Summary of SB 1460 filed by Garrett Richter
Richter is the chair of the Senate Banking and Insurance Committee. This bill would address an accounting problem created by last year’s change in the “contract year” for the Florida Hurricane Cat Fund coverage. Last year’s change was intended to help insurers negotiate their reinsurance agreements earlier in the year with much more lead time before hurricane season began. However, it resulted in some unexpected accounting problems especially in 2010. Most companies would have to include 5/12 of last year’s FHCF expenses this year and then a full year for this year’s contract creating a severe impact on some companies’ surplus. This bill would return to the old date, but move the date for executing FHCF reimbursement agreements up. The highlights of the bill, which is modeled after a proposal developed by Jack Nicholson the executive director of the FHCF, include:
- Removes language changing 2010 FHCF fund year to a June to December 2010 period and then making subsequent years January through December.
- Defines “contract year” as June 1 through May 31 of the following year – restoring the traditional year period.
- Limits the claims-paying capacity for the fund to $17 billion for current contract year unless the SBA determines there is sufficient capacity to provide $17 billion of capacity for the following year. The definition of claims-paying capacity remains the same – cash plus reinsurance recoveries plus bonding capacity.
- Creates a new section called “facilitation of insurers’ private contract negotiations” which:
- Includes general findings that the uncertainty caused by possible legislative changes right before any given hurricane season creates instability in the reinsurance market. Other findings suggest the problem can be minimized by moving the date the terms and conditions of the FHCF contract are published to an earlier point in the year.
- Specifically, proposes the reimbursement contract insurers must sign should be adopted by the SBA by February 1 of each year after 2010 and as soon as possible for the 2010 season.
- Insurers would be required to execute the reimbursement contract by March 1 of each year but the agreement would have an effective date of June 1.
- The SBA is to publish the maximum statutory adjusted claims-paying capacity for the various coverage layers for a particular contract year and the aggregate fund retention used to calculate insurer’s retention multiples for a particular year no later than January 1 of the immediately preceding contract year.