Florida Senate - 2014                                     SB 228
       By Senator Ring
       29-00064-14                                            2014228__
    1                        A bill to be entitled                      
    2         An act relating to the Florida Hurricane Catastrophe
    3         Fund; amending s. 215.555, F.S.; revising definitions
    4         for the terms “losses” and “retention”; revising
    5         requirements for reimbursement contracts; revising
    6         provisions relating to times and circumstances wherein
    7         the State Board of Administration publishes certain
    8         statements and notices relating to the fund; requiring
    9         the board to negotiate a line of credit to reimburse
   10         insurers under certain circumstances; deleting a
   11         requirement that the formula for determining premiums
   12         to be paid to the fund include a cash build-up factor;
   13         deleting obsolete provisions; providing an effective
   14         date.
   16  Be It Enacted by the Legislature of the State of Florida:
   18         Section 1. Paragraphs (d) and (e) of subsection (2),
   19  paragraphs (c) and (d) of subsection (4), and paragraph (b) of
   20  subsection (5) of section 215.555, Florida Statutes, are amended
   21  to read:
   22         215.555 Florida Hurricane Catastrophe Fund.—
   23         (2) DEFINITIONS.—As used in this section:
   24         (d) “Losses” means all incurred losses under covered
   25  policies, including additional living expenses of up to not to
   26  exceed 40 percent of the insured value of a residential
   27  structure or its contents, allocated loss adjustment expenses,
   28  and amounts paid as fees on behalf of or inuring to the benefit
   29  of a policyholder. The term does not include:
   30         1. Losses for fair rental value, loss of rent or rental
   31  income, or business interruption losses;
   32         2. Losses under liability coverages;
   33         3. Property losses that are proximately caused by any peril
   34  other than a covered event, including, but not limited to, fire,
   35  theft, flood or rising water, or windstorm that does not
   36  constitute a covered event;
   37         4. Amounts paid as the result of a voluntary expansion of
   38  coverage by the insurer, including, but not limited to, a waiver
   39  of an applicable deductible; or
   40         5. Amounts paid to reimburse a policyholder for condominium
   41  association or homeowners’ association loss assessments or under
   42  similar coverages for contractual liabilities;
   43         6. Amounts paid as bad faith awards, punitive damage
   44  awards, or other court-imposed fines, sanctions, or penalties;
   45         7. Amounts in excess of the coverage limits under the
   46  covered policy; or
   47         8.Allocated or Unallocated loss adjustment expenses.
   48         (e) “Retention” means the amount of losses below which an
   49  insurer is not entitled to reimbursement from the fund. An
   50  insurer’s retention shall be calculated as follows:
   51         1.  The board shall calculate and report to each insurer
   52  the retention multiples for each that year. For the contract
   53  year. The beginning June 1, 2005, the retention multiple shall
   54  be equal to $4.5 billion divided by the total estimated
   55  reimbursement premium for the contract year; for subsequent
   56  years, the retention multiple must shall be equal to $4.5
   57  billion, adjusted based upon the reported exposure for the
   58  contract year occurring 2 years before the particular contract
   59  year to reflect the percentage growth in exposure to the fund
   60  for covered policies since 2004, divided by the total estimated
   61  reimbursement premium for the contract year. Total reimbursement
   62  premium for purposes of the calculation under this subparagraph
   63  shall be estimated using the assumption that all insurers have
   64  selected the 90-percent coverage level. Effective June 1, 2015,
   65  the aggregate retention level may not exceed $5 billion.
   66         2. The retention multiple as determined under subparagraph
   67  1. shall be adjusted to reflect the coverage level elected by
   68  the insurer. For insurers electing the 90-percent coverage
   69  level, the adjusted retention multiple is 100 percent of the
   70  amount determined under subparagraph 1. For insurers electing
   71  the 75-percent coverage level, the retention multiple is 120
   72  percent of the amount determined under subparagraph 1. For
   73  insurers electing the 45-percent coverage level, the adjusted
   74  retention multiple is 200 percent of the amount determined under
   75  subparagraph 1.
   76         3. An insurer shall determine its provisional retention by
   77  multiplying its provisional reimbursement premium by the
   78  applicable adjusted retention multiple and shall determine its
   79  actual retention by multiplying its actual reimbursement premium
   80  by the applicable adjusted retention multiple.
   81         4. For insurers who experience multiple covered events
   82  causing loss during the contract year, beginning June 1, 2005,
   83  each insurer’s full retention shall be applied to each of the
   84  covered events causing the two largest losses for that insurer.
   85  For each other covered event resulting in losses, the insurer’s
   86  retention shall be reduced to one-third of the full retention.
   87  The reimbursement contract shall provide for the reimbursement
   88  of losses for each covered event based on the full retention
   89  with adjustments made to reflect the reduced retentions on or
   90  after January 1 of the contract year provided the insurer
   91  reports its losses as specified in the reimbursement contract.
   93         (c)1. The contract must shall also provide that the
   94  obligation of the board with respect to all contracts covering a
   95  particular contract year be shall not exceed the actual claims
   96  paying capacity of the fund up to a limit of $17 billion for
   97  that contract year, unless the board determines that there is
   98  sufficient estimated claims-paying capacity to provide $17
   99  billion of capacity for the current contract year and an
  100  additional $17 billion of capacity for subsequent contract
  101  years. If the board makes such a determination, the estimated
  102  claims-paying capacity for the particular contract year shall be
  103  determined by adding to the $17 billion limit one-half of the
  104  fund’s estimated claims-paying capacity in excess of $34
  105  billion. However, the dollar growth in the limit may not
  106  increase in any year by an amount greater than the dollar growth
  107  of the balance of the fund as of December 31, less any premiums
  108  or interest attributable to optional coverage, as defined by
  109  rule which occurred over the prior calendar year.
