FINANCIAL SERVICES COMMISSION/OFFICE OF INSURANCE
REGULATION
DEPARTMENT OF REVENUE
BOARD OF TRUSTEES/DEPT. OF AGRICULTURE & CONSUMER SVCS
STATE BOARD OF ADMINISTRATION
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
.
2
APPEARANCES:
Representing the Florida Cabinet:
JEB
BUSH
Governor
CHARLES H.
BRONSON
Commissioner of Agriculture
CHARLIE
CRIST
Attorney General
TOM
GALLAGHER
Chief Financial Officer
* * *
ACCURATE STENOTYPE REPORTERS, INC.
.
3
I N D E X
FINANCIAL SERVICES COMMISSION/OFFICE OF INSURANCE
REGULATION
(Presented by Kevin McCarty)
ITEM
ACTION
PAGE
1
Discussion
Only
2
Approved
10
DEPARTMENT OF
REVENUE
(Presented by James Zingale)
ITEM
ACTION
PAGE
1
Approved
11
2
Approved
12
BOARD OF TRUSTEES/DEPT OF AGRICULTURE & CONSUMER
SERVICES
(Presented by Sherman Wilhelm)
ITEM
ACTION
PAGE
1
Approved
13
2
Approved
21
3
Approved
27
STATE BOARD OF
ADMINISTRATION
(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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
4
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
5
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
6
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
7
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
8
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
9
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.
.
FINANCIAL SVCS COMMISSION/OFC OF INS REG
11-23-04
10
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.
21
22
23
24
25
ACCURATE STENOTYPE REPORTERS,
INC.
.
DEPARTMENT OF REVENUE -
11/23/04
11
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
12
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.
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
ACCURATE STENOTYPE REPORTERS,
INC.
.
BOARD OF TRUSTEES -
11/23-04
13
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
14
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.
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BOARD OF TRUSTEES -
11/23-04
15
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
16
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.
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BOARD OF TRUSTEES -
11/23-04
17
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.
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BOARD OF TRUSTEES -
11/23-04
18
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.
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BOARD OF TRUSTEES -
11/23-04
19
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.
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BOARD OF TRUSTEES -
11/23-04
20
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.
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BOARD OF TRUSTEES -
11/23-04
21
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
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BOARD OF TRUSTEES -
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22
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.
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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
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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?
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25
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
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26
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
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27
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.
18
19
20
21
22
23
24
25
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28
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 --
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29
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
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30
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
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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
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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.
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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
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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,
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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.
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STATE BOARD OF ADMINISTRATION -
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36
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
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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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38
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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39
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
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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.
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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
--
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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
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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.)
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1
CERTIFICATE OF REPORTER
2
3 STATE OF FLORIDA )
4 COUNTY OF LEON )
5
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.
12
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
22
23
24
25
ACCURATE STENOTYPE REPORTERS,
INC.
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Cabinet
Affairs
