DRAFTSeptember 20, 2017

FLORIDA COMMISSION ON HURRICANE

LOSS PROJECTION METHODOLOGY

Post Office Box 13300, 32317-3300

1801 Hermitage Boulevard, Suite 100

Tallahassee, Florida32308

(850) 413-1349

Patricia Born, Ph.D.Lorilee Medders, Ph.D., ChairMinchong Mao, FCAS, MAAA, CPCU

Insurance Finance Expert,Statistics Expert,Actuary,

Florida State UniversityFlorida State University Property and Casualty Industry

Barry GilwayFloyd Yager, FCAS, Vice Chair Forrest Masters, Ph.D.

President/CEO & Executive Director,Actuary,Professional Structural Engineer,

Citizens Property Insurance CorporationFlorida Hurricane Catastrophe Fund Advisory CouncilUniversity of Florida

Sha`Ron JamesJainendra Navlakha, Ph.D.

Insurance Consumer Advocate,Computer Systems Design Expert,

Florida Department of Financial ServicesFlorida International University

Bryan KoonJack Nicholson, Ph.D.

Director,Chief Operating Officer,

Florida Division of Emergency ManagementFlorida Hurricane Catastrophe Fund

Robert Lee, FCASHugh Willoughby, Ph.D.

Actuary,Meteorology Expert,

Florida Office of Insurance Regulation Florida International University

Anne Bert
Chief Operating Officer,
Florida Hurricane Catastrophe Fund / Floyd Yager, FCAS, Vice Chair
Actuary,
Florida Hurricane Catastrophe Fund Advisory Council / Robert Lee, FCAS
Actuary,
Florida Office of Insurance Regulation
Patricia Born, Ph.D.
Insurance Finance Expert,
Florida State University / Minchong Mao, FCAS, ASA, MAAA
Actuary,
Property and Casualty Industry
Barry Gilway
President/CEO & Executive Director,
Citizens Property Insurance Corporation / Jainendra Navlakha, Ph.D.
Computer Systems Design Expert,
Florida International University
Sha`Ron James
Insurance Consumer Advocate,
Florida Department of Financial Services / Steve Paris, Ph.D.
Statistics Expert,
Florida State University
Bryan Koon
Director,
Florida Division of Emergency Management / Hugh Willoughby, Ph.D.
Meteorology Expert,
Florida International University
Vacant
Professional Structural Engineer

1

DRAFTSeptember 20, 2017

November 1, 20152017

The Honorable Rick Scott, Chairman

Governor

Plaza Level 02, The Capitol

Tallahassee, Florida 32399

The Honorable Pam Bondi, Secretary

Attorney General

Plaza Level 01, The Capitol

Tallahassee, Florida 32399

The Honorable Jeff Atwater Jimmy Patronis, Treasurer

Chief Financial Officer

Plaza Level 11, The Capitol

Tallahassee, Florida 32399

Dear Trustees:

As Chair of the Florida Commission on Hurricane Loss Projection Methodology (Commission), I am pleased to present to you the Hurricane Standards Report of Activities as of November 1, 20152017. This report documents the twentieth twenty-second year of the Commission’s work.

Section 627.0628, F.S., created the Commission as a panel of experts to be administratively housed in the State Board of Administration but requires the Commission to independently exercise its power and duties. The Commission is required to “…adopt revisions to “previously adopted actuarial methods, principles, standards, models, or output ranges every odd-numbered year for hurricane loss projections.” Such revisions were made in compliance with the statute.

If you have any questions or comments regarding the work of the Commission, please call me at (850) 645-8393(xxx) xxx-xxxx.

Sincerely,

Lorilee Medders, Chair

1

DRAFTSeptember 20, 2017

Florida Commission on Hurricane Loss Projection Methodology

P. O. Box 13300

Tallahassee, Florida32317-3300

Staff: 850-413-1349, Fax: 850-413-1344

Website:

Commission Members:

Lorilee Medders, Ph.D., Chair

Statistics Expert, Florida State University

Floyd Yager, FCAS, Vice Chair

Actuary, Florida Hurricane Catastrophe Fund Advisory Council

Anne BertMinchong Mao, FCAS, MAAA, CPCU

Chief Operating OfficerActuary,

Florida Hurricane Catastrophe FundProperty and Casualty Industry

Patricia Born, Ph.D.Forrest Masters, Ph.D.

Insurance Finance Expert,Professional Structural Engineer,

Florida State UniversityUniversity of Florida

Barry GilwayJainendra Navlakha, Ph.D.

