This rule is promulgated to implement Section 215.555, Florida Statutes, regarding the Florida Hurricane Catastrophe Fund, for the 2014-2015 contract year.

 

STATE BOARD OF ADMINISTRATION

RULE NO.:RULE TITLE:

19-8.028Reimbursement Premium Formula

PURPOSE AND EFFECT: This rule is promulgated to implement Section 215.555, Florida Statutes, regarding the Florida Hurricane Catastrophe Fund, for the 2014-2015 contract year.

SUMMARY: In accordance with Section 215.555(5), Florida Statutes, proposed amended Rule 19-8.028, F.A.C., Reimbursement Premium Formula, adopts the 2014-2015 reimbursement premium formula and the 2014-2015 reimbursement premium rates for the Florida Hurricane Catastrophe Fund. In addition, the proposed amended Rule makes editorial and grammatical corrections, deletes language relating to specialized fine arts and collectibles that now appears in the Reimbursement Contract adopted by Rule 19-8.010, F.A.C., and deletes obsolete or unnecessary language. The proposed amendments to Rule 19-8.028, F.A.C., Reimbursement Premium Formula, are necessitated by Section 215.555(5), Florida Statutes, which requires the State Board of Administration to use an independent consultant to develop actuarially indicated premiums for the annual reimbursement contract, by the need to provide additional clarification, and by the Governor’s initiative to reduce duplicative, obsolete, or unnecessary rule provisions.

OTHER RULES INCORPORATING THIS RULE: There are no other rules incorporating this rule. However, there are three rules which reference this rule: Rule 19-8.012, F.A.C., Rule 19-8.013, F.A.C., and Rule 19-8.030, F.A.C.

EFFECT ON THOSE OTHER RULES: The proposed changes to this rule have no impact on any of the three rules referencing this rule.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Upon review of the proposed changes to the rule and the incorporated documents, the State Board of Administration of Florida has determined that the rule does not meet the statutory threshold for ratification by the legislature.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 215.555(3) FS.

LAW IMPLEMENTED: 215.555(2), (3), (4), (5), (6), (7) FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:

DATE AND TIME: May 15, 2014, 9:00 a.m. until conclusion of meeting

PLACE: Room 116 (Hermitage Conference Room), 1801 Hermitage Blvd., Tallahassee, Florida 32308

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 7 days before the workshop/meeting by contacting: Leonard E. Schulte, Director of Legal Analysis & Risk Evaluation, Florida Hurricane Catastrophe Fund, 1801 Hermitage Blvd., Tallahassee, FL 32308, [phone], [e-mail]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Leonard E. Schulte at the number or email listed above

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

19-8.028 Reimbursement Premium Formula.

(1) Purpose. The purpose of this rule is to adopt the Premium Formula to determine the Actuarially Indicated Reimbursement Premium to be paid to the Florida Hurricane Catastrophe Fund (FHCF or Fund), as required by Section 215.555(5)(b), F.S.

(2) Definitions. The terms defined below will be capitalized in this rule.

(a) Actuarially Indicated Premium means Premiums which are derived according to or consistent with accepted actuarial standards of practice. Actuarially Indicated means an amount determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate, to pay current and future obligations and expenses of the Fund, and determined according to principles of actuarial science to reflect each insurer’s relative exposure to hurricane losses.

(b) Board or SBA means the State Board of Administration of Florida.

(c) Citizens Property Insurance Corporation or Citizens means the entity formed under Section 627.351, F.S., and refers to both Citizens Property Insurance Corporation Coastal Account and Citizens Property Insurance Corporation Personal Lines and Commercial Lines Accounts.

(d) Contract Year means the time period which begins at 12:00:01 Eastern Time on June 1 of each calendar year and ends at 12:00 p.m. midnight on May 31 of the following calendar year.

(e) Covered Policy is defined in Section 215.555(2)(c), F.S., and the Reimbursement Contract adopted by and incorporated into Rule 19-8.010, F.A.C.

(f) Data Call or Florida Hurricane Catastrophe Fund Data Call means the annual reporting of insured values Fform FHCF-D1A, as adopted and incorporated into Rule 19-8.029, F.A.C.

(g) Formula or the Premium Formula means the Formula approved by the SBA for the purpose of determining the Actuarially Indicated Premium to be paid to the FHCF. The Premium Formula is defined as an approach or methodology which leads to the creation of premium rates. The resulting rates are therefore incorporated as part of the Premium Formula, and are the result of the approach or methodology employed.

(h) FHCF or Fund means the Florida Hurricane Catastrophe Fund.

