Florida Public Hurricane Loss Model Submitted in compliance with the 2006 Standards of the Florida Commission on Hurricane Loss Projection Methodology June 12, 2007 Florida Commission on Hurricane Loss Projection Methodology Model Identification Name of Model and Version: Florida Public Hurricane Loss Model 2.6 Name of Modeling Organization: Florida International University Street Address : International Hurricane Research Center, MARC 360 City, State, ZIP Code: Miami, Florida 33199 Mailing Address, if different from above: Same as above Contact Person: Shahid S. Hamid Phone Number: 305-348-2727 Fax: 305-348-1761 E-mail Address: [email protected] Date: June12, 2007 FPHLM V2.6 2007 2 June 12, 2007 Chair, Florida Commission on Hurricane Loss Projection Methodology c/o Donna Sirmons Florida State Board of Administration 1801 Hermitage Boulevard, Suite 100 Tallahassee, FL 32308 Dear Commission Chairman: I am pleased to inform you that the Florida Public Hurricane Loss Model (FPHLM) is ready for its first review by the Professional Team and certification by the Commission. The FPHLM model has been reviewed by professionals having credentials and/or experience in the areas of meteorology, engineering, actuarial science and insurance, statistics and computer science; for compliance with the Standards, as documented by the expert certification forms G1-G6. Enclosed are 20 bound copies of our submission, which includes the summary statement of compliance with the standards, the forms, and the submission checklist. Also enclosed are 20 CDs containing the submission and forms. Please contact me if you have any questions regarding this submission. Sincerely, Shahid Hamid, Ph.D, CFA Professor of Finance, and Director, Laboratory for Insurance, Economic and Financial Research International Hurricane Research Center RB 202B, Department of Finance, College of Business Florida International University Miami, FL 33199 tel: 305 348 2727 fax: 305 348 4245 Cc: Kevin M. McCarty, Insurance Commissioner FPHLM V2.6 2007 3 Model Submission Checklist 1. Please indicate by checking below that the following has been included in your submission to the Florida Commission on Hurricane Loss Projection Methodology . Yes No Item X 1. Letter to the Commission X a. Refers to the Expert Certification Forms and states that professionals having credentials and/or experience in the areas of meteorology, engineering, actuarial science, statistics, and computer science have reviewed the model for compliance with the Standards X b. States model is ready to be reviewed by the Professional Team X c. Any caveats to the above statements noted with a complete explanation X 2. Summary statement of compliance with each individual Standard and the data and analyses required in the Disclosures and Forms X 3. General description of any trade secrets the modeler intends to present to the Professional Team X 4. Model Identification X 5. 20 Bound Copies X 6. 20 CDs containing: X a. Submission text in PDF format X b. PDF file highlightable and bookmarked by Standard, Form, and section X c. Data file names include abbreviated name of modeler, Standards year, and Form name (when applicable) X d. Forms V-2, A-1, A-3, A-4, A-5, A-6, A-7, and S-5 (for models submitted by modeling organizations which have not previously provided the Commission with this analysis) in PDF format X e. Forms V-2, A-1, A-3, A-4, A-5, A-6, and A-7 in Excel format X f. Form S-5 (for models submitted by modeling organizations which have not previously provided the Commission with this analysis) in ASCII format X 7. Table of Contents X 8. Materials consecutively numbered from beginning to end starting with the first page (including cover) using a single numbering system X 9. All tables, graphs, and other non-text items specifically listed in Table of Contents X 10. All tables, graphs, and other non-text items clearly labeled with abbreviations defined X 11. Standards, Disclosures, and Forms in italics , modeler responses in non-italics X 12. Graphs accompanied by legends and labels for all elements X 13. All units of measurement clearly identified with appropriate units used X 14. Hard copy of all Forms included except Forms A-1 and S-5 2. Explanation of “No” responses indicated above. (Attach additional pages if needed.) Florida Public Hurricane Loss Model June 12, 2007 Model Name Modeler Signature Date FPHLM V2.6 2007 4 TABLE OF CONTENTS PAGE General Standards 11 G-1 Scope of the Computer Model and Its Implementation 11 G-2 Qualifications of Modeler Personnel and Consultants 43 G-3 Risk Location 50 G-4 Submission Specifications 52 Form G-1 General Standards Expert Certification 53 Form G-2 Meteorological Standards Expert Certification 54 Form G-3 Vulnerability Standards Expert Certification 55 Form