for Hurricane Irma in 2017
$26.4 39.1 2.56% -
· $3.258 - Post-Event Bonding
•• $4.98 Potential
_ _ _ _ _ _ _ _ _ _ _ ,. • ,, Post-Event
$22.7 32.0 3.12% - -~-~~ 1:l
4
I Bonding
$20.9 28.6 3.49%
$20.2 27.4 3.65%
$11 .188 Cash
$19 .1 25.6 3.90% 1.658 2013A & 2016A Bonds
0.928 Risk Transfer
$13.758 Total Resources
-$17.00B Statutory Limit
$3 .258 Potential Bonding
Needed
$7.4 9.9 10.10%
Post-Event
Bonding Capacity
$7.428 Industry Retention May 2019
$8.68
• Represents industry losses. FHCF probabilities are lower at the top loss levels and higher at the lower loss levels. All insurers would need to reach
their maximum coverage limit in order to exhaust the last billion of FHCF Coverage. Insurers can trigger coverage below the industry retention .
• Individual company retentions are their share of the industry retention .
Hurricane Michael
o Landfall on October 10, 2018, at Mexico Beach as a
strong Category 5 storm.
o Estimated Ultimate FHCF loss of $1.450 billion
o FHCF has reimbursed $645 million as of September 11,
2019.
, Tifton °""J ..; --:. ' ~
,mb
Hattiesburg ,
• . w.~~ ·· .
• • Brunswic . . '
Bog!lusa King~nd
,coo
BilOlCI
- SUdeU
i1 . Jac~nville'
ew Orlea ns
Palm
PortS!"lphur
, I .
·~ r ~ Hill
..
.. \~ ' Orl;n<
'1°! ,;,-
I
. .-~ ' ....
I . r:; JiiW
'
V .
'•J ~ . , •.
&'I t
~
I
Sa~sota"' !Arpd'•S.b[ifll1
r e !,_,,_ , - @:
Hurricane Irma
o First landfall on September 10, 2017, at Cudjoe Key as a
Category 4 storm.
• Second landfall at Marco Island as a Category 3
o Estimated Ultimate FHCF loss of $5 billion
o FHCF has reimbursed $2.84 billion as of September 11,
2019
Contact Information
Anne Bert - Chief Operating Officer
• Telephone: (850) 413-1340
• E-Mail: anne.bert@sbafla.com
Leonard Schulte- Director of Legal and Risk Operations
• Telephone: (850) 413-1335
• E-mail: leonard.schulte@sbafla.com
Website: www.sbafla.com/fhcf
Address: Florida Hurricane Catastrophe Fund
State Board of Administration of Florida
1801 Hermitage Boulevard
Tallahassee, Florida 32308
File and source
- File
- 2019-09-18_3013_insurance-banking-subcommittee_meeting-packets_mtg12253.pdf
- Size
- 8,195,174 bytes
- SHA-256
- e1bb741f82c0f4ad40d28201787c991c4429f20114de3ffb7158d3b41c540ee9
- Original
- No public link identified.