Florida regulators announced they are ending a 1.3 percent assessment on property insurance premiums 18 months ahead of schedule. The monies had been used to pay off bonds issued by the state’s hurricane catastrophe fund in 2010.
The Florida Hurricane Catastrophe Fund serves as a state-backed reinsurer that provides reinsurance coverage to Citizens Property Insurance Corp. and all insurers providing property insurance in the state. The Cat Fund is required to reimburse property insurers for hurricane losses up to $17 billion per storm season. That coverage is triggered after the insurers collectively reach an aggregate retention of an estimated $7.075 billion for the 2014 hurricane season.
Although no new Cat Fund assessments will be applied to new or renewal business come January 2015, some assessments will continue to be collected. Policies issued or renewed between January 1, 2011 and December 31, 2014 will remain assessed at 1.3 percent and a one percent assessment will also apply to all new and renewal policies issued between January 1, 2007 and December 31,2011
The Cat Fund is currently in the strongest financial position since it was created in the wake of Hurricane Andrew in 1992.
For the 2014 hurricane season, the Cat Fund is projected to have $12.95 billion that consists of an estimate year-end cash balance of $10.95 billion and another $2 billion in pre-event bonds. In the event the Cat Fund needed to raise more money it could do so by issuing post-event bonds that would be backed by an emergency assessment.
The maximum emergency assessment is capped at six percent of all direct written premiums for any given year and up to 10 percent for losses sustained over multiple years.
The so-called “hurricane tax” has been assessed on all property and casualty lines of business covered by both admitted insurers and surplus lines. The only exceptions are workers’ compensation policies, accident and health policies, and medical malpractice policies. Also excluded are policies issued under the National Flood Insurance Program and Federal Crop Insurance Program.
The 1.3 emergency assessment was being collected to pay off the last of a series of bonds the Cat Fund had to issue after the 2004 and 2005 hurricane season when eight hurricanes caused damage in the state.
The 2010A post-event revenue bonds raised $675 million, which was slated to be paid off in the amounts of $342 million in 2015 and $333 million in 2016.
Collectively, the post 2004-2005 bonds, the first ever issued by the Cat Fund, caused a one percent assessment starting in 2007. However, that was increased to 1.3 percent in 2011. All told, the assessments raised $2.9 billion as of May 31, 2014.
Office of Insurance Regulation Spokesman Harvey Bennett said there are several reasons the Cat Fund was able to pay off the 2010A bonds early.
First, Bennett said, is that the Cat Fund settled claims with insurers at lower levels than anticipated. Second, more people have bought property insurance and automobile coverage in the state.
“This really reflects the health of the Cat Fund that they have the ability to pay off the assessment earlier,” Bennett.
Property Casualty Insurers Association State Government Relations Counsel Donovan Brown said the end of the emergency assessments is more good news for the property market.
“Today’s announcement is proof that the Florida property market is moving in the right direction,” said Brown in a statement. “Barring a major catastrophe, PCI and its members are cautiously optimistic that the Florida property market is making great strides.”