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Cat Fund Revisions Fall Short

Cat Fund Revisions Fall Short

The Florida legislature did not adopt proposed changes to the size of the Florida Hurricane Catastrophe Fund during the 2012 session.  Jack Nicholson of the FHCF developed a proposal he referred to as “right-sizing” the cat fund to ensure it has access to enough resources to pay promised reimbursements without regard to poor global market conditions.  The proposal would have reduced the amount of coverage available from the FHCF over several years while at the same time increasing the industry retentions and co-pays and increasing the cost through an extention of the rapid cash buildup factor.

The proposal stalled in the Florida House of Representatives fairly early in the session due to concerns over the impact on admitted insurers’ rates and a potentially related adverse impact on Citizens Property Insurance Corporation.  Insurers estimated their rates would go up a minimum of 12-14% even with no change in market pricing, and potentially double that amount when they would be forced to enter the market seeking to replace the disappearing FHCF coverage.  Citizens rates, however, remain subject to the legislatively imposed glide path.  Increasing rates in the private market therefore would not be met with corresponding increases in Citizens, and Citizens would continue to attract more risks based solely on its subsidized pricing.

Senator J.D. Alexander sought solutions in the Senate and eventually proposed a significantly scaled down version of the FHCF proposal.  The bite-sized approach to right-sizing would have made a small reduction to the FHCF coverage and a small increase to its co-pay without increasing the cost through the rapid cash buildup factor.  This would have reduced the impact on admitted market insurers’ rates.  Even so, the House did not agree with the approach.  Thus, while the FHCF proposal was linked to the Citizens assessment revisions in the Senate, the Senate on the last day of session passed a bill dealing only with the Citizens assessments and left the FHCF right-sizing proposal to be considered in the future.