THE BILL ITSELF
HB 1349
Florida Hurricane Catastrophe Fund
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A bill to be entitled
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An act relating to the Florida Hurricane Catastrophe
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Fund; amending s. 215.555, F.S.; specifying the
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retention multiple for specified contracts; deleting
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obsolete language; providing the adjusted retention
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multiple for insurers electing the 100-percent
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coverage level; requiring that the reimbursement
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contract contain a promise by the State Board of
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Administration to reimburse the insurer a specified
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percentage of its losses and applicable loss
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adjustment expenses; specifying the loss adjustment
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expense for specified contracts and rates; modifying
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the contract obligation of the board for a contract
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year; deleting provisions regarding reimbursements;
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requiring that the hurricane loss portion of a
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specified formula be determined by averaging the
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results of certain catastrophe models; authorizing,
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rather than requiring, a certain formula to provide
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for a cash build-up factor; requiring the cash build-
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up factor to be frozen beginning in a specified
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contract year and to freeze for a specified period
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ending by a specified date; requiring the savings
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realized as a result of the freeze of the cash build-
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up factor to be passed to consumers; requiring the
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board to file certain premiums with the Office of
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Insurance Regulation; requiring the office to review
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such premiums; prohibiting certain costs from being
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added to the cost of the reimbursement contracts;
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providing an effective date.
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Be It Enacted by the Legislature of the State of Florida:
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Section 1. Paragraph (e) of subsection (2), paragraphs
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(b), (c), and (d) of subsection (4), paragraph (b) of subsection
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(5), and paragraph (a) of subsection (7) of section 215.555,
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Florida Statutes, are amended to read:
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215.555 Florida Hurricane Catastrophe Fund.—
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(2) DEFINITIONS.—As used in this section:
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(e) "Retention" means the amount of losses below which an
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insurer is not entitled to reimbursement from the fund. An
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insurer's retention shall be calculated as follows:
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1. The board shall calculate and report to each insurer
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the retention multiples for that year. For the contract year
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beginning June 1, 2026 2005, the retention multiple must shall
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be equal to $8.5 $4.5 billion divided by the total estimated
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reimbursement premium for the contract year; for subsequent
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years, the retention multiple shall be equal to $4.5 billion,
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adjusted based upon the reported exposure for the contract year
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occurring 2 years before the particular contract year to reflect
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the percentage growth in exposure to the fund for covered
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policies since 2004, divided by the total estimated
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reimbursement premium for the contract year. Total reimbursement
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premium for purposes of the calculation under this subparagraph
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shall be estimated using the assumption that all insurers have
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selected the 90-percent coverage level.
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2. The retention multiple as determined under subparagraph
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1. shall be adjusted to reflect the coverage level elected by
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the insurer. For insurers electing the 100-percent coverage
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level, the adjusted retention multiple is 90 percent of the
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amount determined under subparagraph 1. For insurers electing
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the 90-percent coverage level, the adjusted retention multiple
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is 100 percent of the amount determined under subparagraph 1.
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For insurers electing the 75-percent coverage level, the
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retention multiple is 120 percent of the amount determined under
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subparagraph 1. For insurers electing the 45-percent coverage
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level, the adjusted retention multiple is 200 percent of the
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amount determined under subparagraph 1.
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3. An insurer shall determine its provisional retention by
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multiplying its provisional reimbursement premium by the
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applicable adjusted retention multiple and shall determine its
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actual retention by multiplying its actual reimbursement premium
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by the applicable adjusted retention multiple.
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4. For insurers who experience multiple covered events
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causing loss during the contract year, beginning June 1, 2005,
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each insurer's full retention shall be applied to each of the
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covered events causing the two largest losses for that insurer.
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For each other covered event resulting in losses, the insurer's
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retention shall be reduced to one-third of the full retention.
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The reimbursement contract must shall provide for the
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reimbursement of losses for each covered event based on the full
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retention with adjustments made to reflect the reduced
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retentions on or after January 1 of the contract year provided
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the insurer reports its losses as specified in the reimbursement
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contract.
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(4) REIMBURSEMENT CONTRACTS.—
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(b)1. The contract must shall contain a promise by the
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board to reimburse the insurer for 45 percent, 75 percent, or 90
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percent, or 100 percent of its losses and applicable loss
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adjustment expenses from each covered event in excess of the
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insurer's retention, plus 5 percent of the reimbursed losses to
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cover loss adjustment expenses. For contracts and rates
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effective on or after June 1, 2026 2019, the loss adjustment
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expense included reimbursement must be the lesser of 25 10
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percent of the total subject losses before reimbursement or the
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total subject actual loss adjustment expenses reimbursed losses.
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2. The insurer must elect one of the percentage coverage
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levels specified in this paragraph and may, upon renewal of a
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reimbursement contract, elect a lower percentage coverage level
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if no revenue bonds issued under subsection (6) after a covered
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event are outstanding, or elect a higher percentage coverage
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level, regardless of whether or not revenue bonds are
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outstanding. All members of an insurer group must elect the same
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percentage coverage level. Any joint underwriting association,
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risk apportionment plan, or other entity created under s.
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627.351 must elect the 90-percent coverage level.
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3. The contract must shall provide that reimbursement
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amounts may shall not be reduced by reinsurance paid or payable
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to the insurer from other sources.
