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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Andrew Marcell, CEO of Americas Operation
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From the end of April to July, the (re)insurance industry steps through a rapid succession of renewals, leaving little time to turn lessons from one into an action plan for the next. April 1, 2009 is behind us, and the Florida renewal has nearly arrived — and it will shape worldwide market conditions for July 1, 2009. We’re halfway through this annual renewals gauntlet, but the continued push forward can obscure the considerable body of knowledge our industry has accumulated.

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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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