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Florida Hurricane Catastrophe Fund

This is the agenda and discussion points from the Florida Hurricane Catastrophe Fund Advisory Council Meeting held on March 15, 2006. The meeting covers various topics including the election of officers, discussion of rules, and changes to the reimbursement contract and data call.

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Florida Hurricane Catastrophe Fund

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  1. 1 Florida Hurricane Catastrophe Fund AdvisoryCouncil Meeting March 15, 2006

  2. 2 Introductory Comments • Meeting called to order & opening comments –Joe Varon, Chair • Roll call – Joe Varon, Chair • Approval of January 19, 2006 Minutes – Joe Varon, Chair Administrative Matters: -- Meeting scheduled from 9:00 a.m. until 4:00 p.m. -- Break at 10:30 a.m.- 10:45 a.m. -- Lunch - Noon until 1:15 p.m. (on your own) -- Break at 2:30 p.m.- 2:45 p.m. (unless we finish earlier)

  3. 3 Agenda -- Jack Nicholson • Call meeting to order – Joe Varon, Chair • Roll Call – Joe Varon, Chair • Approval of January 19, 2006 Minutes – Joe Varon, Chair • Election of Officers – John Auer, Chair (Rotates to Chair) • Discussion of Rules to File for Adoption – Jack Nicholson • Rule 19-8.010 Reimbursement Contract • Rule 19-8.012 Ineligibility/Exemption • Rule 19-8.013 Issuance of Revenue Bonds • Rule 19-8.029 Insurer Reporting Requirements (Data Call) • Rule 19-8.030 Insurer Responsibilities

  4. 4 Agenda -- Jack Nicholson • Presentation of the 2006/2007 Premium Formula –Paul Budde, Andy Rapoport, and Jason Cook, Paragon • Discussion of Premium Formula Rule 19-8.028 for Notice – Jack Nicholson • Vote to Approve the 2006/2007 Premium Formula and Rule 19-8.028 for Notice – John Auer, Chair • Senior FHCF Officer’s Report –Jack Nicholson • Schedule & Agenda for Upcoming Meetings–Anne Bert • Concluding Remarks – John Auer, Chair

  5. 5 4. Election of Officers • Joe Varon recognizes John Auer as the New Chair as he rotates from Vice Chair to the position of Chair • Recognition of Joe Varon’s service as Chair – John Auer, Chair • Nominations for Vice Chair – John Auer, Chair • Vote for Vice Chair – John Auer, Chair

  6. 6 5. Discussion of Rules -- Jack Nicholson & Tracy Allen • Rule 19-8.010 -- Reimbursement Contract • Rule 19-8.012 -- Ineligibility/Exemption • Rule 19-8.013 -- Issuance of Revenue Bonds • Rule 19-8.029 -- Insurer Reporting Requirements (Data Call) • Rule 19-8.030 -- Insurer Responsibilities

  7. 7 2006/2007 FHCF Reimbursement Contract & Data Call Changes Reimbursement Contract Changes: • Technical Changes – dates & form numbers changed throughout • New Participants and Coverage Selections – selection within 30 days of first policy, otherwise 45% coverage is deemed. p. 2, Article III, (4) • Technical change – added “or earnings thereon.” & rapid cash buildup language added. p. 3, Article IV, (6) CLARIFICATION • Definitions – Payout Multiple reference to “single season.” p. 5, Article V, (23) CLARIFICATION • Definitions – Retention wording added “reduction to one-third of the full Retention.” p. 6 & 7 , Article V, (28) & (29) CLARIFICATION

  8. 8 2006/2007 FHCF Reimbursement Contract & Data Call Changes (continued) Reimbursement Contract Changes: • Exclusions – barns with apartments, builders risk, vacant property, & recreational vehicles or boats requiring licensing written under a separate policy or endorsement. p. 8, Article VI, (12-15) • Offsets – added wording “…including amounts payable under previous Contract Years…” & “or advances” stricken from (2) p. 9, Article VIII, (1) • Technical Changes, p. 10 & 11, Article X, (2) • Article X(2)(e), new language on rapid cash buildup factor added

  9. 9 2006/2007 FHCF Reimbursement Contract & Data Call Changes (continued) Reimbursement Contract Changes: • Added – SBA right to withhold reimbursements if Company is in non-compliance. p. 11, Article X, (3)(a)2 • Interim Loss Reports due 14 days from date requested from SBA. p. 12 & 13, Article X, (3)(b) • Advances –proposed language denying advances to companies under regulatory supervision rejected; excess advances defined; interest rates on advances shall be prime rate. p. 15-16, Article X, (4)(a)&(b) • Advances – requirement to have an actuary certify outstanding and IBNR for December Proof of Loss Report. p. 16, Article X, (4)(c)

