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                         The above agencies came to be heard before
               THE FLORIDA CABINET, Honorable Governor Bush presiding, in the
               Cabinet Meeting Room, LL-03, The Capitol, Tallahassee, Florida,
               on the 23rd day of November, 2004, commencing at approximately
               9:25 a.m.


                                        Reported by:

                                     KRISTEN L. BENTLEY
                                  Certified Court Reporter


                             ACCURATE STENOTYPE REPORTERS, INC.
                                  2894 REMINGTON GREEN LANE
                           TALLAHASSEE, FL  32308   (850)878-2221






                         Representing the Florida Cabinet:

                         JEB BUSH

                         CHARLES H. BRONSON
                         Commissioner of Agriculture

                         CHARLIE CRIST
                         Attorney General

                         TOM GALLAGHER
                         Chief Financial Officer

                                           * * *

















                                   ACCURATE STENOTYPE REPORTERS, INC.

                                          I N D E X

               (Presented by Kevin McCarty)

               ITEM                  ACTION                 PAGE
               1                     Discussion Only
               2                     Approved               10

               (Presented by James Zingale)

               ITEM                  ACTION                 PAGE
               1                     Approved               11
               2                     Approved               12

               (Presented by Sherman Wilhelm)

               ITEM                  ACTION                 PAGE

               1                     Approved               13
               2                     Approved               21
               3                     Approved               27

               (Presented by Coleman Stipanovich)

               ITEM                  ACTION                 PAGE

               1                     Approved               28
               2.1                   Information only
               2.2                   Deferred
               2.3                   Deferred
               3                     Approved               68







                                   ACCURATE STENOTYPE REPORTERS, INC.
          1                              PROCEEDINGS

          2              THE GOVERNOR:  The next cabinet meeting will be

          3         Tuesday, December 7th.  Financial Services Commission,

          4         Office of Insurance Regulation.  Kevin, how you doing?

          5              MR. McCARTY:  Good morning, Governor, members of the

          6         commission.  I'd like to take a moment to highlight some

          7         of the information on our Hurricane Season Report 2004

          8         dated November 18th.  First of all for total number of

          9         claims, we have 1 .5 million claims, 20.65 billion in

         10         gross losses.  That represents both commercial and

         11         residential.  Of those losses, 443,000 of those represent

         12         losses from Hurricane Charley.  About 7 .6 billion.

         13         77 percent of those claims have been closed.

         14              Closed claims mean the claim has been settled and

         15         payment has been received and no further payments are

         16         expected in the future.  Hurricane Frances represents

         17         495,000 claims or 4.7 billion in gross losses.  62 percent

         18         of those claims have been closed.

         19              THE GOVERNOR:  I'm sorry, what was the Charley

         20         number, percentagewise?

         21              MR. McCARTY:  Charley number was 443,000 --

         22              THE GOVERNOR:  Percentagewise, I mean.

         23              MR. McCARTY:  77 percent.  That's average of all

         24         companies reporting.

         25              THE GOVERNOR:  Okay.

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1              MR. McCARTY:  Hurricane Ivan, 191 claims reported

          2         representing 4.3 billion in gross losses, 56 percent of

          3         which claims are currently closed.  And Hurricane Jeanne,

          4         364,000 claims reported representing 4.1 billion in gross

          5         losses with 56 percent of the claims currently closed.

          6              THE GOVERNOR:  Kevin, what percentage do you think of

          7         the claims have been filed that you anticipate?  Because

          8         at one point we were talking maybe 2.2 million claims.

          9              CFO GALLAGHER:  About three quarters have been filed.

         10         There's another quarter to go.  But we've got about a

         11         million and five.

         12              THE GOVERNOR:  So we're still on track to the over

         13         2 million number?

         14              CFO GALLAGHER:  Should be 2 million.

         15              MR. McCARTY:  That's correct.

         16              CFO GALLAGHER:  2,100,000.

         17              THE GOVERNOR:  And what do you anticipate the

         18         estimated gross loss to be based on --

         19              MR. McCARTY:  Gross loss we estimate to be 20.6.

         20              THE GOVERNOR:  That is the total.

         21              MR. McCARTY:  That is the total.

         22              THE GOVERNOR:  I'm sorry.  Okay.

         23              MR. McCARTY:  And that coincides with information we

         24         received from third parties as well.  It's a very similar

         25         number.

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1              THE GOVERNOR:  You used to provide us the -- and I

          2         used to use it but I was told the data may not be

          3         completely reliable, the un -- the loss that was not --

          4         you know, the deductible basically for homeowners.  It was

          5         a billion and two, people were out of pocket an estimated

          6         a billion, 200 million, then the report stopped including

          7         that in it.  I'm just curious to know do we have a sense

          8         of how much people were out of pocket?

          9              MR. McCARTY:  In terms of what the consumers paid in

         10         deductible?

         11              THE GOVERNOR:  Yeah.

         12              MR. McCARTY:  I can get that information.  I don't

         13         have that in this report.  We did also, in addition to our

         14         weekly reports regarding aging, regarding number of losses

         15         per storm per line of business per county, we're also

         16         conducting a special study regarding deductibles as you

         17         had requested.  We had done an earlier study of the top 20

         18         companies with some preliminary data but we've now

         19         conducted a study of 100 companies representing 87 to

         20         97 percent of the industry so we'll have that data

         21         available as well.

         22              THE GOVERNOR:  How are we doing on the adjusters?

         23              MR. McCARTY:  The adjuster closing period for the

         24         first two storms is November 22nd.  The affidavits are due

         25         on November 29th.

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1              THE GOVERNOR:  Does that mean they're all -- how are

          2         we doing in terms of adjusters getting out?  Are they

          3         going to comply with the rule we passed?

          4              MR. McCARTY:  Well, from the conversations I've had

          5         and some of my staff have had with most of the insurance

          6         companies, it appears as though most companies are on

          7         target to meet and be able to file that affidavit.

          8              CFO GALLAGHER:  Well, I can tell you we have a

          9         thousand people signed up right now already for mediation

         10         in our four mediation centers that are operating in four

         11         main hurricane areas.  And so far, that seems to be going

         12         quite smoothly.  Quite a few settlements have happened

         13         prior to mediation which is great.  That's what we expect

         14         to happen.  There's a 21-day period that takes place from

         15         final offer of the insurance company.  A request for

         16         mediation, that's when the 21 days starts.  It gives the

         17         insurance company a chance to settle with them during the

         18         21 days or go to mediation.

         19              THE GOVERNOR:  General?

         20              GENERAL CRIST:  Thank you, Governor.  Kevin, I think

         21         you said that you thought most of the companies would be

         22         able to supply enough adjusters.  Which ones you

         23         anticipate will not?

         24              MR. McCARTY:  Well, at this time since the affidavits

         25         have not been filed, I'm not able to disclose that

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1         information but I'll have -- we'll have that information

          2         very shortly, General.

          3              GENERAL CRIST:  Okay.  Thanks.

          4              MR. McCARTY:  At the last commission meeting, the

          5         treasurer and governor has to look into some possibility

          6         of legislation for a special session regarding properties

          7         that have been damaged by one of the storms in 2004 where

          8         the claimant would have been paid for but unable to

          9         effectuate construction completion.  Those properties

         10         would be, in most cases, uninsurable in the voluntary

         11         market, even uninsurable by citizens.  And as a result of

         12         that, we have proposed the following rule to address that

         13         particular situation.

         14              THE GOVERNOR:  Are we on Item 2 now?

         15              MR. McCARTY:  Yes, sir.

         16              THE GOVERNOR:  Okay.  So --

         17              MR. McCARTY:  Well, the other part of Item 1 is

         18         legislation, suggested legislation, which really is

         19         codification of the proposed rule which is Item No. 2.

         20              CFO GALLAGHER:  One of the problems with emergency

         21         rules is they only last so long.  These emergency rules

         22         only go along with your declaration of emergency.  So

         23         we're getting sort of backed up on how long this is good

         24         for.

         25              THE GOVERNOR:  I have no idea.  We'll find out.

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1              MR. McCARTY:  Emergency rules are usually --

          2              CFO GALLAGHER:  And we may need an extension on yours

          3         actually.

          4              MR. McCARTY:  To?

          5              CFO GALLAGHER:  To the end of the year.

          6              THE GOVERNOR:  Until we get through this 60-day

          7         period?

          8              CFO GALLAGHER:  Well, to get to the end of the year

          9         and then we have to get this in law for these 60 days

         10         after a home is returned to its prestorm position.  If you

         11         don't, it's an uninsurable risk and even citizens won't

         12         take it.

         13              THE GOVERNOR:  So all we have to do is commit that

         14         the emergency rule will be valid or that there is

         15         codification of it.

         16              CFO GALLAGHER:  Right.

         17              THE GOVERNOR:  One of the two.

         18              MR. McCARTY:  That's correct.

         19              CFO GALLAGHER:  Well, actually, you have to have

         20         codification because emergency rules are only good for 90

         21         days.  And this one is only going to be good until the law

         22         changes in 90 days which is not long enough.  Because

         23         obviously a lot of people haven't even started any

         24         repairs.

         25              THE GOVERNOR:  Okay.  Any discussion on the adoption

                                   ACCURATE STENOTYPE REPORTERS, INC.
          1         of emergency Rule 69OER04-06 --

          2              CFO GALLAGHER:  I move for adoption.

          3              (Laughter.)

          4              THE GOVERNOR:  Why you guys have these kinds of

          5         numbers?

          6              MR. McCARTY:  That's what they give me, Governor.

          7              CFO GALLAGHER:  Every number means something.

          8              THE GOVERNOR:  Does it mean something?

          9              CFO GALLAGHER:  ER is emergency rule.

         10              MR. McCARTY:  690 is our code.

         11              THE GOVERNOR:  All right.  Forget it.

         12              (Laughter.)

         13              COMMISSIONER BRONSON:  Second.

         14              THE GOVERNOR:  Sounds like something I don't want to

         15         know.  There is a motion and a second on Item 2.  Any

         16         discussion?  (No response.)  Without objection, the item

         17         passes.

         18              Thank you, Kevin.

         19              MR. McCARTY:  Thank you, Governor and members of the

         20         commission.






                                   ACCURATE STENOTYPE REPORTERS, INC.
                         DEPARTMENT OF REVENUE - 11/23/04
          1              THE GOVERNOR:  Department of Revenue.

