Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses

STATE BOARD OF ADMINISTRATION

Rule No. : RULE TITLE :
19ER11-1: Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses
SPECIFIC REASONS FOR FINDING AN IMMEDIATE DANGER TO THE PUBLIC HEALTH, SAFETY OR WELFARE: Pursuant to Paragraph (3)(d), Article X, of the 2005 Florida Hurricane Catastrophe Fund (“FHCF”) Reimbursement Contract, the process of finalizing participating insurers’ losses must begin no later than June 1, 2011. This process involves a valuation of claims that an insurer has received but has not yet paid (“outstanding losses”) and claims that an insurer anticipates but has not yet received (“incurred but not reported losses”). In most circumstances, these losses represent a small portion of an insurer’s recoveries under the Reimbursement Contract. The FHCF is concerned that some participating insurers may have very large amounts of outstanding losses and incurred but not reported losses, as a result of claims that were filed or reopened many years after the hurricanes covered by the 2005 Reimbursement Contract. The size of these losses raises the possibility that the process for finalizing losses may understate their value, resulting in disruption of the property insurance market in Florida, or may overstate their value, resulting in the need for additional bonding on behalf of the FHCF. Both of these potential outcomes endanger the public welfare. The FHCF has determined that alternative methods of finalizing these losses may significantly reduce the likelihood of either overpayment or underpayment, and will therefore protect the public welfare.
REASON FOR CONCLUDING THAT THE PROCEDURE IS FAIR UNDER THE CIRCUMSTANCES: This emergency rule is a benefit for the public at large, participating insurers, and the FHCF. There is no benefit to any of these parties to have payments to insurers by the FHCF be inadequate or excessive. Further, this emergency rule is posted to the State Board of Administration’s website.
SUMMARY: This emergency rule provides authority for participating insurers and the SBA or the FHCF to apply flexibility to the timing requirements for settling the 2005 claims and losses.
THE PERSON TO BE CONTACTED REGARDING THE EMERGENCY RULE IS: Jack E. Nicholson, Chief Operating Officer, Florida Hurricane Catastrophe Fund, State Board of Administration of Florida, Tallahassee, Florida

THE FULL TEXT OF THE EMERGENCY RULE IS:

19ER11-1 Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses.

(1) Section 215.555(3), F.S., provides that in situations of an unusual nature, Florida Hurricane Catastrophe Fund rules may be applied with reasonable flexibility if such flexibility is in accord with sound insurance practices and is not contrary to the public purpose of the Florida Hurricane Catastrophe Fund.

(2) Applying such statutorily-authorized flexibility, this rule specifies circumstances under which an alternative method of finalizing an insurer’s losses may be used notwithstanding the commutation process as described in paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract, which was adopted as Rule 19-8.010, F.A.C.

(3) Upon the request of a participating insurer that is a party to the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract, the State Board of Administration of Florida (“SBA”) and the participating insurer may agree to an alternative method of finalizing the participating insurer’s losses notwithstanding the commutation process as described in paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract. The request must be made no later than May 31, 2011.

(4) A participating insurer is eligible to make the request described in subsection (3) if:

(a)1. The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) is more than 200 percent of the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report), or the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) is zero; and

2. The difference between The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) and the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) exceeds $50 million; or

(b) The participating insurer is in receivership, in which case the request may be made on behalf of the participating insurer by either the receiver or the Florida Insurance Guaranty Association.

(5) If the participating insurer and the SBA do not reach agreement on the alternative method of finalizing the participating insurer’s losses within 60 calendar days after the date of the request, the provisions of paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract apply.

Rulemaking Authority 215.555(3) FS. Law Implemented 215.555, FS. History–New 5-17-11.

THIS RULE TAKES EFFECT UPON BEING FILED WITH THE DEPARTMENT OF STATE UNLESS A LATER TIME AND DATE IS SPECIFIED IN THE RULE.
EFFECTIVE DATE: May 17, 2011