  10. 10 2006/2007 FHCF Reimbursement Contract & Data Call Changes (continued) Reimbursement Contract Changes: • Clarifications – p. 17 & 18, Article X, (4)(d) & (7) • Clarifications – p. 19, Article XIII, (1) & (2) • Proof of Loss – procedures for updating following an examination. p. 20, Article XIII, (3)(f)4 • Technical language clarification - p. 20 & 21, Article XIII, (3)(g) & (h) • Article XIV revised to address FIGA issues • Reimbursement Contract Elections – date changes. p. 22 & 23, Article XVIII

  11. 11 2006/2007 FHCF Reimbursement Contract & Data Call Changes (continued) Insurer Reporting (Data Call) Changes: Elimination of Type of Business “7” – Other Contents Policies or Endorsements, p. 8 & 9 Construction Categories Changes, p. 10, 11, & 30 Commercial Deductibles – aggregate deductibles greater than $50,000 are required to be converted into a percentage deductible, p. 12 Ordinance & Law Coverage – eliminate the reporting of this exposure and include coverage within rates, p. 14-16 Mitigation Factors – p. 17-19 Reporting Clarifications – p. 23-24

  12. 12 2006/2007 FHCF Reimbursement Contract & Data Call Changes (continued) Loss Reporting Forms a) Interim Loss Report Form b) Proof of Loss Form

  13. 13 6.2006/2007 Premium Formula -- Paul Budde, Andy Rapoport, and Jason Cook

  14. 14 Discussion of Rule 19-8.028Premium Formula -- Jack Nicholson & Tracy Allen Special Rating Circumstances, p. 4, (4)(a)2

  15. 15 8.Vote to Approve the 2006/2007 Premium Formula and Rule 19-8.028 for Notice – John Auer, Chair

  16. 16 9. Senior FHCF Officer’s Report-- Jack Nicholson • 2004 & 2005 Hurricane Losses Update • Planning for the 2006 Hurricane Season • Legislative Update • Staff Activities

  17. 2004 Losses

  18. Insurers with Losses 2004 5 -- Over $500 million 31 -- $100 million - $500 million 33 -- No losses 38 -- $25 million - $100 million 75 -- Less than $5 million 36-- $5 million - $25 million $15.867 Billion Incurred Ultimate Loss Reported as of 3/8/06

  19. 2004 Hurricanes:Insurers and Impact of Losses 236 All Insurers 185 Insurers having losses 137 Note: 99% of the FHCF Premium is written by 95 companies Insurers Triggering 62 Insurers Exhausting Payout

  20. Update: 2004 FHCF LossesAs of 3/8/06 • Losses reimbursed/advanced to insurers for $3.472 billion • Current expected FHCF reimbursements $3.760 billion • Losses including IBNR reserves $3.850 billion • 2005 projected year-end cash balance $3.0746 billion • 92.34% Paid, $288 million outstanding to be paid • Modeled industry residential losses $14.5 billion • Reported industry residential losses $15.8 billion • 137 insurers expected to trigger coverage, 133 insurers have been paid to date – 4 more are expected to trigger • 62 insurers expected to exhaust their limit of coverage, 60 have exhausted their limit

  21. 2004 Actual FHCF Advances & Loss Reimbursements 81 Weeks Total Ultimate Losses Including IBNR $3,850 m Reported Losses $3,760 m ALL HURRICANES As of 3/8/06 Gross Advances $344 m to 10 companies Max Net Outstanding $135 m Remaining to be paid $288 million Net Advances $0 m Total Paid $3,471.99 m Net AdvancesReimbursements Charley $ 0 m $2,049.48 m Frances $ 0 m $1,120.73 m Ivan $ 0 m $238.49 m Jeanne $ 0 m $ 63.29 m $ 0 m $3,471.99 m (92.34%) Loss Reimbursements $3,471.99 m ( 133 companies) Illustration Not Drawn to Scale

  22. 2004 Actual FHCF Advances & Loss Reimbursements 81 Weeks Hurricane Charley -- 8/13/04 Hurricane Frances -- 9/4/04 As of 3/8/06 % of the dollars paid As of 3/8/06 Net Advances $ 0 m Net Advances $0 m Total Paid $2049.48 m Total Paid $1120.73 m (59.03%) (32.28%) Loss Reimbursements $2049.48 m Loss Reimbursements $1120.73 m Hurricane Ivan -- 9/16/04 Hurricane Jeanne -- 9/26/04 As of 3/8/06 As of 3/8/06 Net Advances $0 m Net Advances $ 0 m Total Paid $238.49m Total Paid $63.29 m (1.82%) (6.87%) Loss Reimbursements $238.40 m Loss Reimbursements $63.29 m Illustration Not Drawn to Scale