President/CEO & Executive Director,Computer Systems Design Expert,

Citizens Property Insurance CorporationFlorida International University

Sha`Ron JamesJack Nicholson, Ph.D.

Insurance Consumer Advocate,Chief Operating Officer,

Florida Department of Financial ServicesFlorida Hurricane Catastrophe Fund

Bryan KoonSteve Paris, Ph.D.

Director,Statistics Expert,

Florida Division of Emergency ManagementFlorida State University

Robert Lee, FCASHugh Willoughby, Ph.D.

Actuary,Meteorology Expert,

Florida Office of Insurance RegulationFlorida International University

Vacant

Professional Structural Engineer

Professional Team Members:Staff Members:

Mark Brannon, FCAS, MAAA, CPCU, ActuaryAnne Bert

Jenni Evans, Ph.D., MeteorologistLeonard Schulte

Paul Fishwick, Ph.D., Computer/Information ScientistDonna Sirmons

Tim Hall, Ph.D., MeteorologistGina Wilson

Mark Johnson, Ph.D., Statistician, Team LeaderRamona Worley

Chris Jones, P.E., Coastal Engineer

Stuart Mathewson, FCAS, MAAA, Actuary

Greg McLellan, P.E., Structural Engineer

Chris Nachtsheim, Ph.D., Statistician

Richard Nance, Ph.D., Computer/Information Scientist

Del Schwalls, P.E., CFM, Hydrologist

Michael Bayard Smith, FCAS, FSA, MAAA, OMCAA, Actuary

Zhida Song-James, Ph.D., PH, CFM, Hydrologist

Masoud Zadeh, Ph.D., P.E., Structural Engineer

Table of Contents (Page number references to be updated)

PAGE

  1. Introduction8
  2. Principles15
  3. Commission Structure18
  4. Findings of the Commission40
  1. Concerning Model Accuracy and Reliability41
  2. Concerning Trade Secrets43
  1. Process for Determining the Acceptability of a Computer Simulation Hurricane Model 44
  • Hurricane Model Submission Checklist69
  1. On-Site Review71
  2. 2015 2017 Hurricane Standards, Disclosures, and Forms79
  1. Hurricane Model Identification80
  2. Submission Data81
  3. Comparison of 2015 2017 Standards to 2013 2015 Standards85

4.General Standards86

G-1Scope of the Hurricane Model and Its Implementation86

G-2Qualifications of Modeling Organization Personnel and90

Consultants Engaged in Development of the Hurricane Model

G-3Insured Exposure Location93

G-4Independence of Hurricane Model Components95

G-5Editorial Compliance96

Form G-1General Standards Expert Certification98

Form G-2Meteorological Standards Expert Certification99

Form G-3Statistical Standards Expert Certification100

Form G-4Vulnerability Standards Expert Certification101

Form G-5Actuarial Standards Expert Certification102

Form G-6Computer/Information Standards Expert Certification103

Form G-7Editorial Review Expert Certification104

5.Meteorological Standards105

M-1Base Hurricane Storm Set105

M-2Hurricane Parameters and Characteristics107

M-3Hurricane ProbabilitiesProbability Distributions109

M-4Hurricane Windfield Structure111

M-5Landfall and Over-Land Weakening Methodologies114

M-6Logical Relationships of Hurricane Characteristics115

Form M-1Annual Occurrence Rates116

Form M-2Maps of Maximum Winds120

Form M-3Radius of Maximum Winds and Radii of Standard Wind 121

Thresholds

Table of Contents (Page number references to be updated)

PAGE

6.Statistical Standards122

S-1Modeled Results and Goodness-of-Fit122

S-2Sensitivity Analysis for Hurricane Model Output124

S-3Uncertainty Analysis for Hurricane Model Output126

S-4County Level Aggregation128

S-5Replication of Known Hurricane Losses129

S-6Comparison of Projected Hurricane Loss Costs131

Form S-1Probability and Frequency of Florida Landfalling Hurricanes132

per Year

Form S-2AExamples of Hurricane Loss Exceedance Estimates (2012 FHCF133

Exposure Data)

Form S-2BExamples of Hurricane Loss Exceedance Estimates (2017 FHCFxxx

Exposure Data)

Form S-3Distributions of Stochastic Hurricane Parameters134

Form S-4Validation Comparisons135

Form S-5Average Annual Zero Deductible Statewide Hurricane Loss Costs137

– Historical versus Modeled

Form S-6Hypothetical Events for Sensitivity and Uncertainty Analysis 138

7.Vulnerability Standards151

V-1Derivation of Building Hurricane Vulnerability Functions151

V-2Derivation of Contents and Time Element Hurricane 155

Vulnerability Functions

V-3Hurricane Mitigation Measures and Secondary Characteristics158

Form V-1One Hypothetical Event161

Form V-2Hurricane Mitigation Measures and Secondary Characteristics, 164

Range of Changes in Damage

Form V-3Hurricane Mitigation Measures and Secondary Characteristics,167

Mean Damage Ratios and Hurricane Loss Costs(Trade Secret item)

