SBA Hurricane/2004-05
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FloridaFlorida HurricaneHurricane CatastropheCatastrophe FundFund Hurricane Katrina Hurricane Rita Hurricane Wilma Hurricane Dennis Fiscal Year 2004-2005 Annual Report State Board of Administration of Florida The purpose of the Florida Hurricane Catastrophe Fund is to improve the Hurricane Wilma, October 24, 2005 availability and affordability of property insurance in Florida by providing reimbursements to insurers for a portion of their catastrophic hurricane losses. Tropical Depression Alpha, October 24, 2005 On October 24, 2005, Hurricane Wilma is moving northeast at 25 mph with maximum sustained winds of 110 mph and gusts of 145 mph. Tropical depression Alpha is moving north at 23 mph with maximum sustained winds of 35 mph and gusts of 52 mph. EEXECUTIVEXECUTIVE MMESSAGEESSAGE It is my pleasure to present the Florida Hurricane Catastrophe Fund (FHCF) annual report for fiscal year ending June 30, 2005. This report provides the financial status and operational activities of the FHCF during the past fiscal year. The 2005 hurricane season was the most active on record with twenty-seven named storms and fourteen hurricanes. Meteorologists exhausted the list of twenty-one proper names and for the first time in history had to resort to the Greek alphabet for the remainder of the season. The 2005 hurricane season did not spare Florida, which experienced four hurricanes and two tropical storms. The FHCF again met the challenge and was responsive to the needs of its participating insurers with timely loss reimbursements. We would like to thank the State Board of Administration Trustees, the FHCF Advisory Council, the SBA/FHCF staff, and our service providers for their support and contributions during the past year. We hope you find this report informative and useful. We welcome any comments, thoughts, or ideas regarding the content of future issues. For questions or additional information regarding the FHCF, please contact our office or visit our web site at www.sbafla.com/fhcf. Jack E. Nicholson, Senior FHCF Officer Florida Hurricane Catastrophe Fund State Board of Administration of Florida OOVERVIEWVERVIEW The Florida Hurricane Catastrophe Fund catastrophic hurricane losses in order to provide ad- (FHCF) is a tax-exempt trust fund created by the Florida ditional insurance capacity for the state. Supporting Legislature during a special session in November 1993. the private sector’s role as the primary risk bearer, the Following Hurricane Andrew in August of 1992, the resi- FHCF operates as a public-private partnership. dential property in- surance market The FHCF cur- loomed in crisis. Nu- rently provides $15 merous problems de- billion of reinsurance veloped and the avail- capacity for the state ability of reinsurance of Florida. The cost of for hurricanes became FHCF coverage is sig- scarce and extremely nificantly less than expensive. Many in- the cost of private re- surers were forced to insurance due to the re-evaluate their ex- FHCF’s tax-exempt posure in Florida. status, low adminis- State action was trative costs, and lack deemed necessary to of a profit or risk-load. maintain a stable As a result, the FHCF property insurance has helped keep resi- market. dential property in- surance rates down, it S ection has helped stabilize 215.555, Florida Stat- the market, it has en- utes, created the abled more insurance FHCF with the pur- to be written in the pose of providing a state, and it has stable and ongoing helped keep business source of reimburse- out of the residual ment to insurers for market. a portion of their 1 The FHCF functions as a state adminis- vices to various governmental entities. The SBA is tered reinsurance program and is mandatory for composed of a three-member Board of Trustees, who residential property insurers writing covered poli- oversee the SBA’s charge to provide superior invest- cies in the state of Florida. Covered policies are ment and trust services in an effort to enhance and residential property in- protect Florida’s future. surance policies that The Trustees are Florida’s provide wind or hurri- Governor, Jeb Bush, as cane coverage on struc- Chairman; Chief Financial tures located in Florida, Officer, Tom Gallagher, as including coverage on Treasurer; and Attorney contents and coverage General, Charlie Crist, as for additional living ex- Secretary. penses. Certain collat- eral protection policies A nine member Advi- covering personal resi- sory Council was estab- dences are also consid- lished by the Legislature to ered covered policies if provide the SBA with ad- they meet the require- vice and information. The ments of Section membership consists of 215.555(2)(c), Florida three consumer representa- Statutes. Most com- tives, a representative of in- mercial property was surers, a representative of exempted from the insurance agents, a repre- FHCF during the 1995 sentative of reinsurers, and Legislative session. three technical experts — a meteorologist, an engineer, The FHCF is and an actuary. The man- under the direction and control of the State Board agement and day-to-day operations of the FHCF is of Administration of Florida (SBA). The SBA is the responsibility of the Senior FHCF Officer, Jack the constitutional entity of Florida state govern- Nicholson, who reports directly to the Executive Di- ment that provides a variety of investment ser- rector of the SBA, Coleman Stipanovich. 