  23. 2004 FHCF Losses (3/8/06) 81 Weeks (millions) IBNR Reported $3.850 B $90 M $3.760 B Yet to be Reported $288 M Yet to be Paid Paid $3.472 B Qtr Repts The left scale relates to the orange line which represents cumulative loss payments. The right scale relates to the red dots which are advances, to weekly loss reimbursements in blue, and number of Companies filing claims in black (right scale, actual numbers shown on the scale not in millions).

  24. 2004 FHCF Losses (3/8/06) 81 Weeks (millions) $3 B 50 weeks $2.5 B 37 weeks $2 B $1.5 B 30 weeks 22 weeks $1 B 17 weeks Qtr Repts The left scale relates to the orange line which represents cumulative loss payments. The right scale relates to the red dots which are advances, to weekly loss reimbursements in blue, and number of Companies filing claims in black (right scale, actual numbers shown on the scale not in millions).

  25. 2004 FHCF Losses (3/8/06) – Weekly Losses (millions) 81 Weeks $215.6 $23.9 Average $42.85 million per week $4.2 Qtr Repts The left scale relates to the orange line which represents cumulative loss payments. The right scale relates to the red dots which are advances, to weekly loss reimbursements in blue, and number of Companies filing claims in black (right scale, actual numbers shown on the scale not in millions).

  26. 2004 FHCF Losses (3/8/06) - Companies 37 81 Weeks 20 6 Average of 12.22 companies per week Qtr Repts The left scale relates to the orange line which represents cumulative loss payments. The right scale relates to the red dots which are advances, to weekly loss reimbursements in blue, and number of Companies filing claims in black (right scale, actual numbers shown on the scale not in millions).

  27. 2005 Losses

  28. Insurers with Losses 2005 3 -- Over $500 million 14 -- $100 million - $500 million 33 -- No losses 31 -- $25 million - $100 million 88 -- Less than $5 million 35-- $5 million - $25 million $8.360 Billion Incurred Ultimate Loss Reported as of 3/8/06

  29. 2005 Hurricanes: Insurers and Impact of Losses 204 All Insurers 171 Insurers having losses 99 Note: 99% of the FHCF Premium is written by 95 companies Insurers Triggering 10 Insurers Exhausting Payout

  30. Update: 2005 FHCF LossesAs of 3/8/06 -- Week 19 • Losses reimbursed/advanced to insurers for $1.744 billion • Net Advances $330 million, Reimbursements $1.414billion • Current expected FHCF reimbursements $2.964billion • Losses including IBNR reserves $3.5 billion (2/22/06) • 2006 projected year-end cash balance $3.075 billion • 58.84% Paid of Reported, $1.220 billion outstanding to be paid • 49.83% Paid of Reserved, $1.756billion outstanding • Short Fall Potential: $3.075b - $3.5b = ($425 M) • Cash less Reported Losses: $3.075 - $2.964 = $111 M • Before Shortfall: $3.075 B less $1.744 B = $1.331 B remaining • Reported industry residential losses $8.360billion • 99 insurers expected to trigger coverage, 48 insurers have been paid to date – 51 more expected to trigger • 10 insurers expected to exhaust their limit of coverage, 1 has exhausted its limit

  31. For Illustration Purposes Only Actual 2005 FHCF Advances & Loss Reimbursements Losses including IBNR $3,500 m Week 19 ($536 m IBNR) Potential Bonding $425 m Reported Losses $2,964 m ALL HURRICANES Gross Advances $906.7 m to 5 companies. Maximum Net Outstanding 2/8/06 of $448.39 Cash Bal $3,075 m Difference = $111 m As of 3/8/06 Remaining to be paid $1,220 m Net Advances $329.91 m (3 companies) Total Paid $1,743.88 m Net AdvancesReimbursements Dennis $ 0 m $ .34 m Katrina $ 0 m $ 0 m Rita $ 0 m $ 0 m Wilma $ 329.91 m $ 1413.63 m $ 329.91 m $ 1413.97 m (58.84%) Loss Reimbursements $1,413.97 m ( 48 companies) Illustration Not Drawn to Scale