          2              CFO GALLAGHER:  Motion on the minutes.

          3              COMMISSIONER BRONSON:  Second.

          4              THE GOVERNOR:  There is a motion and a second.

          5         Without objection, Item 1 passes.

          6              DR. ZINGALE:  There's only one other item on the

          7         agenda.  This second item is an ad valorem tax rule

          8         stemming from 2004 legislation.  Three little parts.  The

          9         first part just did some minor time change in the exchange

         10         of evidence between the clerk and the property appraiser

         11         and the value adjustment board.

         12              The second item, you can remember a little while back

         13         we had citizens out there buying small little bits and

         14         pieces of property that were kind of between things and

         15         then erecting facilities that would cause the compensation

         16         to be exchanged.  This just provides a definition of

         17         contiguous so that these property appraiser -- these

         18         homeowners can be warned.

         19              And the last item is simply requiring that the

         20         Department continue to provide forms for small counties

         21         under 100,000 and request approval of the rule.

         22              THE GOVERNOR:  So this solves the pink --

         23              DR. ZINGALE:  It was solved a year ago but they

         24         wanted a definition of contiguous so that everybody could

         25         be warned.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                         DEPARTMENT OF REVENUE - 11/23/04
          1              THE GOVERNOR:  Is there a motion on Item 2.

          2              GENERAL CRIST:  Motion.

          3              CFO GALLAGHER:  Second.

          4              THE GOVERNOR:  Moved and seconded.  Without

          5         objection, the item passes.  Happy Thanksgiving.

          6              DR. ZINGALE:  Happy Thanksgiving.  Have a great time

          7         with your family, please.



















                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1              THE GOVERNOR:  Board of Trustees.  Department of

          2         Agriculture and Consumer Services.

          3              CFO GALLAGHER:  Motion on the minutes.

          4              GENERAL CRIST:  Second.

          5              THE GOVERNOR:  There's a motion and a second.

          6         Without objection, Item 1 passes.

          7              MS. CASTILLE:  And, Governor, I'm going to turn this

          8         part of the meeting over.  There are only two items with

          9         Aquaculture.  I'm going to turn over to Sherman Wilhelm.

         10              THE GOVERNOR:  Good morning, Sherman.

         11              MR. WILHELM:  Good morning, sir.

         12              THE GOVERNOR:  You're going to have to be fortis and

         13         give me a preview since you're a rookie presenter.  You

         14         need to explain to me the lease down in the Keys to make

         15         reefs.  It sounds very fascinating.

         16              MR. WILHELM:  Yes, sir.

         17              THE GOVERNOR:  But you can do it in your

         18         presentation.  I'm forewarning you that a detailed

         19         explanation should be forthcoming.

         20              GENERAL CRIST:  Item of interest.

         21              MR. WILHELM:  Well, actually this is not the first

         22         one of these we've done.  The Item No. 2 which will segue

         23         into that issue is a request by the Department for

         24         authorization to issue a 10-year, 1-acre lease in Monroe

         25         County for the purpose of producing marine live rock to

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         Mr. Pattendorf.

          2              CFO GALLAGHER:  Can I ask a question?

          3              MR. WILHELM:  Sure.

          4              CFO GALLAGHER:  Is this a typo or is this really

          5         $41.90 annually he's paying for this?

          6              MR. WILHELM:  No, sir, that is $41.90 annually.  He

          7         has a bottom lease and a water column lease.

          8              CFO GALLAGHER:  And they pay us $41.90 for it?

          9              MR. WILHELM:  A year, yes, sir.

         10              CFO GALLAGHER:  You got to be kidding me.

         11              MR. WILHELM:  No, sir.

         12              CFO GALLAGHER:  It costs more than that to process

         13         it.

         14              THE GOVERNOR:  You really drive a hard bargain.

         15              MR. WILHELM:  Yes, sir, it does.  I am more than

         16         willing, believe me --

         17              CFO GALLAGHER:  That's all it's worth?

         18              MR. WILHELM:  Well, no, sir, I'm not going to say

         19         that's all it's worth.

         20              CFO GALLAGHER:  Well, I mean, I have a hard time

         21         voting for something that we don't even get our cost out

         22         of producing the paperwork for.  I mean, just coming here

         23         for you costs more than $41.90.

         24              THE GOVERNOR:  (Laughter.)  How do you know?

         25              MR. WILHELM:  Well, I don't know.  The commissioner

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         is a pretty tight man with the budget.

          2              CFO GALLAGHER:  I'm talking about yours.

          3              MR. WILHELM:  No, sir, the cabinet actually -- the

          4         cabinet, more than five years, ten years ago actually set

          5         these rates.  It's $15.95 an acre or part of an acre.  And

          6         because it's 41, he's got a bottom and a column.  And

          7         because of that, it's $31 just for the lease and then

          8         there is a $10 surcharge.  You-all may certainly raise

          9         them.  My budget would appreciate it.  I know the

         10         commissioner would appreciate it if you'd raise my --

         11         because it is a cost factor.  There's no question about

         12         it, sir.

         13              CFO GALLAGHER:  Doesn't make any sense.

         14              THE GOVERNOR:  Well, I think -- I would imagine --

         15         when was this done?

         16              CFO GALLAGHER:  Ten years ago.

         17              THE GOVERNOR:  Hopefully ten years ago, not five

         18         years ago.

         19              MR. WILHELM:  No, sir.  No, it was over ten years ago

         20         when the 15.95 an acre was set.

         21              CFO GALLAGHER:  It hadn't been changed since then?

         22              THE GOVERNOR:  I would think that it was done in

         23         order to stimulate a potentially enormous industry for our

         24         state and that we were willing to, just as we did with --

         25         I think we did it with, maybe in a misguided way, with the

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         cable -- laying the cable over sovereign submerged lands

          2         when we were focused on connectivity between Florida and

          3         the rest of the world.  I'm assuming that ten years ago

          4         people said this is an important industry.  We don't want

          5         to hit them up with what we typically charge maybe.  Is

          6         that right, Commissioner?

          7              COMMISSIONER BRONSON:  Well, and the discussion, as I

          8         remember too was --

          9              THE GOVERNOR:  Were you here two years ago?

         10              COMMISSIONER BRONSON:  No, but --

         11              CFO GALLAGHER:  I'm probably the only one around here

         12         that was.

         13              THE GOVERNOR:  You don't remember?

         14              (Off-the-record discussion.)

         15              COMMISSIONER BRONSON:  You got to remember the State

         16         was getting nothing for this piece of property.  It was

         17         just sitting there.

         18              THE GOVERNOR:  Now we're losing money.

         19              COMMISSIONER BRONSON:  Now we're losing money.  The

         20         point was to get it in some type of production that would

         21         be positive for the environment that it's in and creating

         22         live rock was a very good environment.  That just shows

         23         that you're able to create live rock from dead rock that

         24         you place there and sell that in the aquamarine industries

         25         of fish and fish tanks, that type of thing.  It's just new

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         technology that's been developed.  And, of course, nobody

          2         has increased it to the cost of living or any of those

          3         things to increase it over the time and we probably have

          4         still a number of things on the book exactly the same way.

          5              THE GOVERNOR:  So under Treasurer Gallagher's point

          6         which is a good one -- cost of living isn't a matter

          7         here -- if it goes up to 60 bucks it's still the hourly --

          8              CFO GALLAGHER:  No.  This was done, I've been

          9         informed, when we did the net ban, this was to give some

         10         people some other alternatives to make a living.

         11              COMMISSIONER BRONSON:  That's what stemmed this.

         12              CFO GALLAGHER:  And so, you know, that's all well and

         13         good.  But the live rock is sold and it's pretty expensive

         14         when you buy it to put it in an aquarium.

         15              MR. WILHELM:  Yes, sir, it's $10 a box, it's $10 a

         16         pound.

         17              CFO GALLAGHER:  And these guys are going to bop down

         18         100,000 pounds so they got a million dollars worth sitting

         19         there.

         20              THE GOVERNOR:  It's a cool business.

         21              CFO GALLAGHER:  All they do is put a pile of rocks

         22         there, something grows on it.  How long does it take it to

         23         grow, a year?

         24              MR. WILHELM:  Year, year and a half, yes, sir.  They

         25         put rocks down and the stuff grows on it and they turn

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         around and sell it and they're paying less than $85 a ton

          2         for it.

          3              THE GOVERNOR:  I'm thinking two years from now, sit

          4         out there in the Keys and watch rocks grow.  That sounds

          5         like a pretty good plan.

          6              CFO GALLAGHER:  $41.90 and make a deposit.

          7              THE GOVERNOR:  Can I sign up?

          8              MR. WILHELM:  Yes, sir.

          9              THE GOVERNOR:  Colleen, will you come with me and be

         10         my partner?

         11              CFO GALLAGHER:  They're going to raise the price

         12         every five years to adjust it.

         13              THE GOVERNOR:  Is the lessee here?

         14              MR. WILHELM:  No, sir, he is not.

         15              CFO GALLAGHER:  He couldn't afford to come up here

         16         when he's paying $41.90 for it.

         17              (Laughter.)

         18              Gas is more than that.

         19              THE GOVERNOR:  Well, I defer to the commissioner of

         20         agriculture on this important subject.

         21              COMMISSIONER BRONSON:  Well, to be fair and practical

         22         about this, I mean, the way it started and the fact that

         23         it was done to generate a new type of business because of

         24         the net ban and other things to get people involved, that

         25         was the impetus to get it started.  Certainly, as farming

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         on a piece of State land that's been leased that's going

          2         to make a million-dollar business worth more than $41, I'm

          3         sure that it is.  But there again, I think that between

          4         DEP and this board that we would probably need to take a

          5         look at that and decide on leases in the future what we're

          6         going to do.

          7              THE GOVERNOR:  What do you want to do on this one?

          8              COMMISSIONER BRONSON:  Well, I don't want to hold the

          9         guy up.  I'd say go ahead and give him the lease.  But if

         10         we want to talk about leases in the future for over

         11         periods of time or whether we do a one-year or a five-year

         12         lease or whatever we do, then we certainly should discuss

         13         that.  I don't think we should hold the man up now when

         14         he's working under the guidelines that's been given to

         15         him.  So I say, my suggestion is to approve the lease.  So

         16         I move to approve the lease.

         17              CFO GALLAGHER:  Well, I'll go along with that.  But

         18         I'd like -- so I'll second that with some instructions

         19         that we come up with something that's a little more --

         20         makes more sense with this.  And I really think we

         21         should -- I mean, we're renewing this thing for five years

         22         at some cost of living.  So I think what ought to do is

         23         say upon renewal it will be under the new rates, that we

         24         figure out what they'll be.  That they're going to be fair

         25         as opposed to a cost of living in there.  You're just

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         going to have to wait and see what kind of fair thing you

          2         can come up with that makes sense.

