2010 Hurricane Season Begins: Knowing, Understanding and Better Managing the Risks, Part I: State of the Florida Marketplace:   The 2010 hurricane season kicked-off on June 1 and the meteorological forces wasted no time in getting down to business. Tropical storm Agatha slammed into Central America, killing at least 101 people. The hurricane season kick-off and the storm occurred as backdrops to the wrap up of the June 1, 2010 reinsurance renewals, traditionally centered on the Florida property marketplace.

2010 Hurricane Season Begins: Knowing, Understanding and Better Managing the Risks, Part II: Florida Hurricane Catastrophe Fund, Innovative Products: One of the critical components in the majority of Florida contracts renewing at June 1 is the structure of the Florida Hurricane Catastrophe Fund (FHCF). While factors influencing the FHCF structure overall were dealt with earlier than in prior years, there remained questions regarding the viability of the TICL layer and rating agencies’ treatment of TICL within the reinsurance structure.

2010 Hurricane Season Begins: Knowing, Understanding and Better Managing the Risks, Part III: 2010 Hurricane Forecast: To coincide with the start of the hurricane season, Guy Carpenter has summarized the various forecasters’ predictions for the 2010 season. Several meteorologists have released forecasts for the forthcoming hurricane season and there seems to be a general consensus that 2010 will see unusually high activity. If this prediction proves to be true, the 2010 hurricane season will stand in sharp contrast to the relatively quiet 2009 season.

2010 Hurricane Season Begins: Knowing, Understanding and Better Managing the Risks, Part IV: Tools for Understanding and Managing Risk: Guy Carpenter offers the solutions to help (re)insurers manage the risks associated with hurricane exposures and preparedness through our forward looking hazard forecasting tools. Assessing the impact and potential loss damage of hurricane activity on a risk portfolio can now be accomplished with more detailed information than ever before.

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Lara Mowery, Managing Director and Julian Alovisi, Senior Vice President
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Florida Hurricane Catastrophe Fund

One of the critical components in the majority of Florida contracts renewing at June 1 is the structure of the Florida Hurricane Catastrophe Fund (FHCF). While factors influencing the FHCF structure overall were dealt with earlier than in prior years, there remained questions regarding the viability of the TICL layer and rating agencies’ treatment of TICL within the reinsurance structure. In 2009 there was considerable concern regarding the viability of this upper layer of coverage due to the impact of the financial crisis on the municipal bond market, which the FHCF utilizes to pay post event claims above their available cash on hand. Statutorily, the legislature reduced coverage offered by USD2 billion to USD10 billion last year. Due in part to companies’ concerns regarding the timing of payments received from TICL, only USD5.56 billion was taken up. Of this, approximately 65 percent was selected by Citizens Property Insurance Corporation (Citizens).

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Lara Mowery, Managing Director

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At each Florida renewal season there are many challenges companies face in designing and placing their reinsurance programs. This year was no exception. While companies deal with navigating the challenges of the Florida Hurricane Catastrophe Fund (FHCF) integration each year, 2010 also included heightened commentary by rating agencies regarding acceptable risk transfer approaches, the Florida Office of Insurance Regulation’s (OIR’s) own views on risk transfer and an environment of continuing economic turmoil specific to the Florida insurance environment.

In a positive development for these companies, reinsurance pricing continued its 2010 trend of price declines and dropped year over year on a risk adjusted basis by 10 percent to 12 percent on average. This drop returns pricing to a level close to that seen in 2008, particularly in upper layers.

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Lara Mowery, Managing Director and Head of Global Property Specialty
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Property-catastrophe reinsurance rates increased by 15 percent at the Florida-centric June 1, 2009 renewal — compared to a 15 percent decline a year ago. Capacity was more limited than in recent years — however, still adequate to complete renewals. Though the ultimate result was higher than the 10 percent to 14 percent change for U.S. national reinsurers at April 1, 2009, the intricacies of the Florida market render it directionally consistent with the overall rate trend for this year. Constraints on capital have pushed risk-transfer pricing higher, but shortages were not so severe that rates spiked as they did in 2006.

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Florida Governor Charlie Crist signed the omnibus insurance bill (HB 1495) into law yesterday, along with 40 other bills. Over the next six years, this measure is intended to reduce the state’s property-catastrophe exposure to USD12 billion, with private reinsurers making up the difference.

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Guy Carpenter Florida Operating Committee
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This week’s topics include:

• Florida Governor Receives Four Bills for Signature
• FHCF Update: Bonding Estimates and Rule Decisions
• Citizens Update: Rate Filings, Disputed Claims Forms, and Commercial Lines Policies

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Guy Carpenter Florida Operating Committee
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This week’s topics include:

• Crist Likely to Pass Property Insurance Bill (HB 1495) Including Citizens Rate Increase, Possibly Veto Deregulation
• Citizens Board Met to Discuss Reinsurance and TICL Purchases
• Raymond James to Present Updated FHCF Bonding Capacity Estimates

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Guy Carpenter Florida Operating Committee
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This week’s topics include:

• Omnibus Insurance Bill Passes House and Senate
• Rate Deregulation Property Insurance Bill Passes House and Senate
• Citizens Property Insurance Corporation (”Citizens”) to Sell USD2 Billion in Bonds
• Sinkhole Bill Passes House and Senate

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Guy Carpenter Florida Operating Committee
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This week’s topics include:

• Florida House Votes for Property Bill, Compromise with Senate Targeted for Friday
• Senate Surplus Lines Bill Amended to Preserve Retroactivity for Pending Claims Only
• Rate Deregulation Property Policy Legislation Reviewed by Florida House
• Federal Disaster Aid Available to 11 North Florida Counties

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Guy Carpenter Florida Operating Committee
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This weeks’s topics include:

• Committee Sends Property Insurance Bill to Full Florida Senate
• Non-Assessable Property Policy Legislation Clears Senate Banking & Insurance Committee
• Florida Seeks Federal Funding to Back up FHCF
• Florida SBA Presented on FHCF to the Florida Cabinet
• MSFH Could Reduce Hurricane Losses Significantly

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