May 4th, 2009

Florida Insurance Roundup: Apr 27 – May 3, 2009

Posted at 11:59 AM ET

Guy Carpenter Florida Operating Committee

This week’s topics include:

Omnibus Insurance Bill Passes House and Senate

The Florida House and Senate Passed the property insurance omnibus bill (the “Bill”) last Friday. It will now be sent to Governor Charlie Crist for signature.

Major provisions of the Bill:

  • Maintain the USD10 million limited apportionment company coverage option that allows eligible insurers to purchase this coverage until December 31, 2011 (this provision was also included in HB 569 in the event the Bill didn’t pass or was vetoed)
  • Reduce the Temporary Increase in Coverage Limit (TICL) layer by USD2 billion a year for the next six years to decrease the Florida Hurricane Catastrophe Fund (FHCF) exposure
  • Increase TICL premium by a factor of 2 for the 2009 contract year and then by factors of 3, 4, 5, and 6 in subsequent contract years
  • Reinstate the cash build-up factor for the mandatory FCHF layer increasing premium by 5 percent for the 2009 contract year and then by 10 percent, 15 percent, and 20 percent for subsequent contract years and finally 25 percent in 2013 and thereafter
  • Require the FHCF to reduce its reimbursement amounts to insurers uniformly if the FHCF lacks sufficient funds to pay all claims
  • Repeal the USD4 billion State Board of Administration-approved FHCF coverage program that (a) has never been offered and (b) would be additional TICL limit
  • Cap Citizens rate increases at 10 percent per policyholder per year
  • Allow Citizens to include the cost of the FHCF cash build-up factor in its rates, in addition to the 10 percent per policy per year increase
  • Extend the required reduction of Citizens’ high-risk boundaries to December 21, 2010
  • Permit insurers to recoup costs in a separate rate filing relating to the replacement or financing of TICL coverage. All costs contained within the filing cannot exceed 10 percent. The cost for liquidity products may not exceed 3 percent of the 10 percent total. This provision applies if the company has not implemented a rate increase within the previous 6 months and does not file for a rate increase for any purpose within 6 months after this filing. Rate changes implemented under this provision must be filed 45 days prior to the effective date of the rate change.

Provisions of previous House and Senate versions of the bill that did not make it into the final Bill include:

  • Limiting TICL coverage options to 75 percent or 45 percent for the 2009 contract year, 65 percent or 45 percent for 2010, 55 percent or 45 percent for 2011, 45 percent for 2012, 30 percent for 2013
  • Preventing Citizens from participating in TICL
  • Increasing the Citizens policyholder assessment
  • Requiring all rating agencies to disclose on their public reports or ratings whether they allowed FHCF reinsurance to be counted as an asset in their financial rating of the insurer

Rate Deregulation Property Insurance Bill Passes House and Senate

The bill would create a new section of Florida law that permits property insurers to offer residential property insurance policies covering the perils of windstorm or hurricane to use a rate in excess of the insurer’s filed rate, if the insurer is authorized to write property insurance in Florida, and at the time of policy issuance or first renewal:

  • Has USD500 million or more in policyholders surplus
  • Has USD200 million in surplus and a ratio of the insurer’s net written premium to surplus that does not exceed two to one
  • Has at least USD150 million in surplus and a primary purpose of offering insurance as a service or benefit to members of a nonprofit corporation
  • The insurer does not purchase TICL coverage from the FHCF

Citizens to Sell USD2 Billion in Bonds

Citizens is planning to sell bonds and notes of USD2 billion to increase its liquidity in advance of hurricane season. The bonds will be fixed-rate and tax-exempt, and the proceeds will be used for Citizens’ high-risk account, which provides wind-only residential insurance coverage. Proceeds from the sale will be invested in tax-exempt securities, pending the need to pay claims.  

Sinkhole Hill Passes House and Senate

Both the Florida House and Senate passed a bill relating to sinkhole losses and have sent it to Governor Crist. The bill would evaluate the effectiveness of sinkhole loss prevention ordinances in reducing the number of sinkholes and severity of sinkhole-related losses. It also allows insurers to non-renew policies in Pasco and Hernando counties, instead offering policyholders renewals excluding sinkhole coverage. Carriers can offer policyholders coverage that includes catastrophic ground cover collapse and excludes sinkhole coverage.

The bill requires the Florida Financial Services Commission to adopt a building code effectiveness grading schedule by rule, which is based on the effectiveness of code enforcement in each county and scientific, modeling, and engineering methodologies. The Commission then must evaluate ordinances no earlier than four years after they take effect. The Commission would have to adopt rules mandating insurance premium discounts or surcharges on personal residential property insurance based on a property’s compliance with an ordinance and the grade assigned to the applicable sinkhole loss prevention ordinance.


Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

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