Florida Hurricane

Question 1

What is FHCF (Florida Hurricane Catastrophe Fund)

Answer 1

• state trust fund that provides reimbursement to residential property insurers for a portion of their Florida catastrophic hurricane losses

Question 2

Reason for creation of FHCF

Answer 2

• hurricane Andrew in 1992 caused billions in damage and multiple insurer insolvencies
• unstable property ins mkt can negatively impact FL’s econ
• FHCF provides a stable and ongoing source of reimbursement to insurers (protecting and advancing state’s insurance capacity)

Question 3

Why are FHCF prems lower vs mkt prices (2)

Answer 3

• does not include a profit factor or risk load
• exempt from federal taxes

Question 4

Is participation in FHCF mandatory for FL insurers

Answer 4

Yes
- if insurer holds a certificate of authority to write residential property insurance
- if insurer has exposures above de minimis threshold (participation = purchasing FHCF reimbursement contract)

Question 5

What does FHCF cover?

Answer 5

a % of insurer’s covered loss between its retention and coverage limit (plus 10% allowance for LAE)

Question 6

How is coverage % of an insurer determined with FHCF

Answer 6

selected by insurer when FHCF reimbursement contract is purchased

Question 7

How are FHCF prems, retentions, and coverage limits determined

Answer 7

• based on each insurer’s annual reporting of insured values (by line, construction type, zip code, acceptable hurricane loss projection model)

Question 8

How FHCF is self-supporting

Answer 8

• FHCF charges actuarially determined prems
• FHCF can rely on proceeds from bonds backed by assessments (if cash balance of fund is insufficient)
• FHCF engages in finance and risk-transfer activities (improves liquidity and minimizes assessments)

Question 9

FHCF operational responsibilities

Answer 9

• manages in-house operations and oversees outside service providers
• specific staff responsibilities: admin, financial ops, audit prep, clms examinations, debt financing, legal
• FHCF contracts with outside service providers
• FHCF relies on SBA (state board of admin) for investment and tech services
• FHCF advisory council provides advice regarding implementation of FHCF statute

Question 10

Formula for calculating FHCF retention level

Answer 10

retention level = FHCF prem * retention multiple

Question 11

Formula for calculating FHCF coverage limit

Answer 11

coverage limit = FHCF * payout multiple

Question 12

Are reimbursements to insurers from FHCF unlimited

Answer 12

No, limited by:
- cash balance of FHCF
- risk transfer recoveries
- amts FHCF is able to borrow through bonds

Question 13

How often does FHCF recalculate its claims-paying ability

Answer 13

Each May and Oct for upcoming 12 and 24-mo periods

Question 14

After hurricane, under what circumstances would FHCF issue bonds

Answer 14

• when projected reimbursement payments exceed cash resources

Question 15

How are FHCF-issued bonds repaid

Answer 15

• emergency assessments on most P/C ins prems (WC, Med Mal, A&H, NFIP are exempt)

Question 16

Max permissible assessment that FHCF can charge

Answer 16

• 6% of losses attributable to any one year
• 10% of losses attributable to multiple years

Question 17

What org handles issuance of bonds for FHCF

Answer 17

State Board of Admin Finance Corporation

Question 18

How does FHCF meet its liquidity need to make prompt payments to insurers

Answer 18

by issuing pre-event debt (doesn’t add to claims paying capacity, but helps assure prompt payments)