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(c)1. The contract must shall also provide that the
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obligation of the board with respect to all contracts covering a
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particular contract year is shall not exceed the actual claims-
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paying capacity of the fund up to a limit of $17 billion for
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that contract year, unless the board determines that there is
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sufficient estimated claims-paying capacity to provide $17
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billion of capacity for the current contract year and an
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additional $17 billion of capacity for subsequent contract
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years. If the board makes such a determination, the estimated
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claims-paying capacity for the particular contract year shall be
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determined by adding to the $17 billion limit one-half of the
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fund's estimated claims-paying capacity in excess of $34
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billion. However, the dollar growth in the limit may not
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increase in any year by an amount greater than the dollar growth
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of the balance of the fund as of December 31, less any premiums
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or interest attributable to optional coverage, as defined by
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rule which occurred over the prior calendar year.
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2. In May and October of the contract year, the board
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shall publish in the Florida Administrative Register a statement
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of the fund's estimated borrowing capacity, the fund's estimated
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claims-paying capacity, and the projected balance of the fund as
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of December 31. After the end of each calendar year, the board
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shall notify insurers of the estimated borrowing capacity,
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estimated claims-paying capacity, and the balance of the fund as
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of December 31 to provide insurers with data necessary to assist
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them in determining their retention and projected payout from
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the fund for loss reimbursement purposes. In conjunction with
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the development of the premium formula, as provided for in
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subsection (5), the board shall publish factors or multiples
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that assist insurers in determining their retention and
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projected payout for the next contract year. For all regulatory
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and reinsurance purposes, an insurer may calculate its projected
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payout from the fund as its share of the total fund premium for
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the current contract year multiplied by the sum of the projected
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balance of the fund as of December 31 and the estimated
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borrowing capacity for that contract year as reported under this
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subparagraph.
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(d)1. For purposes of determining potential liability and
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to aid in the sound administration of the fund, the contract
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must shall require each insurer to report such insurer's losses
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from each covered event on an interim basis, as directed by the
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board. The contract must shall require the insurer to report to
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the board no later than December 31 of each year, and quarterly
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thereafter, its reimbursable losses from covered events for the
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year. The contract must shall require the board to determine and
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pay, as soon as practicable after receiving these reports of
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reimbursable losses, the initial amount of reimbursement due and
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adjustments to this amount based on later loss information. The
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adjustments to reimbursement amounts must shall require the
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board to pay, or the insurer to return, amounts reflecting the
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most recent calculation of losses.
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2. In determining reimbursements pursuant to this
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subsection, the contract shall provide that the board shall pay
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to each insurer such insurer's projected payout, which is the
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amount of reimbursement it is owed, up to an amount equal to the
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insurer's share of the actual premium paid for that contract
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year, multiplied by the actual claims-paying capacity available
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for that contract year.
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3. The board may reimburse insurers for amounts up to the
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published factors or multiples for determining each
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participating insurer's retention and projected payout derived
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as a result of the development of the premium formula in those
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situations in which the total reimbursement of losses to such
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insurers would not exceed the estimated claims-paying capacity
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of the fund. Otherwise, the projected payout factors or
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multiples shall be reduced uniformly among all insurers to
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reflect the estimated claims-paying capacity.
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(5) REIMBURSEMENT PREMIUMS.—
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(b) The State Board of Administration shall select an
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independent consultant to develop a formula for determining the
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actuarially indicated premium to be paid to the fund. The
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hurricane loss portion of the formula must be determined by
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averaging the results of all the catastrophe models approved by
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the Florida Commission on Hurricane Loss Projection Methodology.
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The formula must shall specify, for each zip code or other
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limited geographical area, the amount of premium to be paid by
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an insurer for each $1,000 of insured value under covered
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policies in that zip code or other area. In establishing
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premiums, the board shall consider the coverage elected under
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paragraph (4)(b) and any factors that tend to enhance the
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actuarial sophistication of ratemaking for the fund, including
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deductibles, type of construction, type of coverage provided,
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relative concentration of risks, and other such factors deemed
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by the board to be appropriate. The formula may must provide for
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a cash build-up factor. For the 2009-2010 contract year, the
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factor is 5 percent. For the 2010-2011 contract year, the factor
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is 10 percent. For the 2011-2012 contract year, the factor is 15
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percent. For the 2012-2013 contract year, the factor is 20
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percent. For the 2013-2014 contract year and thereafter, the
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factor is 25 percent; however, the cash build-up factor must be
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frozen beginning in the 2026-2027 contract year and must freeze
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for a 12-month period ending no later than July 1, 2027. Any
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savings realized as a result of the freeze of the cash build-up
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factor must be passed directly to the consumer. The formula may
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provide for a procedure to determine the premiums to be paid by
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new insurers that begin writing covered policies after the
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beginning of a contract year, taking into consideration when the
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insurer starts writing covered policies, the potential exposure
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of the insurer, the potential exposure of the fund, the
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administrative costs to the insurer and to the fund, and any
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other factors deemed appropriate by the board. The formula must
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be approved by unanimous vote of the board. The board may, at
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any time, revise the formula pursuant to the procedure provided
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in this paragraph. The board shall file the premiums to be paid
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with the Office of Insurance Regulation, and the office shall
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review such premiums.
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(7) ADDITIONAL POWERS AND DUTIES.—
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(a) The board may procure reinsurance from reinsurers
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acceptable to the Office of Insurance Regulation for the purpose
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of maximizing the capacity of the fund and may enter into
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capital market transactions, including, but not limited to,
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industry loss warranties, catastrophe bonds, side-car
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arrangements, or financial contracts permissible for the board's
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usage under s. 215.47(11) and (12), consistent with prudent
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management of the fund. The cost of any reinsurance or other
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capital market transaction other than issuing bonds secured by
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assessments purchased by the board to maximize the claims-paying
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capacity of the fund may not be added to the actuarially
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determined cost of the reimbursement contracts.
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Section 2. This act shall take effect upon becoming a law.