CS/CS/HB 3A

1	A bill to be entitled
2	An act relating to hurricane preparedness and insurance;
3	providing a short title; amending s. 215.555, F.S.;
4	deleting a rapid cash buildup requirement from a
5	reimbursement premium formula factor; expanding the State
6	Board of Administration's reinsurance procurement powers
7	and duties for certain purposes; providing for temporary
8	emergency options for additional coverage and for
9	temporary increase in coverage limit options; providing
10	legislative findings and intent; providing for application
11	of certain provisions; providing additional definitions;
12	providing for a reimbursement contract addendum for
13	certain insurers; providing requirements and procedures
14	under the addendum; providing for certain reimbursement
15	premiums for such insurers; providing for calculation of
16	such premiums; providing for effect on claims-paying
17	capacity of fund; requiring insurers electing optional
18	coverages offered by the Florida Hurricane Catastrophe
19	Fund to make rate filings that reflect savings or
20	reduction in loss exposure; requiring that the Office of
21	Insurance Regulation specify, by order, the dates on which
22	such filings must be made; requiring certain insurers to
23	make additional rate filings; specifying rate filing
24	requirements; authorizing the Financial Services
25	Commission to grant certain waivers; specifying duties of
26	the office; providing an effective date.
27
28	Be It Enacted by the Legislature of the State of Florida:
29
30	Section 1.  This act may be cited as the "Homeowners' Rate
31	Reduction Act."
32	Section 2.  Paragraph (b) of subsection (5) and paragraph
33	(a) of subsection (7) of section 215.555, Florida Statutes, are
34	amended, and subsections (16) and (17) are added to that
35	section, to read:
36	215.555  Florida Hurricane Catastrophe Fund.--
37	(5)  REIMBURSEMENT PREMIUMS.--
38	(b)  The State Board of Administration shall select an
39	independent consultant to develop a formula for determining the
40	actuarially indicated premium to be paid to the fund. The
41	formula shall specify, for each zip code or other limited
42	geographical area, the amount of premium to be paid by an
43	insurer for each $1,000 of insured value under covered policies
44	in that zip code or other area. In establishing premiums, the
45	board shall consider the coverage elected under paragraph (4)(b)
46	and any factors that tend to enhance the actuarial
47	sophistication of ratemaking for the fund, including
48	deductibles, type of construction, type of coverage provided,
49	relative concentration of risks, and other such factors deemed
50	by the board to be appropriate. The formula may provide for a
51	procedure to determine the premiums to be paid by new insurers
52	that begin writing covered policies after the beginning of a
53	contract year, taking into consideration when the insurer starts
54	writing covered policies, the potential exposure of the insurer,
55	the potential exposure of the fund, the administrative costs to
56	the insurer and to the fund, and any other factors deemed
57	appropriate by the board. The formula shall include a factor of
58	25 percent of the fund's actuarially indicated premium in order
59	to provide for more rapid cash buildup in the fund. The formula
60	must be approved by unanimous vote of the board. The board may,
61	at any time, revise the formula pursuant to the procedure
62	provided in this paragraph.
63	(7)  ADDITIONAL POWERS AND DUTIES.--
64	(a)  The board may procure reinsurance from reinsurers
65	acceptable to the Office of Insurance Regulation for the purpose
66	of maximizing the capacity of the fund and may enter into
67	capital market transactions, including, but not limited to,
68	industry loss warranties, catastrophe bonds, side-car
69	arrangements, or financial contracts permissible for the board's
70	usage under s. 215.47(10) and (11), consistent with prudent
71	management of the fund.
72	(16)  TEMPORARY EMERGENCY OPTIONS FOR ADDITIONAL
73	COVERAGE.--
74	(a)  Findings and intent.--
75	1.  The Legislature finds that:
76	a.  Because of temporary disruptions in the market for
77	catastrophic reinsurance, many property insurers were unable to
78	procure reinsurance for the 2006 hurricane season with an
79	attachment point below the insurers' respective Florida
80	Hurricane Catastrophe Fund attachment points, were unable to
81	procure sufficient amounts of such reinsurance, or were able to
82	procure such reinsurance only by incurring substantially higher
83	costs than in prior years.
84	b.  The reinsurance market problems were responsible, at
85	least in part, for substantial premium increases to many
86	consumers and increases in the number of policies issued by the
87	Citizens Property Insurance Corporation.
88	c.  It is likely that the reinsurance market disruptions
89	will not significantly abate prior to the 2007 hurricane season.