(i) Independent Consultant or Consultant means the independent individual, firm, or organization with which the SBA contracts to prepare the Premium Formula and any other actuarial services for the FHCF, as determined under the contract with the Consultant.

(j) New Participants. The term means all Companies which are granted a certificate of authority by the Department of Financial Services after the beginning of the FHCF’s Contract Year on June 1 and which write Covered Policies, or which already have a certificate of authority and begin writing Covered Policies on or after the beginning of the FHCF’s Contract Year on June 1 and did not or were was not required to enter into a contract on June 1 of the Contract Year. A Company that enters into an assumption agreement with Citizens that includes Covered Policies and is effective on or after June 1 and had written no other Covered Policies on or before June 1 is also considered a New Participant.

(k) Premium means the same as Reimbursement Premium, which is the Premium which is determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), F.S. paragraph (5)(b) of the statute, by the rate as derived from the Premium Formula.

(3) The Premium Formula.

(a) Because of the diversity of the insurers and the risks they insure which are affected by Section 215.555, F.S., the Premium Formula is adopted in this subsection and special circumstances are addressed in subsection (4), below. The Formula for determining the Actuarially Indicated Premium to be paid to the Fund, as required by Section 215.555(5)(b), F.S., is the rate times the exposure per $1,000 of insured value and this equals the Premium to be paid in dollars. The rates adopted below were determined by taking into account geographic location by zip code; construction type; policy deductible; type of insurance and other such factors deemed by the Board to be appropriate. The Formula is developed by an Independent Consultant selected by the Board, as required by Section 215.555(5)(b), F.S.

  (b) For the 2009-2010 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2009 Ratemaking Formula Report to the State Board of Administration of Florida, March 20, 2009” and the Addendum to the 2009 Ratemaking Formula Report Dated May 27, 2009 are hereby adopted and incorporated by reference. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on April 14, 2009, are hereby adopted and incorporated by reference in Form FHCF-Rates 2009, “Florida Hurricane Catastrophe Fund Proposed 2009 Rates, March 20, 2009, revised May 27, 2009.” The Addendum to the 2009 Ratemaking Formula Report Dated May 27, 2009, was approved by the Board on May 27, 2009, and is hereby adopted and incorporated by reference. These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(b)(c) For the 2010-2011 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2010 Ratemaking Formula Report Presented to the State Board of Administration of Florida, March 18, 2010” is hereby adopted and incorporated by reference into this rule. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on April 13, 2010, are hereby adopted and incorporated by reference in Form FHCF-Rates 2010, “Florida Hurricane Catastrophe Fund Proposed 2010 Rates Presented to the State Board of Administration of Florida, March 18, 2010” and is hereby adopted and incorporated by reference into this rule. These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(c)(d) For the 2011-2012 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2011 Ratemaking Formula Report Presented to the State Board of Administration of Florida, March 17, 2011” is hereby adopted and incorporated by reference into this rule, http://www.flrules.org/Gateway/reference.asp?No=ref-00275. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on May 3, 2011, are hereby adopted and incorporated by reference in Form FHCF-Rates 2011, “Florida Hurricane Catastrophe Fund Proposed 2011 Rates Presented to the State Board of Administration of Florida, March 17, 2011” is hereby adopted and incorporated by reference into this rule, http://www.flrules.org/Gateway/reference.asp?No=ref-00276 and http://www.flrules.org/Gateway/reference.asp?No=ref-00277. These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(d)(e)  For the 2012-2013 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2012 Ratemaking Formula Report Presented to the State Board of Administration of Florida, March 22, 2012,”  http://www.flrules.org/Gateway/reference.asp?No=Ref-01175, is hereby adopted and incorporated by reference into this rule. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on April 24, 2012, are hereby adopted and incorporated by reference in Form FHCF-Rates 2012, “Florida Hurricane Catastrophe Fund Proposed 2012 Rates Presented to the State Board of Administration of Florida, March 22, 2012,” http://www.flrules.org/Gateway/reference.asp?No=Ref-01176, is hereby adopted and incorporated by reference into this rule.  These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(e)(f)  For the 2013-2014 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2013 Ratemaking Formula Report Presented to the State Board of Administration of Florida, March 21, 2013,” as approved on April 23, 2013, http://www.flrules.org/Gateway/reference.asp?No=ref-02750, is hereby adopted and incorporated by reference into this rule. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on April 23, 2013, are hereby adopted and incorporated by reference in Form FHCF-Rates 2013, “Florida Hurricane Catastrophe Fund Proposed 2013 Rates Presented to the State Board of Administration of Florida, March 21, 2013,” as approved on April 23, 2013, http://www.flrules.org/Gateway/reference.asp?No=ref-02751, hereby adopted and incorporated by reference into this rule. These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(f)  For the 2014-2015 Contract Year, the Formula developed by the Board’s Independent Consultant, “Florida Hurricane Catastrophe Fund: 2014 Ratemaking Formula Report Presented to the State Board of Administration of Florida, ____ XX, 2014,” http://www.flrules.org/Gateway/reference.asp?No=ref-XXXXX, is hereby adopted and incorporated by reference into this rule. The basic premium rates developed in accordance with the Premium Formula methodology approved by the Board on _____XX, 2014, are hereby adopted and incorporated by reference in Form FHCF-Rates 2014, “Florida Hurricane Catastrophe Fund Proposed 2014 Rates Presented to the State Board of Administration of Florida, _____ XX, 2014,” http://www.flrules.org/Gateway/reference.asp?No=ref-XXXXX, hereby adopted and incorporated by reference into this rule. These incorporated documents may be obtained directly from the SBA website: www.sbafla.com/fhcf or by contacting the SBA by mail, P. O. Box 13300, Tallahassee, FL 32317-3300, with a request for the documents.