  32. Actual 2005 FHCF Advances & Loss Reimbursements For Illustration Purposes Only Week 19 Hurricane Dennis – 7/10/05 Hurricane Katrina -- 8/25&29/05 As of 3/8/06 % of the dollars paid As of 3/8/06 Net Advances $ 0 m Net Advances $0 m Total Paid $.335 m Total Paid $0 m (0%) (0.02%) Loss Reimbursements $.335 m Loss Reimbursements $0 m Hurricane Rita -- 9/20/04 Hurricane Wilma -- 10/24/05 As of 3/8/06 As of 3/8/06 Net Advances $0 m Net Advances $ 329.91 m Total Paid $0 m Total Paid $1743.55 m (99.98%) (0%) Loss Reimbursements $0 m Loss Reimbursements $1413.64 m Illustration Not Drawn to Scale

  33. Comparisons

  34. Weekly Reimbursement for All Hurricanes 2004/2005 *in millions $213 $204 $208 $188 $170 $141 $154 $121 $135 $122 $115 $116 $109 $84 $71 $65 $52 $53 $53 $43 $31 $29 $26 $22 $13 $13 $2 $8 20 Weeks

  35. 2004-- $341,828,125.92 of $616,519,625.96 or 55% 137 insurers expecting to trigger (133) 2005 -- $618,421,677.55 of $735,531,208.88 or 84% 99 insurers expecting to trigger (48) FHCF Premium of Insurers Triggering FHCF Coverage

  36. 2004 FHCF Losses (3/8/06) 2004 81 weeks (millions) 2005 19 weeks $3 B $3.472 B 50 weeks $2.5 B $2 B 37 weeks $1.744 B $1.5 B 30 weeks $1 B June 6 32 Weeks 22 weeks 17 weeks May 31 31 Weeks March 29 22 Weeks Hurricane Season Qtr Repts The left scale relates to the orange line which represents cumulative loss payments. The right scale relates to the red dots which are advances, to weekly loss reimbursements in blue, and number of Companies filing claims in black (right scale, actual numbers shown on the scale not in millions).

  37. For Illustration Purposes Only 2004 & 2005 Hurricane LossesFHCF Paid Lossesas of 3/8/06 Millions $3,472 $1,744 (81 weeks) $2049 (19 weeks) $1743 $1120 $238 $63 $.35 $0 $0

  38. Adverse LossDevelopment

  39. 2004 Loss DevelopmentReported Losses (as of 1/9/06) For Illustration Purposes Only Millions $3850 $3670 $3751 $99 IBNR $3522 $3248 $2566 $2127 Preliminary Loss Report

  40. 2005 Loss DevelopmentReported Losses (as of 3/8/06) For Illustration Purposes Only Millions $3500 35% 19 weeks $3075 $111 $2964 $536 IBNR 14.6% $2586 20% Reported 2005 Losses Cash Available for 2005 losses

  41. For Illustration Purposes Only Illustration of the Impact of Adverse Development on FHCF 2005 Losses 19 weeks (1/12/06) $2.964 B 3/8/06) $8.36 B 3/8/06) (Estimated Residential Loss $8.8 billion) *Residential losses above these levels may require the issuance of revenue bonds. The year-end cash balance for 2005 was estimated at $3.1 billion before losses.

  42. Loss Reserves

  43. For Illustration Purposes Only Losses & Loss Reserves Dollars Reserved for Losses 19 weeks 2004 $3.85 Billion (less losses paid of $3.472 b) $3.760Billion Reported Losses $0.090 Billion Incurred But Not Reported $3.850 Billion $378 m bal $2.964 Billion Reported Losses 2005 $3.075 Billion (less losses paid of $1.744 b) $0.536 Billion Incurred But Not Reported $3.500 Billion $1,331 m bal $1711 m Bal as of 3/8/06 $378m +$1,331m = $1.709 B $800 Million FHCF Premium? 2006 $0 $267m $267m $267m 6/1 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 Hurricane Season

  44. FHCF Cash Flow Needs

  45. For Illustration Purposes Only FHCF Loss Severity Distribution

  46. For Illustration Purposes Only FHCF Cash Needs Analysis Note: This analysis is based on the 2004 hurricane season and relies heavily on loss reporting and reimbursements from Hurricane Charley. Large loss events could experience different and faster claims payment patterns due to the larger number of policies settled on a total limits basis.

  47. Month-by-Month Withdrawals Reported by Month Requested

  48. Month-by-Month Withdrawals Reported by Month Requested

  49. 49 • Planning for the 2006 Hurricane Season

  50. 50 • Legislative Update • HIN 1 SB 98 • HB 279 SB 2166 • HB 1209 SB 2618 • HB 1257 SB 2664

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