90	2.  It is the intent of the Legislature to create a
91	temporary emergency program, applicable to the 2007 and 2008
92	hurricane seasons, to address these market disruptions and
93	enable insurers, at their option, to procure additional coverage
94	from the Florida Hurricane Catastrophe Fund.
95	(b)  Applicability of other provisions of this
96	section.--All provisions of this section and the rules adopted
97	under this section apply to the program created by this
98	subsection unless specifically superseded by this subsection.
99	(c)  Optional coverage.--For the contract year commencing
100	June 1, 2007, and ending May 31, 2008, or the contract year
101	commencing June 1, 2008, and ending May 31, 2009, the board may
102	offer the optional coverage as provided in this subsection
103	subject to the approval of the Legislative Budget Commission.
104	(d)  Additional definitions.--As used in this subsection,
105	the term:
106	1.  "TEACO options" means the temporary emergency
107	additional coverage options created under this subsection.
108	2.  "TEACO insurer" means an insurer that has opted to
109	obtain coverage under the TEACO options in addition to the
110	coverage provided to the insurer under its reimbursement
111	contract.
112	3.  "TEACO reimbursement premium" means the premium charged
113	by the fund for coverage provided under the TEACO options.
114	4.  "TEACO retention" means the amount of losses below
115	which a TEACO insurer is not entitled to reimbursement from the
116	fund under the TEACO option selected. A TEACO insurer's
117	retention options shall be calculated as follows:
118	a.  The board shall calculate and report to each TEACO
119	insurer the TEACO retention multiples. There shall be three
120	TEACO retention multiples for defining coverage. Each multiple
121	shall be calculated by dividing $3 billion, $4 billion, or $5
122	billion by the total estimated TEACO reimbursement premium
123	assuming all insurers selected that option. Total estimated
124	TEACO reimbursement premium for purposes of the calculation
125	under this sub-subparagraph shall be calculated using the
126	assumption that all insurers have selected a specific TEACO
127	retention multiple option and have selected the 90-percent
128	coverage level.
129	b.  The TEACO retention multiples as determined under sub-
130	subparagraph a. shall be adjusted to reflect the coverage level
131	elected by the insurer. For insurers electing the 90-percent
132	coverage level, the adjusted retention multiple is 100 percent
133	of the amount determined under sub-subparagraph a. For insurers
134	electing the 75-percent coverage level, the retention multiple
135	is 120 percent of the amount determined under sub-subparagraph
136	a. For insurers electing the 45-percent coverage level, the
137	adjusted retention multiple is 200 percent of the amount
138	determined under sub-subparagraph a.
139	c.  An insurer shall determine its provisional TEACO
140	retention by multiplying its provisional TEACO reimbursement
141	premium by the applicable adjusted TEACO retention multiple and
142	shall determine its actual TEACO retention by multiplying its
143	actual TEACO reimbursement premium by the applicable adjusted
144	TEACO retention multiple.
145	d.  For TEACO insurers who experience multiple covered
146	events causing loss during the contract term beginning June 1,
147	2007, and ending May 31, 2008, or the contract year beginning
148	June 1, 2008, the insurer's full TEACO retention shall be
149	applied to each of the covered events causing the two largest
150	losses for that insurer. For other covered events resulting in
151	losses, the TEACO option does not apply and the insurer's
152	retention shall be one-third of the full retention as calculated
153	under paragraph (2)(e).
154	5.  "TEACO addendum" means an addendum to the reimbursement
155	contract reflecting the obligations of the fund and TEACO
156	insurers under the program created by this subsection.
157	(e)  TEACO addendum.--
158	1.  The TEACO addendum shall provide for reimbursement of
159	TEACO insurers for covered events occurring between June 1,
160	2007, and May 31, 2008, and between June 1, 2008, and May 31,
161	2009, in exchange for the TEACO reimbursement premium paid into
162	the fund under paragraph (f). Any insurer writing covered
163	policies has the option of choosing to accept the TEACO
164	addendum.
165	2.  The TEACO addendum shall contain a promise by the board
166	to reimburse the TEACO insurer for 45 percent, 75 percent, or 90
167	percent of its losses from each covered event in excess of the
168	insurer's TEACO retention, plus 5 percent of the reimbursed
169	losses to cover loss adjustment expenses. The percentage shall
170	be the same as the coverage level selected by the insurer under
171	paragraph (4)(b).