          3              COMMISSIONER BRONSON:  Now, I would also, Governor,

          4         if I could, remind this board that while this seems awful

          5         cheap and it does.

          6              CFO GALLAGHER:  And it is.

          7              COMMISSIONER BRONSON:  Take, for example, all of the

          8         clam harvesters out there who lease land from us as well

          9         who lost everything they have out there in that water over

         10         those storms.  And all it takes is bad stormy weather, not

         11         necessarily hurricane, to kill the --

         12              THE GOVERNOR:  Even the rocks?

         13              COMMISSIONER BRONSON:  Well, yes.  You can destroy

         14         that rock just as easy with too much sand and too much

         15         fresh water out there in that area or wherever it happens

         16         to be.

         17              THE GOVERNOR:  It's still going to be a rock.

         18              COMMISSIONER BRONSON:  Well, it will be a dead rock,

         19         it won't be a live rock.  But the point is you have

         20         clam -- the clam industry has been devastated in these

         21         storms as well.  So while it may seem cheap for a lease,

         22         they've lost everything they work for and it may not be so

         23         cheap to them in the end when they've lost everything.  So

         24         I think we need to keep all that in perspective.

         25              THE GOVERNOR:  You need to close the deal because now

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         you're talking about free market economics and whether the

          2         government should be subsidizing people's gains and

          3         losses.  You have a motion, right?

          4              COMMISSIONER BRONSON:  I have motion to go ahead and

          5         approve.

          6              CFO GALLAGHER:  With an amended second.

          7              THE GOVERNOR:  There's a motion and a second as

          8         amended.  Any objections?  The motion passes unanimously

          9         with emphasis.  Item 2.

         10              Item 3, excuse me.

         11              MR. WILHELM:  The Board of County Commissioners for

         12         Collier County has written in to the commissioner and

         13         requested that the Department go out within the waters of

         14         Collier County and establish an aquaculture high density

         15         lease.  After extensive research, investigation,

         16         coordination with DEP and FWC, the three agencies

         17         ultimately agreed on two smaller lease parcels instead of

         18         one lease parcel within Collier County.  The County then

         19         had several public meetings as well as the Department and

         20         the University of Florida on providing education and

         21         workshop to potential applicants out in the Collier County

         22         area.

         23              After that was all done, we received another letter

         24         from the County Commission requesting us -- this was

         25         before Hurricane Charley but their feeling is still the

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         same since then -- that they requested us to move forward

          2         on this application requesting us to initiate the creation

          3         and leasing of a, essentially two small high density lease

          4         areas.  So the item before you, the Department is

          5         requesting authorization to issue two, 2-acre leases to 15

          6         individuals within Collier County for ten years for the

          7         sole purpose of raising hard clams with two conditions,

          8         that the leases be given on a first-come, first-serve

          9         basis, and that there be a prohibition for any sale or

         10         transfer of those leases for the first three years which

         11         is the same conditions that Franklin County asked of you

         12         two years ago and that you put on the Franklin County

         13         leases in Alligator Harbor.

         14              CFO GALLAGHER:  And now we're down to $15.95.

         15              MR. WILHELM:  Yes, sir, that is the base rate.

         16         That's the same rate that the live rock people use.  The

         17         sovereignty submerged lands ten years ago was established

         18         at a 15.95 --

         19              THE GOVERNOR:  Going to lose less money on this one.

         20              MR. WILHELM:  The only reason this one is 15.95 is

         21         because they plant the clams in bags that lay on the

         22         bottom and so they do not extend above six inches off the

         23         bottom and so that just constitutes the bottom lease.

         24              CFO GALLAGHER:  So we don't get any water use?  Just

         25         the bottom.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1              MR. WILHELM:  Just the bottom.

          2              CFO GALLAGHER:  But the other one gets high --

          3              THE GOVERNOR:  Can we charge them rent when they go

          4         down and pick it up?

          5              MR. WILHELM:  No, sir.

          6              CFO GALLAGHER:  If those guys just put the rocks flat

          7         on the bottom --

          8              MR. WILHELM:  No, they stack them up in a pyramid.

          9              CFO GALLAGHER:  No, but if they just put them flat on

         10         the bottom, we don't have to pay so much.

         11              MR. WILHELM:  That's correct.

         12              CFO GALLAGHER:  Then they have to go all over the

         13         place picking them up.

         14              MR. WILHELM:  Well, yes, sir, they would.  But the

         15         stuff doesn't grow on them as much if they're laying flat

         16         on the bottom as if they're built up into the water

         17         column.

         18              CFO GALLAGHER:  I knew somebody would figure that

         19         out.  Are you moving this one too?

         20              COMMISSIONER BRONSON:  I'm going to go ahead and move

         21         it.

         22              CFO GALLAGHER:  With the --

         23              COMMISSIONER BRONSON:  Whatever caveat you'd like to

         24         put on it so we can discuss it.

         25              CFO GALLAGHER:  Just to do the same thing and get

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         something reasonable on these.

          2              THE GOVERNOR:  For the renewal again?

          3              CFO GALLAGHER:  Upon renewal of the five years as

          4         opposed to --

          5              THE GOVERNOR:  Well, they had a ten years lease.

          6              CFO GALLAGHER:  No, they're five --

          7              MR. WILHELM:  No, these are ten-year leases.

          8              CFO GALLAGHER:  Well, let's make it five years.  They

          9         can do it at five and do the --

         10              THE GOVERNOR:  You okay with that, Commish?

         11              COMMISSIONER BRONSON:  I'm fine with that.

         12              THE GOVERNOR:  There's a motion and a second.

         13         Without objection, the item as amended, which is to change

         14         the lease to five years and to make it a market rate, a

         15         lease to be the renewal rate would be determined by future

         16         board rule.

         17              MR. WILHELM:  You want that rate to cover our costs,

         18         correct?

         19              THE GOVERNOR:  It's a work in progress, right?

         20              MR. WILHELM:  We're talking $100 an acre.  And I'm

         21         not saying that's outrageous.  I'm just saying that's the

         22         cost.

         23              THE GOVERNOR:  I would suggest that you-all --

         24              CFO GALLAGHER:  Will the market handle that without

         25         being overburdened?

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1              MR. WILHELM:  They're --

          2              THE GOVERNOR:  Why don't we do this --

          3              CFO GALLAGHER:  Yeah, I don't have a number.  Let's

          4         come back.  Let's work over the next few months.

          5              COMMISSIONER BRONSON:  Governor, if we throw in all

          6         of the cost of government, it could be $2,000 an acre

          7         because they can find ways to use that money for it.  I

          8         mean, let's be very careful about what we're doing here.

          9         I'm going to assume the clam guys don't want to charge us

         10         for filtering our water --

         11              THE GOVERNOR:  Now, Charlie, you've always told me

         12         that your department is the most efficient department.

         13              CFO GALLAGHER:  I thought you were efficient.  How

         14         could you say that?

         15              (Laughter.)

         16              COMMISSIONER BRONSON:  I'm just saying that there are

         17         energetic ways for government to find ways to do things.

         18         And I think we need to be very deliberate about this.

         19              THE GOVERNOR:  I agree and that's why we should leave

         20         it open-ended as it relates to the renewal rate.  But we

         21         would expect you-all to come back to us with a review of

         22         the entire policy, I think.

         23              MR. WILHELM:  Yes, sir.

         24              THE GOVERNOR:  I, for one, don't necessarily think it

         25         has to be a return of cost if you pile on everything.  If

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         this is an important industry -- I mean, you would think

          2         that we would be a leader in this industry.

          3              CFO GALLAGHER:  I'm sure we are.

          4              THE GOVERNOR:  I'm not sure we are.

          5              MR. WILHELM:  Yes, sir, we're the number one producer

          6         of hard clams and no one else produces live rock --

          7              THE GOVERNOR:  I'm not talking about hard clams.  I'm

          8         just talking about aquaculture in general.  We got a lot

          9         of aqua.  So I'm not sure we ought to --

         10              CFO GALLAGHER:  We offer somebody --

         11              THE GOVERNOR:  I'm not sure we have as much

         12         production as our potential is.  So we would want to make

         13         sure we don't do harm.

         14              COMMISSIONER BRONSON:  And, Governor, I think too, we

         15         need to keep in mind why this was done in the first place

         16         and that was to generate new types of businesses that can

         17         actually benefit the State of Florida with tax revenues

         18         and other things we can use to do other things with

         19         without putting the burden on the State at the same time.

         20              MR. WILHELM:  The second part --

         21              THE GOVERNOR:  There's a -- oh, there's another?

         22              MR. WILHELM:  Item 3.  Yes, sir, there's just a

         23         second part and that is we're also seeking authorization

         24         to lease two parcels to Collier County and Gulf Coast

         25         University for the purpose of them to conduct education

                                   ACCURATE STENOTYPE REPORTERS, INC.
                           BOARD OF TRUSTEES - 11/23-04
          1         and demonstration activities relative to the hard clam

          2         production down there.  And we would like to do that at no

          3         cost to the university and the County.

          4              CFO GALLAGHER:  At no cost?

          5              MR. WILHELM:  No cost.

          6              COMMISSIONER BRONSON:  Move that as well.

          7              CFO GALLAGHER:  I'll second it.

          8              THE GOVERNOR:  This is the same item.  So there's a

          9         motion and a second to the amended item.  Without

         10         objection, the item passes.

         11              CFO GALLAGHER:  No. 2 and 3 both are five-year

         12         leases?

         13              MR. WILHELM:  Yes, sir.

         14              CFO GALLAGHER:  Okay.  So we're clear.  Thank you.

         15              MR. WILHELM:  Thank you.  Happy Thanksgiving.

         16              THE GOVERNOR:  Happy Thanksgiving.  Great

         17         presentation.









                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              THE GOVERNOR:  State Board of Administration.

          2              MR. STIPANOVICH:  Good morning, Governor and members.

          3              THE GOVERNOR:  Good morning, Coleman.  Is there a

          4         motion on Item 1?

          5              COMMISSIONER BRONSON:  Motion.

          6              CFO GALLAGHER:  Second.

          7              THE GOVERNOR:  Moved and seconded.  Without

          8         objection, the motion passes.

