A National Association of Mutual Insurance Companies (NAMIC) petition to prevent solvency-threatening liabilities for assessments of the Florida Hurricane Catastrophe Fund (FHCF) was on the NAIC’s agenda for its meeting thru March 11 in Atlanta.
“Instant insolvency is the potential landmine faced by a large number
of insurers in the Florida property-casualty market without alteration
of current accounting guidelines for treatment of FHCF assessments,”
William Boyd, NAMIC’s financial regulation manager, commented.
“Current accounting for fund assessments does not distinguish between guaranty funds and the FHCF,” Boyd said. “In application to subject insurers, these two categories of fund assessments ought to be recognized as distinct. If more appropriate statutory accounting treatment is not developed for FHCF assessments, a severe weather event in Florida may result in solvency-threatening liabilities in many insurers’ financial statements.”
The FHCF assesses insurers in the Florida property-casualty market for amounts needed to service debt floated by the FHCF to raise capital for residential policyholders’ claims resulting from severe weather. There is the potential for assessments to individual insurers to be four per cent over 30 years. “Putting the entirety of that future liability for assessments on the balance sheet at one time, as insurance accounting now requires, is irrational,” Boyd noted.
The FHCF, set up by 1993 legislation, has not been triggered yet, although occurrence of a weather event of sufficient magnitude to do so is understood as an actuarial certainty.
NAMIC prepared a white paper on the problem last year and, with three other interested parties, is now seeking a change in the accounting that would require precipitous accumulation of FHCF assessment liability. The change sought involves recognition that Florida law allows insurers to collect from policyholders amounts to cover future FHCF assessments and the fact that assessments more distant in the future cannot be reliably estimated.
The NAIC’s Emerging Accounting Issues Working Group, which can order interpretations of statutory accounting principles, was to consider the request on Sunday. The request is specifically for change of “Statement of Statutory Accounting Principles No. 35,” which governs insurers’ accounting for fund assessments.
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