G-4 Actuarial Standards Expert Certification 56 Form G-5 Statistical Standards Expert Certification 57 Form G-6 Computer Standards Expert Certification 58 Meteorological Standards 59 M-1 Base Hurricane Storm Set 59 M-2 Hurricane Characteristics 74 M-3 Landfall Intensity 83 M-4 Hurricane Probabilities 85 M-5 Land Friction and Weakening 97 M-6 Logical Relationships of Hurricane Characteristics 107 Form M-1 Annual Occurrence Rates 87 Form M-2 Maps of Maximum Winds 102 Form M-3 Radius of Maximum Winds 108 Vulnerability Standards 110 V-1 Derivation of Vulnerability Functions 110 V-2 Mitigation Measures 125 Form V-1 One Hypothetical Event 128 Form V-2 Mitigation Measures – Range of Changes in Damage 129 Form V-3 Mitigation Measures – Mean Damage Ratio 130 Actuarial Standards 133 A-1 Modeled Loss Costs 133 A-2 Underwriting Assumptions 134 A-3 Loss Cost Projections 138 A-4 Demand Surge 140 A-5 User Inputs 143 A-6 Logical Relationship to Risk 149 A-7 Deductibles and Policy Limits 155 A-8 Contents 158 A-9 Additional Living Expense (ALE) 160 A-10 Output Ranges 162 Form A-2 Zero Deductible Loss Costs by ZIP Code 166 Form A-3 Base Hurricane Storm Set Average Annual Zero Deductible Statewide Loss Costs 169 Form A-4 Hurricane Andrew Percent of Losses 171 FPHLM V2.6 2007 5 Form A-5 Distribution of Hurricanes by Size of Loss 181 Form A-6 Output Ranges 184 Form A-7 Percentage Change In Output Ranges (V1.5 to V2.6) 256 Form A-7 Percentage Change In Output Ranges (V2.5 to V2.6) 278 Statistical Standards 300 S-1 Modeled Results and Goodness-of-Fit 300 S-2 Sensitivity Analysis for Model Output 312 S-3 Uncertainty Analysis for Model Output 316 S-4 County Level Aggregation 320 S-5 Replication of Known Hurricane Losses 321 S-6 Comparison of Projected Hurricane Loss Costs 324 Form S-1 Probability of Hurricanes per Year 325 Form S-2 Probable Maximum Loss (PML) 326 Form S-3 Five Validation Comparisons 327 Form S-4 Average Annual Zero Deductible Statewide Loss Costs - Historical versus Modeled 330 Form S-5 Hypothetical Events for Sensitivity and Uncertainty Analysis 331 Computer Standards 363 C-1 Documentation 363 C-2 Requirements 364 C-3 Model Architecture and Component Design 365 C-4 Implementation 366 C-5 Verification 368 C-6 Model Maintenance and Revision 371 C-7 Security 372 Assessment of Meteorological Portion of Florida Public Hurricane Loss Model 374 Letter of Assessment from the Actuary 378 Florida Public Hurricane Loss Model (FPHLM) Item 3. General Description of Any Trade Secrets the modeler intends to present the Professional Team The source codes will be made available for professional team for inspection. FPHLM V2.6 2007 6 LIST OF FIGURES FIGURE 1. FLORIDA PUBLIC HURRICANE LOSS MODEL DOMAIN AND THREAT AREA ....................................................12 FIGURE 2. EXAMPLES OF SIMULATED HURRICANE TRACKS . NUMBERS REFER TO THE STOCHASTIC TRACK NUMBER , AND COLORS REPRESENT STORM INTENSITY BASED ON CENTRAL PRESSURE .......................................................14 FIGURE 3. WEIGHTED MASONRY STRUCTURE VULNERABILITIES IN THE CENTRAL WIND BONE DEBRIS ZONE ...............24 FIGURE 4. FLOW DIAGRAM OF THE COMPUTER MODEL .................................................................................................28 FIGURE 5. ORGANIZATIONAL STRUCTURE ....................................................................................................................44 FIGURE 6. FLORIDA PUBLIC HURRICANE LOSS MODEL WORKFLOW ............................................................................47 FIGURE 7. COMPARISON OF OBSERVED LANDFALL RMAX (SM ) DISTRIBUTION TO LOGNORMAL (LEFT ) AND GAMMA DISTRIBUTION FITS OF THE DATA . .......................................................................................................................75 FIGURE 8. COMPARISON OF 100,000 RMAX VALUES SAMPLED FROM THE GAMMA DISTRIBUTION FOR CAT 1-4 STORMS TO THE EXPECTED VALUES ..................................................................................................................................76 FIGURE 9. REPRESENTATIVE STOCHASTIC HURRICANE TRACKS SIMULATED BY THE FPHLM. .....................................80 FIGURE 10. COMPARISON OF OBSERVED (RIGHT ) AND MODELED (LEFT ) LANDFALL WIND FIELDS OF HURRICANES CHARLEY (2004, TOP ), AND 2005 HURRICANE KATRINA IN SOUTH FLORIDA (BOTTOM ). LINE SEGMENT INDICATES STORM HEADING . HORIZONTAL COORDINATES ARE IN UNITS OF R/R MAX AND WINDS UNITS OF MILES PER HOUR ..................................................................................................................................................81 FIGURE 11. AS IN FIGURE 10 EXCEPT FOR HURRICANE WILMA OF 2005. .....................................................................82 FIGURE 12.F ORM M1 COMPARISON OF MODELED AND