  110         2. Each January In May and October of the contract year,
  111  the board shall publish in the Florida Administrative Register a
  112  statement of the fund’s estimated borrowing capacity and, the
  113  fund’s estimated claims-paying capacity, and the projected
  114  balance of the fund as of December 31. Upon completing the
  115  estimation of the fund’s claims-paying capacity After the end of
  116  each calendar year, the board shall notify insurers of the
  117  estimated borrowing capacity, the estimated claims-paying
  118  capacity, and the balance of the fund as of December 31 to
  119  provide insurers with data necessary to assist them in
  120  determining their retention and projected payout from the fund
  121  for loss reimbursement purposes. In conjunction with the
  122  development of the premium formula, as provided for in
  123  subsection (5), the board shall publish factors or multiples
  124  that assist insurers in determining their retention and
  125  projected payout for the next contract year. For all regulatory
  126  and reinsurance purposes, an insurer may calculate its projected
  127  payout from the fund as its share of the total fund premium for
  128  the current contract year multiplied by the sum of the projected
  129  balance of the fund as of December 31 and the estimated
  130  borrowing capacity for that contract year as reported under this
  131  subparagraph. The statement must include an estimate for a
  132  minimum of 3 years of bonding capacity.
  133         (d)1. For purposes of determining potential liability and
  134  to aid in the sound administration of the fund, the contract
  135  must shall require each insurer to report such insurer’s losses
  136  from each covered event on an interim basis, as directed by the
  137  board. The contract must shall require the insurer to report to
  138  the board by no later than December 31 of each year, and
  139  quarterly thereafter, its reimbursable losses from covered
  140  events for the year. The contract must shall require the board
  141  to determine and pay, as soon as practicable after receiving
  142  these reports of reimbursable losses, the initial amount of
  143  reimbursement due and adjustments to this amount based on later
  144  loss information. The adjustments to reimbursement amounts must
  145  shall require the board to pay, or the insurer to return,
  146  amounts reflecting the most recent calculation of losses.
  147         2. In determining reimbursements pursuant to this
  148  subsection, the contract must shall provide that the board shall
  149  pay to each insurer the such insurer’s projected payout, which
  150  is the amount of reimbursement it is owed, up to an amount equal
  151  to the insurer’s share of the actual premium paid for that
  152  contract year, multiplied by the insurer’s share of the limit
  153  specified in subparagraph (c)1 actual claims-paying capacity
  154  available for that contract year.
  155         3. The board may reimburse insurers for amounts up to the
  156  published factors or multiples for determining each
  157  participating insurer’s retention and projected payout derived
  158  as a result of the development of the premium formula in those
  159  situations in which the total reimbursement of losses to such
  160  insurers would not exceed the estimated claims-paying capacity
  161  of the fund. Otherwise, the projected payout factors or
  162  multiples shall be reduced uniformly among all insurers to
  163  reflect the estimated claims-paying capacity.
  164         4. The board shall negotiate a line of credit to reimburse
  165  insurers if payments exceed available assets and bonding
  166  receipts. The line of credit must be sufficient to cover
  167  projected receipts from a minimum of 3 years’ bonding and for
  168  second-event catastrophes. The line of credit must be closed by
  169  July 1, 2015.
  170         (5) REIMBURSEMENT PREMIUMS.—
  171         (b) The State Board of Administration shall select an
  172  independent consultant to develop a formula for determining the
  173  actuarially indicated premium to be paid to the fund. The
  174  formula shall specify, for each zip code or other limited
  175  geographical area, the amount of premium to be paid by an
  176  insurer for each $1,000 of insured value under covered policies
  177  in that zip code or other area. In establishing premiums, the
  178  board shall consider the coverage elected under paragraph (4)(b)
  179  and any factors that tend to enhance the actuarial
  180  sophistication of ratemaking for the fund, including
  181  deductibles, type of construction, type of coverage provided,
  182  relative concentration of risks, and other such factors deemed
  183  appropriate by the board to be appropriate. The formula must
  184  provide for a cash build-up factor. For the 2009-2010 contract
  185  year, the factor is 5 percent. For the 2010-2011 contract year,
  186  the factor is 10 percent. For the 2011-2012 contract year, the
  187  factor is 15 percent. For the 2012-2013 contract year, the
  188  factor is 20 percent. For the 2013-2014 contract year and
  189  thereafter, the factor is 25 percent. The formula may provide
  190  for a procedure for determining to determine the premiums to be
  191  paid by new insurers that begin writing covered policies after
  192  the beginning of a contract year, taking into consideration when
  193  the insurer starts writing covered policies, the potential
  194  exposure of the insurer, the potential exposure of the fund, the
  195  administrative costs to the insurer and to the fund, and any
  196  other factors deemed appropriate by the board. The formula must
  197  be approved by unanimous vote of the board. The board may, at
  198  any time, revise the formula pursuant to the procedure provided
  199  in this paragraph.
  200         Section 2. This act shall take effect July 1, 2014.