Florida Hurricane Catastrophe Fund

FLORIDA HURRICANE CATASTROPHE FUND

18TH ANNUAL PARTICIPATING INSURERS WORKSHOP JUNE 5-6, 2018 ORLANDO, FLORIDA

OF SERVICE TO FLORIDA Opening Comments & Introductions

Anne Bert, Chief Operating Officer, Florida Hurricane Catastrophe Fund

Hurricane Irma

Florida Hurricane Catastrophe Fund 2 Schedule June 5, 2018

9:00 Welcome 9:10 Keynote Speaker – Ash Williams, Executive Director and Chief Investment Officer, State Board of Administration of Florida 9:30 FHCF Status Update 9:50 BREAK 10:10 Resilience Through Design: Effectiveness of the Florida Building Code 10:55 2018 Legislative Update 11:25 LUNCH

Florida Hurricane Catastrophe Fund 3 Schedule June 5, 2018

1:00 2017 Hurricane Season Recap and 2018 Hurricane Season Forecast 1:35 Lessons Learned from Hurricane Irma 2:20 Florida Insurance Consumer Advocate Update 2:40 BREAK 3:00 Claims Fraud Awareness and Resources 3:30 Advancements in Technology and the Impact on the Property Insurance Market 4:10 Florida Catastrophic Storm Risk Management Center Activities 4:30 Closing Remarks

Florida Hurricane Catastrophe Fund 4 Keynote Speaker

Ash Williams, Executive Director and Chief Investment Officer State Board of Administration of Florida

Florida Hurricane Catastrophe Fund 5 FHCF Status Update Anne Bert, Chief Operating Officer, Florida Hurricane Catastrophe Fund

OF SERVICE TO FLORIDA

Florida Hurricane Catastrophe Fund 6 Overview

2017-2018 Hurricane Season Update FHCF’s Financial Strength Structure of the FHCF Looking Ahead

Florida Hurricane Catastrophe Fund 7 Hurricane Hermine

. Landfall on September 2, 2016 . No Hurricane Hermine loss reimbursement requests received to date and none expected

Florida Hurricane Catastrophe Fund 8 Hurricane Matthew

. Eye bypassed Florida on October 7, 2016 . The FHCF covers losses from hurricanes that cause damage in Florida regardless of whether or not they make landfall . No Hurricane Matthew loss reimbursement requests received to date

Florida Hurricane Catastrophe Fund 9 Hurricane Irma

. First landfall on September 10, 2017, at Cudjoe Key as a Category 4 storm . Second landfall at Marco Island as a Category 3 storm

Florida Hurricane Catastrophe Fund 10 Hurricane Irma Losses as of 5/31/18

Industry FHCF

Total Incurred Total Incurred Residential Loss Residential Loss $8.158 Billion $2.040 Billion

Reported Losses Reported Losses $7.820 Billion $1.822 Billion 95.9% 89.3%

Paid Losses Paid Losses $5.206 Billion $0.521 Billion 63.8% 25.5%

Florida Hurricane Catastrophe Fund 11 Contract Reported Industry % of Reported Year FHCF Paid Paid in FL* Paid in FL *FHCF paid losses for Hurricane Irma through 5/31/18 1995 13,000,000 2,000,000,000 0.7% 2004 3,859,300,050 15,859,709,655 24.3% 2005 5,535,996,111 11,645,733,031 47.5% 2017 521,000,000 5,206,000,000 10.0% Total 9,806,296,161 34,459,442,686 28.5% * Does not reflect the total value of FL residential losses, as insurers do not report losses to the FHCF after they have reached their coverage limit.