          9              MR. STIPANOVICH:  Today's agenda deals with our

         10         legislative packages, agenda Item 2, Jack Nicholson will

         11         be presenting and it's in response to your request you had

         12         at the last cabinet meeting where you asked us to develop

         13         recommended strategies for dealing with multi-event

         14         deductibles faced by consumers as well as determine the

         15         amount of money that will be needed to fund companies if

         16         they are reimbursed for waiving deductibles and then

         17         developing recommended strategies for dealing with multi

         18         retention deductibles as well as determining the amount

         19         that it would cost if the additional mitigation of

         20         $10 million plus was used by the Legislature and then look

         21         at the cost of reducing the retention from four to three

         22         billion.

         23              So agenda Item 2, 2.1, 2.2, 2.3, will address those

         24         requests and then you can or cannot take action depending

         25         on what you --

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              MR. NICHOLSON:  Good morning.

          2              THE GOVERNOR:  Good morning.

          3              MR. NICHOLSON:  First agenda item, and I wanted to

          4         provide an update on Cat Fund losses because we've just

          5         recently or we continue to have undated information.  But

          6         the first number I want to mention to you is the reported

          7         industry residential losses are at 12.5.  My last report

          8         was 11.4.  I don't read anything into that other than I

          9         think the insurance companies have gotten a little better

         10         at reporting data.

         11              In terms of the Cat Fund we're still expecting $2

         12         billion of losses and thus far we've paid $716 million of

         13         loss reimbursements.  One important thing I want to point

         14         out is that we're not finished yet.  We're about

         15         34 percent of the way through in terms of paying all of

         16         our claims and there are some other complicating factors

         17         that could cause losses, industry losses, to go higher.

         18         The first would be demand surge.  That's if the cost of

         19         construction and labor goes up.  And certainly with regard

         20         to these four events, particularly with regard to the

         21         modeling, they anticipated some demand surge but not the

         22         total amount associated with four events in 45 days.  So

         23         that could be a complicating factor.

         24              Secondly, could be economic factors, inflation from

         25         now until the time the houses and so forth are being

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         rebuilt.  Regulatory actions could also cause increases in

          2         these costs.  And then other catastrophes.  If we had

          3         other catastrophes creating supply and demand problems.

          4         One illustration that I wanted to note --

          5              (Pause.)

          6              Are we on yet?

          7              CFO GALLAGHER:  He's trying.

          8              MR. NICHOLSON:  Okay.  This is an illustration of

          9         what could happen if the industry losses develop much

         10         stronger than anticipated.  I go back to the October 15th

         11         number of 11.4 billion and show that various percentages

         12         increase.  For example, a 20 percent increase could impact

         13         the Cat Fund by about $3 billion.  And these are all

         14         statistical numbers.  It's not necessarily going to mean

         15         this exact number.

         16              CFO GALLAGHER:  That's an increase in what, Jack?

         17              MR. NICHOLSON:  In the residential ultimate net loss

         18         from 11.4 to, say, 13.7 billion.

         19              CFO GALLAGHER:  This figure one storm?

         20              MR. NICHOLSON:  No, all events.

         21              CFO GALLAGHER:  If we did it one season or?

         22              MR. NICHOLSON:  No, no.  This is just right now what

         23         has already happened in terms of the losses.  If the

         24         losses, instead of being 12.5, which was our latest

         25         number, if they deteriorate and we find that they're

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         headed up toward 13, 14, 15 billion, then the last column

          2         shows the potential impact on the Cat Fund.

          3              THE GOVERNOR:  What is the difference between these

          4         numbers and the numbers Kevin brought up to us that showed

          5         losses of 20 billion?

          6              MR. NICHOLSON:  Okay.  He was showing probably the

          7         entire industry losses for auto, commercial.  These are

          8         just residential losses.

          9              THE GOVERNOR:  No, it was residential.

         10              CFO GALLAGHER:  It's got residential.  Jack --

         11              MR. NICHOLSON:  Well, these are the ones that are

         12         reported to us from our preliminary loss reports to the

         13         Cat Fund.

         14              THE GOVERNOR:  Well, this is left hand/right hand

         15         here.

         16              CFO GALLAGHER:  Let me ask you a question here.  Are

         17         you netting these out?  These numbers are netted out, four

         18         and a half billion off?

         19              MR. NICHOLSON:  No.  These are the numbers that the

         20         companies participate in the Cat Fund that have indicated

         21         that they have losses, that they are reporting to us and

         22         the latest numbers are as of 11/17, last Thursday.

         23              CFO GALLAGHER:  All right.  But what I don't

         24         understand is using -- way back, some of the first

         25         estimates were somewhere between 17 and 20 billion using

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         the models.

          2              MR. NICHOLSON:  No.  Our model number -- and this is

          3         the chart I showed you last time -- our model numbers,

          4         where it says total losses there, 14.5 billion and then

          5         I've updated the 12.5 is what we have currently for

          6         residential.  Again, those are numbers that we're getting

          7         directly from the insurance companies.

          8              THE GOVERNOR:  This is what Kevin gave us.  This is

          9         the --

         10              GENERAL CRIST:  I think it says 20.65 billion in

         11         commercial and residential.

         12              MR. NICHOLSON:  What I understand by looking at that,

         13         I got that this morning.  That was associated with the

         14         multiple deductibles and we're not into that topic yet but

         15         that was 20 million.

         16              THE GOVERNOR:  This may not be it.  But the total

         17         losses --

         18              CFO GALLAGHER:  The total has got to be the same

         19         whether it's deductible or not deductible.

         20              MR. NICHOLSON:  What Kevin -- what I believe he is

         21         showing on this chart -- and I wasn't here when he gave

         22         his presentation but I did see this this morning.  This

         23         says that estimated second subsequent deductibles waived

         24         by insurers were 20.8 million.

         25              THE GOVERNOR:  Here, try this estimated gross loss.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         How is that different?

          2              MR. NICHOLSON:  I think that includes auto and

          3         commercial as well as personal residential.

          4              GENERAL CRIST:  I think the difference, Governor, is

          5         I think that Kevin was talking about commercial and

          6         residential and I think you're just talking residential.

          7              MR. NICHOLSON:  Right.

          8              GENERAL CRIST:  That would explain a $9 billion

          9         difference maybe.  This says total of 1.5 million claims

         10         with 20.65 billion in gross losses, commercial and

         11         residential.  And you're just talking residential.

         12              MR. NICHOLSON:  Right.  And I think it's very

         13         important to keep our eye on these numbers because as they

         14         get higher -- put that one back up.  The point that I want

         15         to make is that once residential losses exceed 19.4

         16         billion, we will potentially exhaust the Cat Fund cash

         17         they need to bond at that point.  That's 70 percent higher

         18         than what we were initially looking at in terms of reports

         19         from insurance companies.  Today, we still believe that

         20         our losses are going to be $2 billion, not $6 billion.

         21              THE GOVERNOR:  And you still don't know where we're

         22         going to land?

         23              MR. NICHOLSON:  No.  Like I said, there is a number

         24         of factors that will influence that as time goes on.  What

         25         we're concerned about is lost development as things happen

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         over time.  And what we're looking at today in terms of

          2         paid losses, as of November the 17th, is $716 million

          3         with, I think -- is that 558?  Sorry, 581 in terms of

          4         losses that we've reimbursed and then net advances of

          5         135 million.  So that makes it a total of 716 million is

          6         what we've paid to date.

          7              CFO GALLAGHER:  Well, in residential, what are the

          8         models shown today, residential losses?

          9              MR. NICHOLSON:  14 .5 billion.

         10              CFO GALLAGHER:  So that puts you using up a little

         11         more than half the fund cash wise?

         12              MR. NICHOLSON:  Potentially.  But like I said, the

         13         number that we've been reporting from the companies thus

         14         far is 12 .5 billion.  So we're still off from the model

         15         losses by about 2 billion.  In fact, isolate where that

         16         problem may be.  It may be in Hurricane Jeanne because the

         17         models are a good $2 billion off in that area based on

         18         what the companies are reporting.

         19              CFO GALLAGHER:  So you want to make a side bet

         20         whether it goes over 3 billion or not?

         21              MR. NICHOLSON:  No.

         22              CFO GALLAGHER:  I didn't think so.

         23              MR. NICHOLSON:  I turned in my crystal ball.  Here is

         24         a breakdown.  And this is back to the October 15th numbers

         25         but of the -- I don't think the percentages will change.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         But you can see here that we have five companies that

          2         we're anticipating are going to have greater than

          3         500 million in losses.  Nineteen companies from

          4         100 million to 500 million; 41 companies, 25 million to

          5         100 million and so forth.  So there is still a good bit of

          6         losses to be reported.  Thus far, we've only paid based on

          7         32 companies that 716 million.

          8              CFO GALLAGHER:  And that's because other companies

          9         haven't bothered sending it in yet for reimbursement?  Or

         10         they haven't finalized it or what?

         11              MR. NICHOLSON:  They are required to report to us by

         12         year end.  So we'll see a big surge in 12/31.  But

         13         companies can report early and be reimbursed early.  So we

         14         have 32 companies that have done that and we will expect

         15         192 companies that have had losses to continue to file

         16         claims with us throughout -- to the end of the year.

         17              CFO GALLAGHER:  Have the two largest filed and gotten

         18         some reimbursement?

         19              MR. NICHOLSON:  They're not in these numbers, but

         20         they did file last week and I'm happy to say we processed

         21         State Farm's loss reimbursement in one day.

         22              THE GOVERNOR:  So now that you've tried to curb our

         23         enthusiasm to try to help people that have been hit by the

         24         multiple events of these storms, let's get into the

         25         alternatives.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              MR. NICHOLSON:  All right.  The next item was the

          2         legislation.  You want to talk about that briefly?

          3              THE GOVERNOR:  Yes, sir.

          4              MR. NICHOLSON:  The legislative alternatives were two

          5         things, to lower the Cat Fund retention to 3 billion and

          6         then also to provide for lowering of the retention for

          7         multiple events.  If we look first at what would be the

          8         impact of lowering the Cat Fund retention to 3 billion, we

          9         have noted that that would be a 30 percent increase in the

         10         Cat Fund rates.  However, that could be offset by lowering

         11         the cost of private reinsurance to insurers.  And if

         12         everything were equal, that means if all insurers had

         13         private reinsurance and we did a direct substitution, it

         14         would be about a 5 percent savings as a result of lowering

         15         the retention.

         16              I think that's the number, Treasurer Gallagher, that

         17         you were interested in.  And I have that on this chart.