172	3.  The TEACO addendum shall provide that reimbursement
173	amounts shall not be reduced by reinsurance paid or payable to
174	the insurer from other sources.
175	4.  The TEACO addendum shall also provide that the
176	obligation of the board with respect to all TEACO addenda shall
177	not exceed an amount equal to two times the difference between
178	the industry retention level calculated under paragraph (2)(e)
179	and the $3 billion, $4 billion, or $5 billion industry TEACO
180	retention level options actually selected, but in no event may
181	the board's obligation exceed the actual claims-paying capacity
182	of the fund plus the additional capacity created in paragraph
183	(g). If the actual claims-paying capacity and the additional
184	capacity created under paragraph (g) fall short of the board's
185	obligations under the reimbursement contract, each insurer's
186	share of the fund's capacity shall be pro rated based on the
187	premium an insurer pays for its normal reimbursement coverage
188	and the premium paid for its optional TEACO coverage as each
189	such premium bears to the total premiums paid to the fund times
190	the available capacity.
191	5.  The priorities, schedule, and method of reimbursements
192	under the TEACO addendum shall be the same as provided under
193	subsection (4).
194	6.  A TEACO insurer's maximum reimbursement under the TEACO
195	addendum shall be calculated by multiplying the insurer's share
196	of the estimated total TEACO reimbursement premium as calculated
197	under sub-subparagraph (d)4.a. by an amount equal to two times
198	the difference between the industry retention level calculated
199	under paragraph (2)(e) and the $3 billion, $4 billion, or $5
200	billion industry TEACO retention level specified in sub-
201	subparagraph (d)4.a. as selected by the TEACO insurer.
202	(f)  TEACO reimbursement premiums.--
203	1.  Each TEACO insurer shall pay to the fund, in the manner
204	and at the time provided in the reimbursement contract for
205	payment of reimbursement premiums, a TEACO reimbursement premium
206	calculated as specified in this paragraph.
207	2.  The TEACO reimbursement premiums shall be calculated
208	based on the assumption that, if all insurers entering into
209	reimbursement contracts under subsection (4) also accepted the
210	TEACO option:
211	a.  The industry TEACO reimbursement premium associated
212	with the $3 billion retention option would be equal to 85
213	percent of the difference between the industry retention level
214	calculated under paragraph (2)(e) and the $3 billion industry
215	TEACO retention level.
216	b.  The TEACO reimbursement premium associated with the $4
217	billion retention option would be equal to 80 percent of the
218	difference between the industry retention level calculated under
219	paragraph (2)(e) and the $4 billion industry TEACO retention
220	level.
221	c.  The TEACO premium associated with the $5 billion
222	retention option would be equal to 75 percent of the difference
223	between the industry retention level calculated under paragraph
224	(2)(e) and the $5 billion industry TEACO retention level.
225	3.  Each insurer's TEACO premium shall be calculated based
226	on its share of the total TEACO reimbursement premiums based on
227	its coverage selection under the TEACO addendum.
228	(g)  Effect on claims-paying capacity of the fund.--For the
229	contract term commencing June 1, 2007, and the contract year
230	commencing June 1, 2008, the program created by this subsection
231	shall increase the claims-paying capacity of the fund as
232	provided in subparagraph (4)(c)1. by an amount equal to two
233	times the difference between the industry retention level
234	calculated under paragraph (2)(e) and the $3 billion industry
235	TEACO retention level specified in sub-subparagraph (d)4.a. The
236	additional capacity shall apply only to the additional coverage
237	provided by the TEACO option and shall not otherwise affect any
238	insurer's reimbursement from the fund.
239	(17)  TEMPORARY INCREASE IN COVERAGE LIMIT OPTIONS.--
240	(a)  Findings and intent.--
241	1.  The Legislature finds that:
242	a.  Because of temporary disruptions in the market for
243	catastrophic reinsurance, many property insurers were unable to
244	procure sufficient amounts of reinsurance for the 2006 hurricane
245	season or were able to procure such reinsurance only by
246	incurring substantially higher costs than in prior years.
247	b.  The reinsurance market problems were responsible, at
248	least in part, for substantial premium increases to many
249	consumers and increases in the number of policies issued by
250	Citizens Property Insurance Corporation.
251	c.  It is likely that the reinsurance market disruptions
252	will not significantly abate prior to the 2007 hurricane season.