Florida Hurricane Catastrophe Fund 12 FHCF’s Financial Strength . $14.1B Projected Year-End Fund Balance . No post-event bonds outstanding . Emergency assessments ended – 0% on all policies new or renewed on or after January 1, 2015 . Long-term stability and resilience for subsequent season is addressed with: . $2.2B Outstanding pre-event bonds . $1.0B Reinsurance placement

Florida Hurricane Catastrophe Fund 13 Not Official (For Illustrative Not Drawn to Scale. 2018/2019 Contract Year Purposes Only)

as of May 29, 2018 Ground Up Return Probability $17B FHCF Capacity Losses Time (%) (Loss Adjustment Expense is included in the capacity) ($B) (Years) Assumption: Ultimate Losses of $2.04B for Hurricane Irma in 2017 $29.4 48 2.10% $1.9B Potential $1.9B of $2.2B – Series 2013A and 2016A Post-Event Pre-Event Bonds Bonding $26.9 41 2.41% $3.6B of $14.1B Projected 2018 Year-End Fund Balance $22.2 32 3.14% $1.0B – Risk Transfer $14.1B Cash $20.9 30 3.39% 1.0B Risk Transfer 2.2B 2013A & 2016A Bonds* $17.3B Total Resources

Payments - $17.0B Statutory Limit - $0.3B Preserved for $10.5B of $14.1B Projected 2018 Subsequent Co

$6.0B Industry$6.0B Year-End Fund Balance Season

* Excludes $500M debt service payment due July 1, 2018

$7.3 10 10.13% Post-Event Bonding Capacity $7.3B Industry Retention May 2018 $8.2B

Represents industry losses. FHCF probabilities are lower at the top loss levels and higher at the lower loss levels. All insurers would need to reach their maximum coverage limit in order to exhaust the last billion of FHCF Coverage. Insurers can trigger coverage below the industry retention.

Individual company retentions are their share of the industry retention. Not Official (For Illustrative Not Drawn to Scale. 2019/2020 Subsequent Season Purposes Only) Preliminary Estimates $17B FHCF Capacity as of May 29, 2018 (Loss Adjustment Expense is included in the capacity) Assumption: No loss in prior year

$1.0B – Series 2013A Pre-Event Bonds

$650M – Series 2016A Pre-Event Bonds

$15.30B Cash 1.65B 2013A & 2016A Bonds* $16.95B Total Resources

-$17.00B Statutory Limit $ 0.05B Potential Bonding $15.3B Projected 2019 Needed Year-End Fund Balance Payments -

Co * Excludes $550M debt service $6.0B Industry payment due July 1, 2019

Post-Event Bonding Capacity May 2018 $8.2B $7.3B Industry Retention

$1.10B Cash 1.65B 2013A & 2016A Bonds* $2.75B Total Liquid Resources

$14.25B – Potential Bonding Needed $17.00B Statutory Limit -14.25B Potential Bonding Needed $8.20B May Bonding Capacity $6.05B Remaining Bonding Need Payments -

Co * Excludes $550M debt service $6.0B Industry payment due July 1, 2019 $1.0B – Series 2013A Pre-Event Bonds

$650M – Series 2016A Pre-Event Bonds

$1.1B Projected 2019 Year-End Post-Event Fund Balance Bonding Capacity May 2018 $8.2B $7.3B Industry Retention

• Represents industry losses. FHCF probabilities are lower at the top loss levels and higher at the lower loss levels. All insurers would need to reach their maximum coverage limit in order to exhaust the last billion of FHCF Coverage. Insurers can trigger coverage below the industry retention. • If Pre-Event bond proceeds are used and replaced with Post-Event bonds, the total potential bonding needed would be $15.9 billion ($14.25B + $1.65B). • Individual company retentions are their share of the industry retention. Current Structure & Capacity of the FHCF

Coverage Selections % 2018-2019 2017-2018 2016-2017 90% 104 103 108 75% 3 3 3 45% 59 52 47

. Citizens is required to select 90% . 73.121% Weighted Average Coverage in 2018 vs. 74.524% in 2017 . May Bonding Capacity $8.2B, 0-12 months

Florida Hurricane Catastrophe Fund 17 Outstanding Debt . Laddered maturities: . Reduce market access risk . Smooth cost Florida Hurricane Catastrophe Fund ($ in Millions) . Manage rollover risk and interest rate Series 2013A Series 2016A risk at maturity Pre-Event Bonds Pre-Event Bonds Total Pre-Event Bonds Maturity Principal Principal Principal . Pre-event bonds provide 7/1/2018 $500 $500 liquidity to enable the FHCF to 7/1/2019 $550 $550 7/1/2020 $1,000 $1,000 pay claims timely. If the 7/1/2021 $650 $650 proceeds are used, post-event Total $1,500 $1,200 $2,700 bonds must be issued.

