What is the reserve used for?
The reserve will only be used to pay claims arising out of “qualifying losses,” which are defined as losses and loss adjustment expenses incurred, net of reinsurance, resulting from loss to property located in New York that are directly attributable to a catastrophe in the state. Catastrophe is defined as a “natural event designated as a catastrophe by the Property Claims Service” and “(1) which causes $250 million or more in industry-wide direct insured losses in the United States and results in qualifying loss to property located in [New York]; or (2) which causes $25 million or more in direct insured losses in a qualifying loss to property located in [New York] and results in a 10% reduction in the insurer’s surplus to policyholders in any calendar year.”
How is the reserve funded?
Each property/casualty insurer must annually fund its mandatory catastrophe reserve in an amount equal to its “aggregate catastrophe load,” included in its New York subject premiums, for the calendar year. The term “aggregate catastrophe load” is defined as the total dollar amount of all catastrophe loads, net of non-hurricane catastrophe provisions and excess of loss reinsurance ceded, charged to all rating territories. The mandatory catastrophe reserve will have a thirty year rolling term. At the end of the reserve’s thirtieth year, the first year’s annual contribution, including investment income, to the extent it was not used to fund qualifying losses, will be taken into income while the thirtieth year’s contribution will be added to the reserve. From the thirty-first year onward, this process will repeat.
How are the funds in the reserve used?
When a property/casualty insurer incurs a qualifying loss on property located in New York, it may convert its New York mandatory catastrophe reserve, or a portion thereof, to an event specific catastrophe loss reserve. The insurer is required to provide written notice to the NYID within 30 days of any such conversion.