Form V-4Percentage Change in Hurricane Mitigation Measures and xxx

Secondary Characteristics

Form V-5Percentage Change in Hurricane Mitigation Measures andxxx

Secondary Characteristics, Mean Damage Ratios and Hurricane Loss

Costs

8.Actuarial Standards170

A-1Hurricane Modeling Input Data and Output Reports170

A-2Hurricane Events Definition Resulting in Modeled Hurricane Losses172

A-3Hurricane Coverages173

A-4Modeled Hurricane Loss Cost and Hurricane Probable Maximum174

Loss Considerations

A-5Hurricane Policy Conditions176

A-6Hurricane Loss Outputs and Logical Relationships to Risk178

Form A-1Zero Deductible Personal Residential Hurricane Loss Costs by182

ZIP Code

Table of Contents (Page number references to be updated)

PAGE

Form A-2ABase Hurricane Storm Set Statewide Hurricane Losses (2012184

FHCF Exposure Data)

Form A-2BBase Hurricane Storm Set Statewide Hurricane Losses (2017xxx

FHCF Exposure Data)

Form A-3A2004 Hurricane Season Losses (2012 FHCF Exposure Data)187

Form A-3B2004 Hurricane Season Losses (2017 FHCF Exposure Data)xxx

Form A-4AHurricane Output Ranges (2012 FHCF Exposure Data)188

Form A-4BHurricane Output Ranges (2017 FHCF Exposure Data)xxx

Form A-5Percentage Change in Hurricane Output Ranges (2012 FHCF192

Exposure Data)

Form A-6Logical Relationship to Hurricane Risk (Trade Secret item)194

Form A-7Percentage Change in Logical Relationship to Hurricane Risk 197

Form A-8AHurricane Probable Maximum Loss for Florida (2012 FHCF198

Exposure Data)

Form A-8BHurricane Probable Maximum Loss for Florida (2017 FHCFxxx

Exposure Data)

9.Computer/Information Standards202

CI-1Hurricane Model Documentation202

CI-2Hurricane Model Requirements204

CI-3Hurricane Model Architecture and Component Design206

CI-4Hurricane Model Implementation207

CI-5Hurricane Model Verification209

CI-6Hurricane Model Maintenance and Revision211

CI-7Hurricane Model Security213

10. Working Definitions of Terms Used in the Report of Activities214

11. References233

  1. Inquiries or Investigations236
IX.Appendices243
  1. Acronyms Used in the Report of Activities244
  2. Florida Statutes, 20152017246

Section 627.0628

Florida Commission on Hurricane Loss Projection Methodology246

Section 627.4025xxx

Residential Coverage and Hurricane Coverage Defined

Section 627.701(5)-(9)

Liability of Insureds, Coinsurance, Deductibles250

  1. Meeting Schedule and Topics of Discussion253

Table of Contents (Page number references to be updated)

PAGE

  1. Transcript Information260
  2. Commission Documentation265

Figures

Figure 1Florida County Codes83

Figure 2State of Florida Map by County84

Figure 3State of Florida and Neighboring States Map by Region119

Figure 4Probability Distributions for Hurricane Model Input Variables139

Figure 5Uncertainty Envelope for the Conversion Factor141

Figure 6Grid for Calculating Hourly Wind Velocities142

Figure 7Map Version of Grid for Calculating Hourly Wind Velocities142

Figure 8Comparison of Cumulative EmpiricalDistribution Functions of144

Hurricane Loss Costs for all Hurricane Categories

Figure 9Contour Plot of Hurricane Loss Cost for aCategory 1 Hurricane145

Figure 10Contour Plot of Hurricane Loss Cost for a Category 3 Hurricane146

Figure 11Contour Plot of Hurricane Loss Cost for a Category 5 Hurricane146

Figure 12Standardized Regression Coefficients (SRC) for Expected Hurricane148

LossCost for all Input Variables for all Hurricane Categories

Figure 13Expected Percentage Reduction (EPR) for Expected Hurricane Loss149

Costfor all Input Variables for all Hurricane Categories

Figure 14State of Florida Map by North/Central/South Regions193

Figure 15State of Florida Map by Coastal/Inland Counties193

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