         18         You also have copies of this.  I wrote a white paper that

         19         has that in it as well.  But the current law -- and

         20         basically what we've done here is we've taken, at the

         21         bottom where we substitute the 3 billion for what will be

         22         4.9 billion in retention if we did nothing this year,

         23         because retention increases with exposure growth.  So if

         24         we substituted that cross-hatched area in light blue and

         25         we substituted Cat Fund for private reinsurance, that's

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         where private reinsurance is the most expensive, that

          2         layers about a 32 rate online, .32 rate online compared to

          3         the Cat Fund's rate online of about 5.29.

          4              THE GOVERNOR:  What does that mean, "rate online"?

          5              MR. NICHOLSON:  That means that -- rate online is the

          6         cost over the coverage.  So if we say like a 10 percent

          7         rate online, $10 million for $100 million of coverage

          8         would be a 10 percent rate online.  So the lower that

          9         number, the better in terms of pricing.

         10              GENERAL CRIST:  Is rate online equivalent to profit?

         11              MR. NICHOLSON:  No.  It's just a comparison.  And it

         12         depends on what layer you're in.  If you're up at a

         13         situation where it's a 1 in 100 probability of loss, the

         14         rate online would be very low.  For example, it may be 1

         15         in 100 or 1 percent.  Now reinsurers may charge 5 percent

         16         for that which means they are charging five times the pure

         17         premium cost of that coverage.  The bottom of the Cat

         18         Fund, it's much higher.

         19              THE GOVERNOR:  So what you're suggesting is we lower

         20         the retention to 3 billion, we're assuming more of the

         21         risk and the private market then comes in after us at a

         22         lower rate online which creates the lower rate.  But in

         23         return for that, we're at risk a greater amount as well.

         24              CFO GALLAGHER:  We charge -- what he's saying is we

         25         charge a pure premium rate as opposed to the reinsurance

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          1         market which has two things working on it.  One is

          2         whatever they can get in the marketplace.

          3              THE GOVERNOR:  Sure.

          4              CFO GALLAGHER:  Two is there is accumulated

          5         multi-levels of commissions and taxes involved in your

          6         reinsurance market.  In other words, your local broker

          7         gets a commission for placing it into Lloyds and the

          8         person that's up over in Lloyds working it works five or

          9         six syndicates and each one of them get a commission and

         10         each one of them pay taxes and then they reinsure it to

         11         somebody else.  And included in that is another layer of

         12         commissions and taxes.  And so you end up with a rate

         13         online of 7 or 8 percent whereas we're sitting here

         14         charging three.  And that difference can be and should be,

         15         and should be required to be passed back on to the

         16         consumer.  So it should mitigate huge increases to the

         17         consumer.  At the same time, it also gives us an

         18         opportunity to accumulate money.  In other words, instead

         19         of using only a three online compared to their probably 14

         20         or whatever it is, because we are, what, probably a third

         21         cheaper?

         22              MR. NICHOLSON:  Right.

         23              CFO GALLAGHER:  We could charge twice as much, still

         24         be a lot cheaper and we would have a nice accumulation of

         25         dollars in our Cat Fund which is what I'd like to see us

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          1         do and build up a cash balance because we're going to have

          2         it used up a little bit during this hurricane season, this

          3         past one.

          4              MR. NICHOLSON:  And there are trade-offs on both

          5         sides of the issue.  I think many more insurance companies

          6         support a lower retention today than they did back in the

          7         legislative session when it was first brought up.

          8              CFO GALLAGHER:  Yes, they do.  They came --

          9              THE GOVERNOR:  They are coming more towards that

         10         position.

         11              MR. NICHOLSON:  Right.  But what would happen -- and

         12         I show this on the chart here -- that by lowering the

         13         retention to 3 billion, that would be what we call a

         14         one-in-seven-year return time.  It would take -- one in

         15         seven years we would be triggering the Cat Fund on average

         16         under that scenario versus the current fall which would be

         17         one in ten years.  So we are triggering more often.  It's

         18         costing more in terms of premium.  There may be a net

         19         savings and I underscore the term "may" because what I

         20         show here is the potential assuming that everyone bought

         21         reinsurance underneath the Cat Fund.  So I don't think I

         22         could say that, that I would know for sure that's what's

         23         going to happen.

         24              THE GOVERNOR:  If you followed Treasurer Gallagher's

         25         logic though, if you -- in order to generate more cash you

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          1         raise the rate, the savings would not be as high, right?

          2              CFO GALLAGHER:  Right.  It wouldn't be as high but it

          3         would still be a savings but we would accumulate cash at a

          4         faster level which I would -- I think we'd all like to see

          5         happen and still be a savings.  Now what Jack is saying is

          6         that if a company is not buying coverage, in other words,

          7         they are self-insuring for that 3 billion included in the

          8         rates, well, then there is nothing for them to save

          9         because they're not buying reinsurance there at all.  I

         10         would venture to say there might be one company out there

         11         that does that.

         12              THE GOVERNOR:  Who is that?

         13              CFO GALLAGHER:  Maybe State Farm which buys it from

         14         their own parent.  Everyone else is buying some kind of

         15         coverage in that, you know, up to 3 billion.  I don't know

         16         if they're buying the whole 3 billion.  Remember, it's

         17         their percentage of that 3 billion.  But, you know, I

         18         would be willing to bet everybody is buying a piece of it

         19         somewhere and they cannot buy it cheaper than what we make

         20         it available for.  And really it's accumulation of cash

         21         which is what we're doing, which you don't get in the

         22         reinsurance marketplace.

         23              MR. NICHOLSON:  Well, you can see here that the rate

         24         online for the current loss, 4.18 percent for the

         25         proposed, would be 5.29 percent.  That's in the yellow

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          1         part of the graph.  Those are basically actuarially

          2         equivalents because the layer is actually lower in one

          3         area than the other.  A lower layer, it costs more because

          4         the probabilty of losses are greater than a higher layer.

          5         So I think it's basically actuarially equivalent but

          6         you --

          7              THE GOVERNOR:  Can you help me out here on what is

          8         the 1.9 billion?

          9              CFO GALLAGHER:  They have to pay 10 percent --

         10              THE GOVERNOR:  That's the insurance company's risk?

         11              CFO GALLAGHER:  Yeah, they'd still get 10 percent of

         12         the risk and the cover above the 3 billion.

         13              THE GOVERNOR:  Okay.

         14              MR. NICHOLSON:  Ninety-nine percent of the Cat Fund

         15         premium is written at 90 percent right now, by the way.

         16              CFO GALLAGHER:  What was that again?

         17              MR. NICHOLSON:  90 percent of the Cat Fund premium is

         18         written by --

         19              CFO GALLAGHER:  Ninety -- you can buy from the Cat

         20         Fund 45 percent coverage or 90 percent coverage.  And 99,

         21         did you say?

         22              MR. NICHOLSON:  99 percent.

         23              CFO GALLAGHER:  The only reason -- now everybody is

         24         required to purchase from the Cat Fund.  The only reason

         25         somebody today would buy 40 percent is because they have a

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          1         very small book of business.  Most of it is there because

          2         they're customers in some of the lines and they offer a

          3         full package and so they offer to cover a building here

          4         and there and they don't have enough risk to make a

          5         difference and it's not worth buying more than 45 percent.

          6              THE GOVERNOR:  Okay.

          7              MR. NICHOLSON:  The other aspect of the legislation

          8         was lowering the retention after multiple hits.  So it's

          9         kind of like the homeowner multiple deductible problem.

         10         But one of the approaches that we suggested here is

         11         applying the full retention or full deductible, if you

         12         will, toward the companies for the two largest events that

         13         they encounter during a year.  It could be, for example,

         14         Charley and Jeanne that we would apply a full retention

         15         to.  And then the other two events, Ivan and Francis, we

         16         would drop the retention down to a third and that's kind

         17         of a magic number because that ensures at least that

         18         everybody absorbs one full retention during the hurricane

         19         season.

         20              So what we would do is we would adjust claims

         21         normally.  And at the end of the year, we'd go back and

         22         true up based on those two lower events and we would

         23         reimburse the companies as if they had one-third the

         24         retention than the normal.  And that's a very negligible

         25         cost to that.  I think we estimate that at one-fifth of

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          1         1 percent.  So it's in terms of Cat Fund premiums, extra

          2         cost is very low.

          3              CFO GALLAGHER:  And one of the reasons you want to do

          4         that is because when companies buy coverage in the

          5         reinsurance market, most all of those reinsurance policies

          6         allow you to -- in other words, if you bought at a rate

          7         online of ten for $100 million worth of coverage, which

          8         means you'd pay 10 million for it, and the first storm

          9         comes through and you pull down 50 million, you are

         10         allowed to reinstate that up to 100 million again by

         11         paying $5 million.  So you're right where you were before

         12         the first storm hits.  Now, they don't give you normally a

         13         third chance to do that.

         14              So what we would do is we would lower down to a third

         15         what that is and then the companies would benefit by that

         16         because they were unable to have the automatic third storm

         17         reinsurance.  The odds of a third storm hitting are, I

         18         guess, Jack's numbers are .006 percent, although I did

         19         some actuarial numbers that were .0025.  Either way,

         20         pretty minimal, right?

         21              MR. NICHOLSON:  Probably three land-falling

         22         hurricanes is like once every 50 years, four is once every

         23         300 years.  We only had three this year because Ivan

         24         actually was an Alabama landfall.

         25              CFO GALLAGHER:  Yeah, tell the people in Pensacola

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          1         that.

          2              THE GOVERNOR:  Yeah.  You're not counting Ivan?

          3              MR. NICHOLSON:  We had the worst part of Ivan.

          4              CFO GALLAGHER:  You obviously haven't been over

          5         there --

          6              THE GOVERNOR:  Clarify your position, young man.  We

          7         got hit by Ivan three times or twice.  On the other -- I

          8         saw one of the reports that you gave us -- or I guess it

          9         was Kevin's report.  There are people that have filed four

         10         claims.  They got two Ivan claims.  Or they got hit by all

         11         four storms.  They got hit by Ivan when it came back.  It

         12         wasn't a hurricane but it still created a lot of damage in

         13         Martin County.  Maybe for the insurance companies this was

         14         only two events or three events.  It was like a full-time

         15         event for a lot of folk.