2 Section 215.555, Florida Statutes created the FHCF and: • Requires certain insurers to participate in the • Limits debt issuance and the amount of the FHCF as a condition of doing business in assessments the State • Provides for debt security if the FHCF is • Grants rulemaking authority terminated by law • Establishes the procedures for developing rates • Establishes an Advisory Council and collecting reimbursement premiums • Provides that a violation of Section 215.555, • Authorizes the FHCF to inspect, examine, and Florida Statutes, is a violation of the Insurance verify the records of each insurer Code • Authorizes the investment and disbursement • Provides explicit authority to the SBA for other of moneys collected by the FHCF legal action • Authorizes the issuance of debt secured by • Provides for initial season claims paying assessments and premiums capacity up to a limit of $15 billion • Authorizes the collection of emergency • Establishes additional emergency assessment assessments to retire bonds authority to help fund capacity for subsequent • Requires insurers to participate at certain contract years coverage levels if bonds are outstanding FHCF Mission Statement The mission of the Florida Hurricane Catastrophe Fund (FHCF) is to responsibly and ethically administer the FHCF by: • Understanding the catastrophe financing needs of its beneficiaries and stakeholders. • Striving to satisfy a portion of the hurricane catastrophe financing needs of insurers in order to create additional insurance capacity for the state. • Protecting the public interest by maintaining insurance capacity in the state. • Providing exceptional investment, financial, and Headquarters of the State Board of Administration of Florida administrative services. Hermitage Centre, Tallahassee, Florida 3 20042004 -- 20052005 IINN RREVIEWEVIEW 2005 Hurricane Season The 2005 Atlantic hurricane season was the most active and destructive on record shattering many Three hurricanes (Katrina, Rita, and Wilma) reached long-standing records.1 category 5 strength breaking the old record Twenty-seven named of two set in 1960 and tropical storms formed 1961. Not since 1851 breaking the old record have three category 5 of twenty-one set in storms been known to 1933. This exhausted the occur in one season.2 list of twenty-one proper names resulting in the The 2005 hurricane use of the Greek alpha- season was the most bet for the first time in damaging in history for history for the remainder landfalling storms in the of the season. United States. This was mostly due to Hurricane Fifteen of the storms be- Katrina which shattered came hurricanes break- the old record of insured ing the previous record damage set by Hurricane of twelve set in 1969. Andrew in 1992.1 Seven of the hurricanes The Atlantic hurri- became major hurri- cane season starts June 1 canes, category 3 or and ends November 30. higher on the Saffir- However, Hurricane Zeta Simpson Hurricane occurred on December 30 Scale, tying the single- after the end of the recog- season record for intense nized season. hurricanes set in 1950. 4 Saffir-Simpson Hurricane Scale Category Wind Speed (mph) Central Pressure 1 74 – 95 >– 980 2 96 – 110 965 – 979 3 111 – 130 945 – 964 4 131 – 155 920 – 944 5 > 155 < 920 Hurricanes Impacting Florida Hurricane Dennis re-intensified to a cat- dential property losses from Hurricane Dennis at $450 egory 4 hurricane over the eastern Gulf of Mexico af- million.3 ter making landfall in Cuba and then weakened to a category 3 hurricane before making landfall on July Hurricane Katrina will perhaps be recorded 10, 2005 over Santa Rosa Island between Navarre as the most devastating hurricane in the history of Beach and Pensacola Beach in the Florida Panhandle. the United States. Katrina made its first landfall as a Landfall was approximately in the category 1 hurricane near the same position as Hurricane Ivan in Miami-Dade/Broward County 2004. Considerable storm surge re- line on August 25, 2005 and lated damage occurred near St. moved southwestward across Marks, Florida, well east of the South Florida. Katrina also landfall location. Heavy rainfall brought heavy rains and sus- and flooding occurred across much tained tropical storm force of Florida.2 The Florida Office of winds to portions of the Insurance Regulation estimates to- Florida Keys before entering tal losses at $1.2 billion and 54,000 the Gulf of Mexico. Once in the claims. ISO’s Property Claims Ser- Gulf, Katrina strengthened sig- July 9: Hurricane Dennis vices estimates the personal resi- nificantly to a category 5 with 5 a peak wind intensity of 175 mph.