(4)(a) Special Circumstances.

1. Allocation of Premium. Premiums paid to the FHCF with reference to property covered by Quota Share Primary Insurance Arrangements, as that phrase is defined in Section 627.351(6)(c)2.a.(I), F.S., will be allocated by the FHCF between the Insurer and Citizens in accordance with the percentages specified in the Quota Share Primary Insurance Arrangement for the purposes of premium billing, calculating retentions and determining reimbursement payments.

2. Special Rating Circumstances. The Premium Formula for policies that, based upon sound actuarial principles, require individual ratemaking and which are not excluded by rule will be based on the use of computer modeling for each individual Company for which it is applicable, i.e., portfolio modeling. The Independent Consultant will recommend guidelines for individual company portfolio reporting and modeling to estimate individual company FHCF expected losses. Individual company FHCF expected losses for portfolio modeling exposures will be loaded for investments and expenses on the same basis as the FHCF premium rates used for non-portfolio modeling exposures, but will also include a loading for the additional cost of individual company modeling. The minimum exposure threshold for FHCF portfolio modeling rating will be sufficient to generate estimated FHCF premium greater than the cost of modeling and other considerations and will be calculated by the Independent Consultant for the separate coverage levels of 45%, 75%, and 90% using the rates established pursuant to subsection (3) herein. The methodology used by the Independent Consultant will be based on sound actuarial principles to establish greater actuarial equity in the premium structure.

(b) Forfeiture or Surrender of Certificates of Authority; Insurers Which Do Not Have Exposure For Covered Policies For an Entire Contract Year.

1. Insurers which have forfeited their certificates of authority or which have withdrawn from the state or discontinued writing all kinds of insurance in this state after the beginning of the Contract Year shall have their Premiums determined in accordance with subsection (3), above.

2. Special recognition is not given to insurers which do not have exposure for Covered Policies for an entire Contract Year, except for New Participants as described in paragraph (c) of this subsection (4).

3. Any insurer which has forfeited its certificate of authority or which has discontinued writing in accordance with an order issued by the Department of Financial Services effective prior to June 1 of each calendar year shall not be required to execute a Reimbursement Contract with the Board provided that the insurer has no exposure to hurricane loss after June 1.

(c) New Participants.

1. All New Participants shall enter into a Reimbursement Contract with the Fund.

2. All New Participants shall pay a Reimbursement Premium to the Fund in accordance with the applicable subparagraphs below and in accordance with the applicable provisions of the Reimbursement Contract.

3. This subparagraph applies to Companies writing new business after June 1 but prior to December 1 of the Contract Year.

a. All New Participants writing new business during the period specified above shall pay a provisional Premium of $1,000 to provide consideration for the contract.

b. For the 2012/2013 and earlier Contract Years, on or before March 1 of the Contract Year, the Company shall report its actual exposure as of December 31 of the Contract Year to the Administrator in accordance with the Data Call.  For the 2012/2013 Contract Year, New Participants had the option of reporting exposure as of November 30 by February 1 of the Contract Contact Year. The Administrator shall calculate the Company’s actual Reimbursement Premium for the applicable Contract Year based on its actual exposure. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than May 1 of the Contract Year (or April 1 if the November 30 option was chosen for the 2012/13 Contract Year). The Company’s retention and coverage will be determined based on the total Premium due which is the Premium calculated based on the Company’s December 31 exposure (or November if appropriate) and divided in half as described in this sub-subparagraph.

c. For the 2013/2014 and subsequent Contract Years, the Company shall report its actual exposure as of November 30 of the Contract Year to the Administrator in accordance with the Data Call. The Administrator shall calculate the Company’s actual Reimbursement Premium for the applicable Contract Year based on its actual exposure. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than April 1 of the Contract Year. The Company’s retention and coverage will be determined based on the total Premium due which is the Premium calculated based on the Company’s November 30 exposure and divided in half as described in this sub-subparagraph.