Florida Hurricane Catastrophe Fund 18

Florida Hurricane Catastrophe Fund

OF SERVICE TO FLORIDA

Florida Hurricane Catastrophe Fund 19 Then And Now: Today’s Market Today’s Florida property insurance market looks very different from the market of the 1990s: . In 1995, the top 6 property insurers—all of which were major national companies— accounted for a combined market share of 66.5%. The two largest companies had market shares of 30.5% and 20.4%, respectively. . Today, the top 10 companies (including Citizens) account for a total market share of 51.6%. The largest single market share is 8.9%, and the bulk of the market consists of Florida-based companies and Florida subsidiaries of national companies. . According to an analysis from Citizens, as of September 30, 2017, Florida-based companies had a combined market share of 71% (measured by Total Insured Value). . Florida subsidiaries of national companies had an 11% share, Citizens had 5%, and others (including national companies) were responsible for the remaining 13%.

Florida Hurricane Catastrophe Fund 20 Then And Now: Today’s Market The size of the residual market is usually a good indicator of the general health of the market. . At various times over the last 25 years, the number of policies in Citizens or its predecessors (the Florida Windstorm Underwriting Association and the Residential Property and Casualty Joint Underwriting Association) exceeded 1.5 million. . Today, Citizens has under 500,000 policies in force. . While aggressive and effective depopulation efforts have been directly responsible for the decline in policy count, successful depopulation could not have occurred in the context of a dysfunctional market.

Florida Hurricane Catastrophe Fund 21 Then And Now: Florida’s Vulnerability Florida was, and remains, more vulnerable to hurricanes than any other state. . From NOAA’s analysis of the most costly hurricanes in history, Florida is responsible for 8 of the top 20 (adjusting for inflation) or 7 of the top 20 (not adjusting for inflation). . NOAA currently estimates the total (insured and uninsured) cost of Hurricane Irma at $50 billion, making it the 5th most costly on record. . Even so, Irma losses would have been dramatically higher had it made landfall along the Atlantic coast or further north on the Gulf coast. . Looking at the losses that historic storms would cause today, . A repeat of the 1926 Miami hurricane would result in $80 billion of insured losses ($160 billion total losses). This is nearly twice the amount projected for a repeat of Katrina. . A repeat of Andrew would result in $42 billion of insured losses ($84 billion total).

Florida Hurricane Catastrophe Fund 22 Then And Now: Florida’s Vulnerability

. Florida’s population continues County Population (2017) Growth since 1990 Percent change

to grow in the state’s most Miami-Dade 2,743,095 805,901 41.6% vulnerable areas. Broward 1,873,970 618,439 49.3% Palm Beach 1,414,144 550,641 63.8% . Florida’s population grew by 58.3% (or Lee 698,468 353,355 108.4% 7,546,071 persons) between the 1990 US Collier 357,470 205,371 135.0% Census and the official 2017 population estimate. Charlotte 172,720 61,745 55.6% Monroe 76,889 (1,135) -1.5% . Although many areas experienced even faster growth, population growth in the state’s most 7-county total 7,336,756 2,604,317 55.0% high-risk counties was significant.

Florida Hurricane Catastrophe Fund 23 Insurer Reliance on the FHCF . Insurers have come to rely on the FHCF to provide coverage in extreme situations. . The unprecedented string of eight hurricanes that hit Florida in 2004- 2005 resulted in residential insurance claims payments of approximately $30 billion, or roughly twice the equivalent of Hurricane Andrew. . The FHCF paid approximately 1/3 of the total insured residential loss, providing reimbursement to insurers for $9.4 billion. FHCF reimbursement was paid from the FHCF’s cash balance plus $2.65 billion in revenue bond proceeds, which were repaid with emergency assessments.