         16              CFO GALLAGHER:  Still is.

         17              MR. NICHOLSON:  Okay.  Well, that was the second item

         18         of --

         19              THE GOVERNOR:  Now, when you talk about suggested

         20         legislative action, are we talking about December or --

         21              MR. NICHOLSON:  I think we're talking December.  And

         22         I know we're working closely with OIR.  I believe this is

         23         in OIR's legislative package.  Treasurer Gallagher, are

         24         you --

         25              CFO GALLAGHER:  I'm in favor.  Here's why you need

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          1         December.  All the reinsurance contracts are negotiated in

          2         January.  Or not all of them, but probably 90 percent of

          3         them.  And so in order for the companies to do their

          4         reinsurance, they need to know where they are in regards

          5         to the Cat Fund.  And so it makes a major difference to

          6         them having it in the law in January and to get all the

          7         policy, hopefully keep these potential increases down.

          8              THE GOVERNOR:  Well, one of the challenges we're

          9         going to face is we don't -- based on the -- you got my

         10         attention on the first part of your presentation and until

         11         that's solved, how will we know what the appropriate

         12         response is going forward?

         13              CFO GALLAGHER:  Well, the decision on what the Cat

         14         Funds covers and doesn't cover should not rely at all on

         15         how much cash is or is not there because the theory of the

         16         Cat Fund is that at any given time during 100 years, we

         17         could build up the cash amount to $20 million, $20

         18         billion, or it can be down in the hole $20 billion based

         19         on the cycles and the way it could go.

         20              So you can't take a picture and say, Here's where it

         21         is and we don't want to make these decisions because we

         22         don't have enough cash in here or we don't want to make

         23         these decisions because we have a big amount of debt.

         24         That's going to cycle through and that's the nature of

         25         having this Cat Fund and having the ability to make these

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          1         tax-free borrowings.

          2              MR. NICHOLSON:  I think what you're talking about,

          3         it's prospective in terms of this legislation.  Now with

          4         regard to multiple deductibles, that's retrospective.

          5         That's a different matter.

          6              THE GOVERNOR:  No, I understand.

          7              MR. NICHOLSON:  And that was your concern.

          8              CFO GALLAGHER:  Right.  Now retrospect is a different

          9         issue totally.

         10              MR. NICHOLSON:  We'll get to that in a moment.

         11         That's the next item.

         12              THE GOVERNOR:  Let's get to it.

         13              MR. NICHOLSON:  All right.  Let me go ahead -- we

         14         have worked closely with your office, Governor, as well as

         15         both the Attorney General and Treasurer Gallagher's

         16         office, also the House, the Senate staff, as well as OIR

         17         in talking about these issues and they've become very

         18         complex as I'm sure you're well aware.  But what I tried

         19         to do, after we had our instructions on October 26th to

         20         come back with some strategies, is to try to organize this

         21         in terms of a way of thinking about it and laying out some

         22         appropriate strategies and I want to point out, right off

         23         the bat that these strategies can be tweaked one way or

         24         the other.  They can be combined with various -- in

         25         various ways to come up with better strategies.  But I

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          1         think it's important to kind of understand the basic

          2         issues.

          3              And where we start, I think, is understanding some of

          4         the basic public policy questions.  The first is who will

          5         be reimbursed.  That's kind of a simple question.  But

          6         it's complex from the standpoint of which policyholders

          7         and/or are you also going to include insurance companies

          8         in that process.  Secondly will be how much will the

          9         reimbursement cost.  I know Kevin McCarty provided you

         10         with some information on that.  That may be partial

         11         information on what we really need to know, however, and

         12         I'll get to that in a moment.

         13              Thirdly would be how will the reimbursements be

         14         financed.  Fourthly would be how will the program be

         15         administered.  And then lastly, what are controlled

         16         safeguards or constraints which will be needed in

         17         designing the program.  And those are important in

         18         limiting the cost and making the program manageable.

         19              So we identified five strategies.  And as I'm

         20         explaining the strategies, I'm also going to explain some

         21         of these public policy questions.  And the first one has

         22         to do with who is -- who do we want to cover.  What -- how

         23         do we want to do that.  Well, want to note that in terms

         24         of this hurricane season, there were a lot of claims that

         25         insurance companies found very difficult to resolve and to

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          1         settle.  And I refer to those as ambiguous claims because

          2         the adjuster came out, saw damage, the damage was

          3         associated with four storms.  He knew that because four

          4         claims had been called into the company but he couldn't

          5         assign damage to each storm.  It was totally impossible to

          6         do that.  So that's kind of an ambiguous area.  So that

          7         those claims in many cases were waived by the insurance

          8         company and we've often referred to these as good guy

          9         insurance companies.  Well, I want to say that they might

         10         have been good guys, they might not have been.  If you

         11         already triggered the Cat Fund, we're going to pay 90

         12         cents out of every dollar you waive because losses are

         13         going to come to us if you've already triggered the Cat

         14         Fund.

         15              So I'm not sure if that's the definition of a good

         16         guy company or just someone is passing the cost along to

         17         us.  They could have also passed it along to their

         18         reinsurers as well or they could have eaten the cost if

         19         they had not triggered the Cat Fund or their private

         20         reinsurance.

         21              THE GOVERNOR:  All these strategies, first of all, I

         22         appreciate the fact that you did all this in English and I

         23         understood it and it was very thoughtfully done.  The

         24         challenge I have in looking at all this is that we don't

         25         know -- we don't have a good handle on the universe of

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          1         people that can be impacted by this in terms of -- I think

          2         the full deductible, the people that have -- Kevin's got

          3         data now that I think is pretty accurate on the full

          4         deductible.  The people who had events where their damage

          5         was greater than their deductibles both times or three

          6         times.  We don't have the partial deductibles and we don't

          7         have the people that didn't file a second claim because

          8         they thought that their total damage was less than their

          9         deductible and that's really the main number.  I mean,

         10         that variable is -- could be a very big one based on the

         11         potential for the last storm.  So it's kind of hard to

         12         decide which is the right way to go until that universe is

         13         established; don't you think, Jack?

         14              MR. NICHOLSON:  I don't think you're ever going to

         15         get that number.  And I think that the way to look at this

         16         is you're going to have to put some constraints --

         17              THE GOVERNOR:  Let me ask it another way because

         18         maybe you can back into it.  How many -- do we know the

         19         number of insurance companies, good, bad or indifferent,

         20         put aside their motives, that have treated this as a

         21         season rather than a, you know, event-per-event issue with

         22         their insured?

         23              MR. NICHOLSON:  No.  I don't think --

         24              THE GOVERNOR:  Some anecdotal evidence --

         25              CFO GALLAGHER:  -- they have reinsurance agreements

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          1         that don't allow them to do that.  So nobody is going to

          2         say they're doing it.

          3              THE GOVERNOR:  But a lot of them have stated --

          4              CFO GALLAGHER:  They're telling you, Hey, we're

          5         taking care of everybody --

          6              MR. NICHOLSON:  Some of them can't say because

          7         they're stockholders because they feel --

          8              THE GOVERNOR:  Well, there are people -- there are

          9         insurance companies that are in the situation you

         10         described which was, We can't tell.  So we have to treat

         11         this as a single event because --

         12              MR. NICHOLSON:  Most of the companies I talk to tell

         13         me that they are waiving deductibles.  If they can't

         14         find -- if it's an ambiguous situation, they're waiving

         15         deductibles.  I think they have no other choice than to do

         16         that.  But that compares and contrasts with a different

         17         situation where it's not ambiguous.  It's clearly a

         18         situation where the insurance company can identify the

         19         damage with one storm versus another and an adjuster has

         20         been out there, settled the claim and come back later.

         21         Those are different situations.

         22              THE GOVERNOR:  Whether we do this through

         23         appropriation or whether we do this through the Cat Fund,

         24         it seems to me that one of the objectives needs to be that

         25         there is certainty about what the amount is.  Well, there

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          1         is a way to have certainty.  You create a number and then

          2         you allow an open period for people to seek reimbursement

          3         and you do a proportional split.  I mean -- because if

          4         not --

          5              CFO GALLAGHER:  That's the only way to have control.

          6              THE GOVERNOR:  I don't think that's necessarily a bad

          7         thing.

          8              MR. NICHOLSON:  If you use --

          9              THE GOVERNOR:  As long as it's big enough.  I mean,

         10         that's kind of what I've gotten down to because all

         11         these -- there's too many variables.

         12              MR. NICHOLSON:  If you use cutoff dates -- and this

         13         was an idea, I think, that has a lot of merit.  One idea

         14         and it's in some of these strategies is if you have a

         15         cutoff date of December 1st and you say everyone that's

         16         filed claims as of that date and you look at --

         17              THE GOVERNOR:  Jack, have you ever had a car

         18         accident?

         19              MR. NICHOLSON:  Right.

         20              THE GOVERNOR:  And it was less than your deductible,

         21         the damage, so you didn't file a claim?

         22              MR. NICHOLSON:  Right.

         23              THE GOVERNOR:  I have some sympathy for that because

         24         I don't remember ever getting -- thankfully I hadn't been

         25         in a bad enough car accident.  But I don't remember ever

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          1         getting reimbursed for any car accident that myself or one

          2         of my kids had because it was a nick or the bumper got

          3         hurt or whatever like that.  A lot of people don't want to

          4         file claims if they think they're not getting any money

          5         because there is a perception that your rates will go up

          6         if you do it.

          7              So the December 1st idea is a good one because that

          8         does bring certainty to the total universe but it may

          9         eliminate a lot of people that we're trying to help.  I

         10         mean, there are a ton of people that have -- I think

         11         there's a bigger number of people that have two events

         12         that, one of which at least, maybe both, the damage was

         13         not as significant because they had a higher deductible

         14         and so they're not getting anything from the insurance

         15         company but they have significant damage.  I think the

         16         Jeanne/Francis combination is that there are a lot of

         17         people that are in that boat.  I'm not an expert, I've

         18         just been out amongst them.

         19              CFO GALLAGHER:  Well our estimate is that there is

         20         about 29,000 people that have paid about $50 million in

         21         second and third deductibles for whatever that is worth.

         22         Now how accurate is that?  It can certainly go up.  But

         23         that's what we see today.

         24              MR. NICHOLSON:  I think the challenge is that you

         25         want to accomplish what you want to accomplish and that's

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          1         compensate those victims.  But at the same time, and you

          2         mentioned earlier, you want to limit the amount of the

          3         cost of the program.  And there is something known as

          4         moral hazard and fraud that is certainly something that

          5         could happen in a program that you have it wide open, long

          6         dates of reporting, and people, for example, could go back

          7         and say maybe they've had a 500-dollar loss with Charley

          8         or Francis.  And then they have a big loss with Jeanne.