4. This subparagraph applies to Companies writing new business on or after December 1 but up to and including May 31 of the Contract Year. All New Participants writing new business during this period shall pay a Premium of $1,000 to provide consideration for the Contract. The Company shall pay no other Premium for the remainder of the Contract Year. The Company shall not report its exposure data for this period to the Board. The Premium shall be paid upon signing the Reimbursement Contract.

5. For purposes of paragraph (4)(c), the requirement that a report is due on a certain date means that the report shall be in the physical possession of the Fund’s Administrator in Minneapolis no later than 5:00 p.m., Central Time, on the due date applicable to the particular report. If the applicable due date is a Saturday, Sunday or legal holiday, then the applicable due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the submission, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Reports sent to the Board in Tallahassee, Florida, will be returned to the sender. Reports not in the physical possession of the Fund’s Administrator by 5:00 p.m. (Central Time), on the applicable due date are late.

(d) Specialized Fine Arts Risks.  The provisions of this paragraph apply to certain policies and endorsements predominantly covering specialized fine arts risks that are subject to loss control measures as specified in subparagraph 1. and scheduled personal property as specified in subparagraph 2.

1. Any policy or endorsement predominantly covering Specialized Fine Arts Risks and not covering any residential structure and/or contents thereof other than such specialized fine arts items covered in the fine arts policy, shall be exempt from the Fund as a risk meeting specialized loss control requirements if the insurer employs underwriting criteria that adheres to sub-subparagraphs a. through c., immediately below. For purposes of the exemption in this subparagraph, a Specialized Fine Arts Risk is a policy or endorsement which insures paintings, works on paper, etchings, art glass windows, pictures, statuary, sculptures, tapestries, antique furniture, antique silver, antique rugs, rare books, and other bona fide works of art, of rarity, of historic value, or artistic merit; which charges a minimum premium of $500; which insures scheduled items valued, in the aggregate, at no less than $100,000; and which requires an investment by the insured in loss control measures to protect the Specialized Fine Arts Risks being insured.

a. The insurer must perform a periodic and thorough specialized inspection and must provide a specialized loss prevention service designed to prevent or minimize loss.

b. The structure and its fine arts contents must be provided with satisfactory watchman or alarm service or its equivalent where necessary.

c. The insurer must maintain a force of trained and competent loss prevention specialists, who perform the following tasks:

(I) Make complete loss prevention surveys of each Specialized Fine Arts Risk;

(II) Make available specialized loss prevention service for the purpose of providing consultation regarding hazards to the fine arts being insured;

(III) Confirm through periodic inspections that loss prevention devices are properly maintained;

(IV) Investigate reported losses; and

(V) Confer with the policyholder and confirm through periodic and unannounced inspections that recommended safety and loss control improvements are actually made.

2. Any individual policy written to solely cover scheduled personal property with a policy limit equal to or exceeding $5 million and which predominantly covers one or more classes of collectible types of property shall be exempt from coverage under the Fund.  Generally such classes of collectible property have unusually high values due to their investible, artistic, or unique intrinsic nature. Additionally, such exempt policy may also include coverage for indicidental items of personal property that may also be scheduled although such property may not be considered as a collectible. The predominant class of property covered under such excluded policy represents an unusually high exposure value and such policy is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies.  In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time.

(5) All the forms adopted and incorporated by reference in this rule may be obtained from: Administrator, Florida Hurricane Catastrophe Fund, Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83rd Street, Suite 1100, Minneapolis, MN 55437.

Rulemaking Authority 215.555(3) FS. Law Implemented 215.555(2), (3), (4), (5), (6), (7) FS. History–New 9-20-99, Amended 7-3-00, 9-17-01, 7-17-02, 7-2-03, 7-29-04, 7-17-05, 7-6-06, 7-17-07, 6-16-08, 8-2-09, 7-8-10, 7-3-11, 6-25-12, 6-18-13,_________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Jack E. Nicholson, FHCF Chief Operating Officer, State Board of Administration of Florida

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: The Trustees of the State Board of Administration of Florida

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: April 22, 2014

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: March 6, 2014, Vol. 40, No. 45