In 1992, in the wake of Hurricane Andrew, the Florida Legislature enacted
F.S. § 215.555, which created the Florida Hurricane Catastrophe Fund (the “Fund”).  The Fund is a trust fund, established to reimburse insurers, who write covered policies under F.S. § 215.555(2)(c), for a portion of their catastrophic hurricane related losses.  The Fund, in effect, provides reinsurance coverage for insurers of residential property in Florida.

A “covered policy” is any insurance policy, issued by an authorized insurer, covering Floridian residential property or its contents, e.g., homeowner’s, mobile home owner’s, farm owner’s, condominium association’s, condominium unit owner’s, and tenant’s policies.  The statute authorizes the Fund to collect reimbursement premiums from insurers, which write covered policies and have entered into reimbursement contracts with the State Board of Administration (“SBA”), which  administers the Fund.  It also authorizes the Fund to issue revenue bonds, via the Florida Hurricane Catastrophe Fund Finance Corporation (the “Corporation”), and pay the proceeds of the bonds to participating insurers.  These proceeds help the  insurers pay their policy holders’ claims for catastrophic hurricane damage.

Between 1993 and 2004 the Fund built reserves of more than $6 billion.  However, the extraordinarily active hurricane seasons of 2004 and 2005 exhausted nearly all of the Fund’s reserves.  On May 31, 2006 the SBA determined that:

The amount of revenue produced from reimbursement premiums is insufficient to fund the obligations, costs, and expenses of the Fund and the Corporation, including repayment of revenue bonds and that portion of debt service coverage not met by reimbursement premiums.

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In addition, . . . the Board hereby determines that moneys in the Fund will be insufficient to pay reimbursement at the levels promised in the reimbursement contracts, has determined the projected reimbursable losses of Participating Insurers, has determined that the Fund will not have sufficient funds to reimburse Participating Insurers for their reimbursable losses, and has determined the estimated shortfall which will be covered by the issuance of revenue bonds.

SBA Resolution, passed and adopted May 31, 2006.

Accordingly, the SBA directed the Office of Insurance Regulation (“OIR”) to levy an emergency assessment on the direct written premiums for property and casualty insurance policies issued or renewed in Florida after January 2007.  This assessment applies to all property and casualty lines of business except accident and health insurance, workers’ compensation insurance, medical malpractice insurance, and policies written under the National Flood Insurance Program.  The assessment also applies to the same lines of business regulated as surplus lines by the Florida Surplus Lines Service Office.

The companies and the lines of business subject to this assessment are substantially more voluminous than the residential lines of business for which the Fund was created.  In effect, most Florida insureds are chipping in to replenish the Fund, which provides reinsurance protection only to authorized residential property insurers.