Florida Hurricane Catastrophe Fund 24 Florida Hurricane Catastrophe Fund

Looking Ahead

Florida Hurricane Catastrophe Fund 25 BREAK

Sponsored by: Resilience Through Design: Effectiveness of the Florida Building Code

Moderator: Leonard Schulte, Director of Legal Analysis and Risk Evaluation, Florida Hurricane Catastrophe Fund Panelists: Don Brown, Florida Building Commission Rusty Payton, Chief Executive Officer and Chief Lobbyist, Florida Home Builders Association Dr. David Prevatt, P.E., Associate Professor of Civil and Coastal Engineering, University of Florida

Florida Hurricane Catastrophe Fund 27 Resilience Through Design: Effectiveness of the Florida Building Code Questions for the panel:

. How well did post-2002 structures perform in Hurricane Irma vs. structures built to prior codes? . Are there enforcement or affordability issues that impact the effectiveness of the code? . Emerging issues: . Are there cost-effective improvements that should be considered? . What needs to be done to assure that Florida can attract and retain sufficient numbers of qualified inspectors?

Florida Hurricane Catastrophe Fund 28 Resilience Through Design: Effectiveness of the Florida Building Code Suggestions for further reading: . Insurance Institute for Business & Home Safety, “Rating the States: 2018,” http://disastersafety.org/wp-content/uploads/2018/03/ibhs-rating-the-states-2018.pdf . D. Prevatt, K. Gurley, C. Ferraro, “Damage Investigation Following Hurricane Irma in Florida,” http://www.floridabuilding.org/fbc/publications/2017_FBC_Hurricane_Irma_100917.pdf . R. Issa, “Analysis of Code Enforcement and Implementation, Permitting Requirements and Fees, and Training and Education in Florida Jurisdictions,” http://www.floridabuilding.org/fbc/commission/FBC_0618/code_admin/CodeEnforcementPhase2_ Final.pdf . K. Simmons, J Czajkowski, J. Done, “Economic Effectiveness of Implementing a Statewide Building Code: The Case of Florida,” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2963244

Florida Hurricane Catastrophe Fund 29 2018 Legislative Update

Fred Karlinsky, Shareholder and Co-Chair, Insurance Regulatory and Transactions Practice, Greenberg Traurig

Florida Hurricane Catastrophe Fund 30 LUNCH 2017 Hurricane Season Recap and 2018 Hurricane Season Forecast

David Sharp, Science and Operations Officer, NOAA/National Weather Service

Hurricanes Irma, Jose, Katia

Florida Hurricane Catastrophe Fund 32 Lessons Learned from Hurricane Irma Moderator: Gina Wilson, Senior Director of Operations and Examinations, Florida Hurricane Catastrophe Fund

Panelists: Scott Engel, Managing Director, Aon Benfield

Barry Gilway, President, CEO & Executive Director, Citizens Property Insurance Corporation

Mike Yaworsky, Chief of Staff, Florida Office of Insurance Regulation

Hurricane Irma

Florida Hurricane Catastrophe Fund 33 Florida Insurance Consumer Advocate Update Sha’Ron James, Florida Insurance Consumer Advocate

Florida Hurricane Catastrophe Fund 34 BREAK

Sponsored by: Claims Fraud Awareness and Resources Simon Blank, Director Division of Investigative and Forensic Services, Florida Department of Financial Services

Florida Hurricane Catastrophe Fund 36 Advancements in Technology and the Impact on the Property Insurance Market

Deborah Stalker, Executive Vice President and Deputy General Counsel, Director of Global Business Support, CHUBB Robin Westcott, Vice President of Government Affairs, Legal and Compliance, American Association of Insurance Services

Florida Hurricane Catastrophe Fund 37 Florida Catastrophic Storm Risk Management Center Activities Dr. Jack Nicholson, Director Florida Catastrophic Storm Risk Management Center, Florida State University

Hurricane Harvey

Florida Hurricane Catastrophe Fund 38 Closing Remarks

Anne Bert, Chief Operating Officer, FHCF

Florida Hurricane Catastrophe Fund 39