          9         And they paid one full deductible with Jeanne.  Okay.

         10         They are satisfied in terms of the system but now they go

         11         back with this program.  They say, I want to collect that

         12         $500 under Charley and maybe I want to collect something

         13         under Francis as well so they start adding up the damage

         14         and pretty soon this whole thing gets out of hand.  Plus,

         15         an adjuster has to go back to that insured and start the

         16         adjusting process all over again.  So there is some issues

         17         associated with that that you have to be careful of.

         18              So the ways to limit what you're doing is whatever

         19         the cutoff date is, whether it's December 1st, March 1,

         20         February 1, several options have been mentioned, that's

         21         one way of doing it.  Another way of doing it --

         22              THE GOVERNOR:  December 1 was a problem because that

         23         will be before the special session.  So I'm not sure

         24         people would be -- that's just a bad date because I don't

         25         think -- I think you're basically -- there won't be many

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          1         people that would legitimately have a right to file a

          2         claim.

          3              MR. NICHOLSON:  But it's a good date from cutting

          4         things off and not encouraging other claims that settled.

          5         It's fixed and you can determine --

          6              THE GOVERNOR:  You're viewing the glass half empty.

          7         I'm viewing it half full.  And maybe somewhere in between

          8         is where it needs to land.  There are bad people that will

          9         try to take advantage of something for nothing.  But there

         10         are a whole lot of people that are suffering right now

         11         that are out of pocket extraordinary expenses that were

         12         unforeseen.  So, you know.

         13              MR. NICHOLSON:  Well, the other ways of controlling

         14         it would be a maximum limit on the waiver such as $5,000.

         15         And I'm just throwing out the number but that could be

         16         six, it could be eight.  It could be whatever you wanted

         17         it to be.  But that would then limit what you would

         18         provide to that person.  Then you could also apply a

         19         deductible for each event of maybe $250 that would also

         20         put some skin in the game for the policyholder.

         21              THE GOVERNOR:  I thought that was a pretty

         22         interesting idea.

         23              MR. NICHOLSON:  So those are a way and then a couple

         24         other ideas that actually aren't in the strategies here

         25         would be similar to what you said with a fixed amount but

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         would be to be a first-come, first-serve basis.  You have

          2         a fixed amount of dollars.  Because pro rata, I heard you

          3         mention that, that's -- I think that's a bad idea because

          4         you don't know until the end of the day what everybody

          5         gets and how to divvy it up.  So you can't do anything

          6         until that happens and then it still may be insufficient.

          7         People aren't going to be happy with 30 cents out of the

          8         dollar.  But that's a drawback to that.

          9              CFO GALLAGHER:  Well, just like the people that get,

         10         under your scenario, get nothing out of the dollar and it

         11         is going to be worse.

         12              MR. NICHOLSON:  Are you trying to deal with problems

         13         that you know exist today or are you trying to take care

         14         of the whole season of problems and it's going to be more

         15         costly.

         16              THE GOVERNOR:  In my mind, the capping the dollar

         17         amount at a number provides comfort.  I was trying to be

         18         nice to you because you got a responsibility on the Cat

         19         Fund and that's a serious responsibility.  Assuming it

         20         comes out of Cat Fund, you want -- a lot of these

         21         strategies are based on the premise that you want to

         22         create a dollar amount that allows you to honestly say

         23         that the fiduciary responsibility that we have is being

         24         met, right?

         25              MR. NICHOLSON:  Right.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              THE GOVERNOR:  So capping --

          2              CFO GALLAGHER:  We're going to have to raise --

          3              THE GOVERNOR:  -- capping that is to deal with that

          4         and if we can get greater certainty about the universe,

          5         then we're not talking about 30 cents on the dollar we

          6         might be talking about 90 cents on what our expectations

          7         are or 87 and a half cents.  And back to the treasurer's

          8         point, that's a lot better than zero.

          9              GENERAL CRIST:  If we could just frame it up a little

         10         bit.  We're talking about people who have a double

         11         deductible.  Is that the issue we're on right now?

         12              MR. NICHOLSON:  Right.

         13              GENERAL CRIST:  And you're talking about whether or

         14         not to use Cat Fund to help people out so they don't have

         15         to pay two or are not responsible for two deductibles?

         16              THE WITNESS:  There are five strategies and three of

         17         them --

         18              GENERAL CRIST:  I'm just trying to narrow it down to

         19         where we are right now.

         20              MR. NICHOLSON:  Yeah, three of them in the Cat Fund,

         21         right.

         22              GENERAL CRIST:  And what's the purpose of the Cat

         23         Fund?

         24              MR. NICHOLSON:  The Cat Fund provides reinsurance for

         25         insurance companies to provide for their catastrophic

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         losses, certain amount for their catastrophic losses.

          2              GENERAL CRIST:  But what we're talking about is using

          3         it to help consumers who have two deductibles under their

          4         insurance.

          5              MR. NICHOLSON:  Right.

          6              GENERAL CRIST:  How much is the fund total?

          7              THE WITNESS:  6.12 billion excluding what we pay in

          8         losses this year.

          9              GENERAL CRIST:  Okay.  And how much do you expect we

         10         might have to pay out for people that are in the 29,000 or

         11         whatever that number is that might have two deductibles?

         12              MR. NICHOLSON:  Well, we're going to have to pay --

         13         we're looking at $2 billion in Cat Fund losses.  But when

         14         it comes to the policyholders, that's the number that we

         15         really don't have a handle on.

         16              GENERAL CRIST:  So we don't know?

         17              MR. NICHOLSON:  We don't know.

         18              GENERAL CRIST:  So we don't know.

         19              THE GOVERNOR:  That's the problem.

         20              MR. NICHOLSON:  And I think the -- if I could, just

         21         in terms of the strategies, like I said, three strategies.

         22         The first three strategies deal with the Cat Fund.  The

         23         fourth strategy deals with a self-administering type

         24         program where the insurers would recover these costs in a

         25         rate filing and that would be a situation where the law

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         would be changed such that it would require companies to

          2         waive deductibles for the 2004 hurricane season and then

          3         they could self-administer the program basically by making

          4         a rate filing to recoup those costs.  Whereas with the

          5         first three options, the strategy with regard to the Cat

          6         Fund is to pay for the cost of the multiple deductibles

          7         out of the Cat Fund but to also recoup those costs in the

          8         Cat Fund over the next five years through the Cat Fund's

          9         rates as opposed to those two approaches, the rate filing

         10         approach is a little more equitable and it hits the

         11         companies that are more impacted by waiving the

         12         deductibles than doing a broad across-the-board recoupment

         13         through the Cat file.  Either rate, the consumer is going

         14         to end up paying.  The only strategy where the consumer

         15         doesn't pay would be Strategy 5 which would be funded out

         16         of general revenue.

         17              THE GOVERNOR:  But the consumers pay -- the broader,

         18         you know, over a much broader base.  Like I'll be paying

         19         in Miami and I didn't have any damage.

         20              CFO GALLAGHER:  You'll be paying either way.

         21              THE GOVERNOR:  I think that's a more equitable -- or

         22         we can take it out of general revenue but we need to know

         23         what the -- before I go talk to general revenue.

         24              CFO GALLAGHER:  Is he here?

         25              THE GOVERNOR:  He's here.  We need to have a capped

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         amount.  The General doesn't like just open-ended.

          2              CFO GALLAGHER:  I'm sure he doesn't.  Well, I, for

          3         whatever it's worth, believe -- I have a problem with

          4         capping the top at $5,000 because a person has a $300,000

          5         house that got hit with three deductibles ends up with

          6         $45,000 total deductible.  And so that's -- and we ran

          7         into people that had that.  And to say, Okay, well, here's

          8         5,000, now you can go rebuild your house.  They're not

          9         going to get their house rebuilt with that.  That's not

         10         going to get them where they need to be.  They're already

         11         getting hit with a 15,000.  I mean, if it was only one

         12         deductible, that 15 is going to kill them and then

         13         somebody has to help them for the other part which is why

         14         this law has been so horrible.

         15              THE GOVERNOR:  And that needs to be done in a way to

         16         deal with Jack's point which is that it can't just be, you

         17         know, a gravy train situation.  There needs to be a little

         18         bit --

         19              CFO GALLAGHER:  There has to be a -- I mean, we got

         20         to go through some checks.  We have to make sure -- if

         21         we're going to issue this money through a government

         22         program as opposed to the insurance company doing it, then

         23         whatever government program we have, has to make sure from

         24         the insurance companies that the numbers are right, that

         25         this is what the losses were, this is what the deductible

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         would have been or is, not would have been, is.  And these

          2         people have to sign and, you know, basically, under some

          3         kind of a third degree felony or something that this is a

          4         true and accurate description of what their problem is and

          5         then we need to give them money so they can rebuild.  I

          6         mean, the whole idea here is to make sure these people

          7         have the ability to rebuild their homes.  What we don't

          8         want is a whole bunch of structures that can't be rebuilt

          9         because of these deductibles and then can't be insured

         10         because of that.  And so there is no end to it.  Then

         11         their mortgage gets called and everything else goes wrong.

         12              MR. NICHOLSON:  I think -- maybe I'm looking at it

         13         kind of naively, but I think that people, they know we've

         14         had four storms.  They have filed claims for the most

         15         part.  I would be very much surprised if someone did not

         16         file a hurricane claim by today and there could be those

         17         people --

         18              CFO GALLAGHER:  Jack, you are naive.

         19              MR. NICHOLSON:  I don't think that they are

         20         necessarily the ones that are hurting all that much if

         21         they're not filing claims.

         22              THE GOVERNOR:  Well, you just saw the -- and, again,

         23         you weren't here, I guess, for Kevin's report.  He said

         24         they've estimated over 2 million claims, that's been the

         25         projection based on past experience and all the nomes

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         there, I assume, know what they're talking about.  So

          2         we've done about a 1,500,000.

          3              MR. NICHOLSON:  Well for the partial deductibles,

          4         I'll agree with you.  I was talking about the first claim.

          5              THE GOVERNOR:  Well, that's a ton of people.

          6              MR. NICHOLSON:  But we know the people that filed the

          7         first claim.  Now for the partial claims, you know --

          8              CFO GALLAGHER:  There are some people that are

          9         waiting until the end of hurricane season so they're only

         10         going to get one deductible.  They figured out the

         11         program, read in the paper, you know, you file too early,

         12         you get the second storm coming and there may be one

         13         coming between now and the end of month and come December

         14         1st they're going to file their claim and let somebody

         15         come figure out whether they got one deductible or more.