253	2.  It is the intent of the Legislature to create options
254	for insurers to purchase a temporary increased coverage limit
255	above the statutorily determined limit in subparagraph (4)(c)1.,
256	applicable for the 2007 and 2008 hurricane seasons, to address
257	market disruptions and enable insurers, at their option, to
258	procure additional coverage from the Florida Hurricane
259	Catastrophe Fund.
260	(b)  Applicability of other provisions of this
261	section.--All provisions of this section and the rules adopted
262	under this section apply to the coverage created by this
263	subsection unless specifically superseded by provisions in this
264	subsection.
265	(c)  Additional definitions.--As used in this subsection,
266	the term:
267	1.  "FHCF" means Florida Hurricane Catastrophe Fund.
268	2.  "FHCF reimbursement premium" means the premium paid by
269	an insurer for its coverage as a mandatory participant in the
270	FHCF, but does not include additional premiums for optional
271	coverages.
272	3.  "Payout multiple" means the number or multiple created
273	by dividing the statutorily defined claims-paying capacity as
274	determined in subparagraph (4)(c)1. by the aggregate
275	reimbursement premiums paid by all insurers estimated or
276	projected as of calendar year-end.
277	4.  "TICL" means the temporary increase in coverage limit.
278	5.  "TICL options" means the temporary increase in coverage
279	options created under this subsection.
280	6.  "TICL insurer" means an insurer that has opted to
281	obtain coverage under the TICL options addendum in addition to
282	the coverage provided to the insurer under its FHCF
283	reimbursement contract.
284	7.  "TICL reimbursement premium" means the premium charged
285	by the fund for coverage provided under the TICL option.
286	8.  "TICL coverage multiple" means the coverage multiple
287	when multiplied by an insurer's reimbursement premium that
288	defines the temporary increase in coverage limit.
289	9.  "TICL coverage" means the coverage for an insurer's
290	losses above the insurer's statutorily determined claims-paying
291	capacity based on the claims-paying limit in subparagraph
292	(4)(c)1., which an insurer selects as its temporary increase in
293	coverage from the fund under the TICL options selected. A TICL
294	insurer's increased coverage limit options shall be calculated
295	as follows:
296	a.  The board shall calculate and report to each TICL
297	insurer the TICL coverage multiples based on twelve options for
298	increasing the insurer's FHCF coverage limit. Each TICL coverage
299	multiple shall be calculated by dividing $1 billion, $2 billion,
300	$3 billion, $4 billion, $5 billion, $6 billion, $7 billion, $8
301	billion, $9 billion, $10 billion, $11 billion, and $12 billion
302	by the total estimated aggregate FHCF reimbursement premiums for
303	the 2007-2008 reimbursement contract year and for the 2008-2009
304	reimbursement contract year.
305	b.  The TICL insurer's increased coverage shall be the FHCF
306	reimbursement premium multiplied by the TICL coverage multiple.
307	In order to determine an insurer's total limit of coverage, an
308	insurer shall add its TICL coverage multiple to its payout
309	multiple. The total shall represent a number that, when
310	multiplied by an insurer's FHCF reimbursement premium for a
311	given reimbursement contract year, defines an insurer's total
312	limit of FHCF reimbursement coverage for that reimbursement
313	contract year.
314	10.  "TICL options addendum" means an addendum to the
315	reimbursement contract reflecting the obligations of the fund
316	and insurers selecting an option to increase an insurer's FHCF
317	coverage limit.
318	(d)  TICL options addendum.--
319	1.  The TICL options addendum shall provide for
320	reimbursement of TICL insurers for covered events occurring
321	between June 1, 2007, and May 31, 2008, and between June 1,
322	2008, and May 31, 2009, in exchange for the TICL reimbursement
323	premium paid into the fund under paragraph (e). Any insurer
324	writing covered policies has the option of selecting an
325	increased limit of coverage under the TICL options addendum and
326	shall select such coverage at the time that it executes the FHCF
327	reimbursement contract.
328	2.  The TICL addendum shall contain a promise by the board
329	to reimburse the TICL insurer for 45 percent, 75 percent, or 90
330	percent of its losses from each covered event in excess of the
331	insurer's retention, plus 5 percent of the reimbursed losses to
332	cover loss adjustment expenses. The percentage shall be the same
333	as the coverage level selected by the insurer under paragraph
334	(4)(b).
335	3.  The TICL addendum shall provide that reimbursement
336	amounts shall not be reduced by reinsurance paid or payable to
337	the insurer from other sources.