         16         And I've met people out in the field tell me that.  Now

         17         they don't have their whole roof blown off and they're

         18         sitting with nothing in there but --

         19              MR. NICHOLSON:  That's called moral hazard.  And the

         20         contract does require that they report their claims as

         21         soon as practicable.  So they're probably not fulfilling

         22         the terms of their contract.

         23              CFO GALLAGHER:  And so the companies are going to

         24         tell them they're not paying them anything, right?

         25              MR. NICHOLSON:  Right.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              CFO GALLAGHER:  I don't think so.

          2              THE GOVERNOR:  It gets complicated.

          3              MR. NICHOLSON:  I'm finished with anything I could

          4         present to you.  I am ready for any other questions if you

          5         have any.

          6              THE GOVERNOR:  Do you have a favorite amongst the

          7         five?

          8              MR. NICHOLSON:  Yes, I do.

          9              THE GOVERNOR:  Which one is it?  Let me guess.

         10              MR. NICHOLSON:  You may not want me to answer.  I

         11         would favor 4.

         12              THE GOVERNOR:  You want us to go talk to General

         13         Revenue, don't you?

         14              MR. NICHOLSON:  I was in favor of 4.

         15              THE GOVERNOR:  Four?

         16              MR. NICHOLSON:  Option 4 is self-administering and

         17         requires insurance companies to make rate filings to

         18         recoup the cost.  And we don't have the problem of

         19         uncertain costs.

         20              THE GOVERNOR:  So they would run it?  How is there

         21         not uncertain -- why would there not be -- oh, because you

         22         got the cap?

         23              CFO GALLAGHER:  Wait a minute, Jack.

         24              MR. NICHOLSON:  They can control moral hazard.

         25         That's their business.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              CFO GALLAGHER:  So wait a minute.  What you're doing

          2         here is you're doing something that we never let companies

          3         do and that's recoup past costs with a future rate

          4         increase.

          5              MR. NICHOLSON:  The law would have to be changed to

          6         allow that because we're doing something we wouldn't let

          7         them do anyway with the Cat Fund.  We're changing the law

          8         to pay these claims --

          9              CFO GALLAGHER:  Yeah, but it's a big difference.

         10         Nice try but a big difference.

         11              MR. NICHOLSON:  That's my recommendation.

         12              THE GOVERNOR:  Well, I'm shocked that your -- I

         13         thought your recommendation would be No. 5 to be honest

         14         with you, irrespective of whether it's administered.  I

         15         mean, you could do a version of 5 administered through DFS

         16         or through the insurance company, right?

         17              MR. NICHOLSON:  Yeah, 5, and I think I might have

         18         characterized that a little wrong in the write-up.  But

         19         the idea would be to administer it through DFS, fund it by

         20         General Revenue, put the money in the Regulatory --

         21         Insurance Regulatory Trust Fund.  And then basically on 5,

         22         the beauty of 5 is you don't have to change the law to

         23         impair contracts with insurance companies.  So you don't

         24         have to give them anything in return.  So they're off the

         25         hook and then the State basically administers the program.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              CFO GALLAGHER:  I can tell you for whatever it is

          2         worth, you will lose way more than you gain in what you're

          3         helping people by having companies have a deemed rate

          4         increase based on whatever they say they're going to be

          5         paying out.  That is the biggest disaster I've ever seen

          6         in my life.

          7              MR. NICHOLSON:  I agree with that.  And that was an

          8         editing error.  "Deemed" should be stricken through.  It's

          9         not a deemed rate filing.  That was an error.  That's the

         10         only place you'll find that is on that slide that I just

         11         put up.  But, no, it should not be a deemed rate filing.

         12         It should be validated by checks that you've -- and it

         13         also is based on the full deductible waiver versus

         14         partial.

         15              So, again, these strategies can be mixed.  And I

         16         think that's probably, just by talking about it, I think

         17         you realize all the complications.  And there are certain

         18         pros and cons and advantages and none of these would be

         19         what I would foresee passing legislation.  It would be

         20         some combination of how you put these together.  And, you

         21         know, I'm committed to continue to work on that --

         22              THE GOVERNOR:  You're not going on vacation any time

         23         soon, are you?

         24              MR. NICHOLSON:  No, I'm not.

         25              THE GOVERNOR:  Except for Thanksgiving?  Because we

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         got a lot of work to do in the next ten days to reach a --

          2              CFO GALLAGHER:  Some kind of consensus.

          3              THE GOVERNOR:  -- consensus, you know.  And the data

          4         will get better going forward.  It may not be complete.

          5         That's the problem.

          6              CFO GALLAGHER:  Yeah, ten days worth of data is

          7         better than it was but it's still a ways to go.

          8              THE GOVERNOR:  Well, I appreciate your work on this.

          9              CFO GALLAGHER:  Well, the important thing is the

         10         education.  Everybody -- and the key is going to be some

         11         legislative staff and legislative education so you need to

         12         be working with them on this and let them -- I mean,

         13         listen, somebody could come up with a better idea than we

         14         have here.

         15              THE GOVERNOR:  Assume that's happened, right?

         16              MR. NICHOLSON:  Better idea than this?

         17              CFO GALLAGHER:  Didn't I see Brian here?

         18              MR. NICHOLSON:  Actually, Brian -- Actually, Brian,

         19         it was supposed to be -- 1 and 5 were supposed to be his

         20         ideas because he's been playing with them.  And Chris Snow

         21         at your office and our people, Ann has come up with some

         22         ideas.  So we've spread it around.

         23              THE GOVERNOR:  This is a lot better than two weeks

         24         ago.

         25              CFO GALLAGHER:  We're getting there.

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              GENERAL CRIST:  For the record, I don't like the idea

          2         of a rate adjustment either.  I don't think that would be

          3         appropriate.

          4              THE GOVERNOR:  All right.  Thank you very much.  Do

          5         we have anything else?

          6              CFO GALLAGHER:  On your -- what else do we have on

          7         Cat?  We have the --

          8              THE GOVERNOR:  We had the --

          9              CFO GALLAGHER:  Future part of -- part of what you

         10         didn't talk about is --

         11              MR. STIPANOVICH:  Mitigation.

         12              CFO GALLAGHER:  That isn't really a part of the SBA

         13         is that we do change the law on the deductibles so that it

         14         is a seasonal deductible and that's really not their

         15         responsibility to do but I don't want to leave here

         16         without saying that that's an important part of this.  You

         17         know, changing this doesn't make sense that -- in Jack's

         18         first presentation -- unless we have the responsibility on

         19         the companies to do their part which is their policies are

         20         two things.  One, a single seasonal deductible with a

         21         smaller additional storm deductible after them.  I mean,

         22         there still should be 250, some additional storms.  What

         23         is a formal policy and having the choice of what that

         24         percentage deductible is, that you'd pay the premium based

         25         on a two to five --

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1              THE GOVERNOR:  Are we also talking about -- I guess

          2         this is Kevin -- I don't know, I get confused between

          3         what's Cat Fund and what's Kevin's.  Are we talking also

          4         about the 1 percent deductible and some kind of --

          5              CFO GALLAGHER:  5 percent deductible, you have a

          6         choice.

          7              THE GOVERNOR:  You have a choice, you sign for it,

          8         and if it's going forward, it's all one event.  It's one

          9         season.

         10              CFO GALLAGHER:  Right.  That part -- that's really

         11         not here at the Cat Fund.  They're reinsurance, that's

         12         Kevin's side and I guess our side.

         13              THE GOVERNOR:  I think there's an expectation in the

         14         Legislature that we deal with all of it.

         15              CFO GALLAGHER:  All of that.

         16              THE GOVERNOR:  At least last time I checked.

         17              CFO GALLAGHER:  The wind blows.

         18              THE GOVERNOR:  It changes a little bit.

         19              CFO GALLAGHER:  Hopefully it will start gelling in

         20         the next couple of weeks.

         21              THE GOVERNOR:  All right.  Coleman, you have another

         22         item?

         23              MR. STIPANOVICH:  Yes, we do, Governor.  The final

         24         item is our proposed legislative changes as it relates to

         25         the defined contribution programs and the defined benefit

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1         plan which is predominantly technical in nature, not

          2         really -- it doesn't rise to the policy level.  In your

          3         attachments, you can see that there are a total of nine

          4         items.  Eight of the items have to do with the Defined

          5         Contribution Program.  And the one that does rise to kind

          6         of a policy level, it would be the Item No. 6 which allows

          7         DROP participants to roll over the DROP lump sum into the

          8         investment plan as an option.  Pretty much everything else

          9         is technical in nature.  Two deals with second elections.

         10              THE GOVERNOR:  Treasurer?

         11              CFO GALLAGHER:  Is this the total legislative plan

         12         for you?

         13              MR. STIPANOVICH:  Yes.

         14              CFO GALLAGHER:  So you're not going to be bringing us

         15         anything else?

         16              MR. STIPANOVICH:  No, sir.

         17              CFO GALLAGHER:  Okay.  I'll move item, whatever it

         18         is, 3.

         19              GENERAL CRIST:  Second.

         20              THE GOVERNOR:  There's a motion and a second.

         21         Without objection, the item passes.

         22              Thank you, Coleman.

         23              MR. STIPANOVICH:  Yes, sir.  Thank you, Governor,

         24         thank you members.

         25              (Thereupon, the proceedings concluded at 10:30 a.m.)

                                   ACCURATE STENOTYPE REPORTERS, INC.
                     STATE BOARD OF ADMINISTRATION - 11/23/04
          1                        CERTIFICATE OF REPORTER


          3    STATE OF FLORIDA    )

          4    COUNTY OF LEON      )


          6              I, KRISTEN L. BENTLEY, Court Reporter, certify that

          7    the foregoing proceedings were taken before me at the time and

          8    place therein designated; that my shorthand notes were

          9    thereafter translated under my supervision; and the foregoing

         10    pages numbered 1 through 68 are a true and correct record of

         11    the aforesaid proceedings.


         13              I further certify that I am not a relative, employee,

         14    attorney or counsel of any of the parties, nor am I a relative

         15    or employee of any of the parties' attorney or counsel

         16    connected with the action, nor am I financially interested in

         17    the action.

         18              DATED this 8th day of December, 2004.

         19                              ______________________________

         20                             KRISTEN L. BENTLEY, Court Reporter
                                        Notary Public
         21                             850-878-2221





                                   ACCURATE STENOTYPE REPORTERS, INC.