338	4.  The priorities, schedule, and method of reimbursements
339	under the TICL addendum shall be the same as provided under
340	subsection (4).
341	(e)  TICL reimbursement premiums.--
342	1.  Each TICL insurer shall pay to the fund, in the manner
343	and at the time provided in the reimbursement contract for
344	payment of reimbursement premiums, a TICL reimbursement premium
345	calculated as specified in this paragraph.
346	2.  Each insurer's TICL premium shall be calculated based
347	on the additional limit of increased coverage that it selects.
348	Such limit is determined by multiplying the TICL multiple
349	associated with one of the twelve options times the insurer's
350	FHCF reimbursement premium. For the amount of increased coverage
351	based on the option of using $1 billion to derive the TICL
352	multiple, the rate-on-line for such coverage shall be 20
353	percent. For the option using $2 billion, the rate-on-line shall
354	be 19 percent; for the option using $3 billion, the rate-on-line
355	shall be 18 percent; for the option using $4 billion, the rate-
356	on-line shall be 17 percent; for the option using $5 billion,
357	the rate-on-line shall be 16 percent; for the option using $6
358	billion, the rate-on-line shall be 15 percent; for the option
359	using $7 billion, the rate-on-line shall be 14 percent; for the
360	option using $8 billion, the rate-on-line shall be 13 percent;
361	for the option using $9 billion, the rate-on-line shall be 12
362	percent; for the option using $10 billion, the rate-on-line
363	shall be 11 percent; for the option using $11 billion, the rate-
364	on-line shall be 10 percent; and for the option using $12
365	billion, the rate-on-line shall be 9 percent.
366	(f)  Effect on claims-paying capacity of the fund.--For the
367	contract terms commencing June 1, 2007, and June 1, 2008, the
368	program created by this subsection shall increase the claims-
369	paying capacity of the fund as provided in subparagraph (4)(c)1.
370	by an amount not to exceed $12 billion dollars and shall depend
371	on the TICL coverage options selected and the number of insurers
372	that select the TICL optional coverage. The additional capacity
373	shall apply only to the additional coverage provided under the
374	TICL options and shall not otherwise affect any insurer's
375	reimbursement from the fund if the insurer chooses not to select
376	the temporary option to increase its limit of coverage under the
377	FHCF.
378	(g)  Setting of reimbursement premiums of the
379	fund.--Notwithstanding subparagraph (e)2., for the contract
380	years commencing June 1, 2007, and June 1, 2008, the board may
381	set the TICL reimbursement premiums, consistent with prudent
382	management of the fund and subject to the approval of the
383	Legislative Budget Commission; however, the board shall not
384	lower the rate-on-line below 10 percent per option.
385	(h)  Increasing the claims-paying capacity of the
386	fund.--For the contract years commencing June 1, 2007, and June
387	1, 2008, the board may increase the claims-paying capacity of
388	the fund as provided in paragraph (f) by an amount not to exceed
389	$2 billion in two $1 billion options and shall depend on the
390	TICL coverage options selected and the number of insurers that
391	select the TICL optional coverage. Each insurer's TICL premium
392	shall be calculated based upon the additional limit of increased
393	coverage that the insurer selects. Such limit is determined by
394	multiplying the TICL multiple associated with one of the two
395	options times the insurer's FHCH reimbursement premium. The
396	board may set the reimbursement premium associated with the
397	additional coverage provided in this paragraph; however, the
398	rate-on-line for such coverage shall be no lower than 10
399	percent.
400	Section 3.  An insurer that elects the TEACO or TICL
401	coverage option required to be offered by the Florida Hurricane
402	Catastrophe Fund under s. 215.555(16) and (17), Florida
403	Statutes, must make a rate filing with the Office of Insurance
404	Regulation which reflects 100 percent of the savings or the
405	reduction in loss exposure to the insurer. At a minimum, the
406	insurer must provide a 25-percent reduction in premium based on
407	the savings obtained under the TEACO or TICL coverage option.
408	The Financial Services Commission may grant a waiver of the 25-
409	percent reduction requirement for good cause and if the insurer
410	has made best efforts to meet the 25-percent reduction
411	requirement. The office shall specify, by order, the date or
412	dates on which such filings must be made, in order to provide
413	rate relief to policyholders as soon as practicable.
414	Section 4.  This act shall take effect upon becoming a law.

CODING: Words stricken are deletions; words underlined are additions.