DRAFT
September 11, 2009
FLORIDA COMMISSION ON HURRICANE
LOSS PROJECTION METHODOLOGY
Post Office Box 13300
32317-3300
1801 Hermitage Boulevard, Suite 100
Tallahassee, Florida 32308
(850) 413-1349
Ruben Almaguer
Interim Director,
Florida Division of Emergency Management
Kristen Bessette, FCAS, MAAA
Actuary,
Property and Casualty Industry
Randy Dumm, Ph.D., Chair
Insurance Finance Expert,
Florida State University
Scott Wallace, Vice Chair
Executive Director,
Citizens Property Insurance Corporation
Howard Eagelfeld
Actuary,
Florida Office of Insurance Regulation
Jack Nicholson, Ph.D.
Chief Operating Officer,
Florida Hurricane Catastrophe Fund
Sean Shaw
Insurance Consumer Advocate,
Florida Department of Financial Services
Hugh Willoughby, Ph.D.
Meteorology Expert,
Florida International University
Jainendra Navlakha, Ph.D.
Computer Systems Design Expert,
Florida International University
Vacant
Statistics Expert
Vacant
Actuary,
Florida Hurricane Catastrophe Fund Advisory Council
November, 2009
The Honorable Charlie Crist, Chairman
Governor
Plaza Level 02, The Capitol
Tallahassee, Florida 32399
The Honorable Bill McCollum, Secretary
Attorney General
Plaza Level 01, The Capitol
Tallahassee, Florida 32399
The Honorable Alex Sink, 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 Report of Activities as of November 1, 2009. This report documents the fourteenth 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 year.” 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) 6447880.
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DRAFT
September 11, 2009
Sincerely,
Randy E. Dumm, Ph.D.
Chair
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DRAFT
September 11, 2009
Florida Commission on Hurricane Loss Projection Methodology
P. O. Box 13300
Tallahassee, Florida 32317-3300
Staff: 850-413-1349
Fax: 850-413-1344
Commission Members:
Randy Dumm, Ph.D., Chair
Insurance Finance Expert, Florida State University
Scott Wallace, Vice Chair
Executive Director, Citizens Property Insurance Corporation
Ruben Almaguer
Jack Nicholson, Ph.D., CLU, CPCU
Interim Director,
Chief Operating Officer,
Florida Division of Emergency Management Florida Hurricane Catastrophe Fund
Kristen Bessette, FCAS, MAAA
Actuary,
Property and Casualty Industry
Sean Shaw
Consumer Advocate,
Florida Department of Financial Services
Howard Eagelfeld, FCAS
Actuary,
Florida Office of Insurance Regulation
Jainendra Navlakha, Ph.D.
Computer System Design Expert,
Florida International University
Vacant
Statistics Expert
Hugh Willoughby, Ph.D.
Meteorology Expert,
Florida International University
Vacant
Actuary,
Florida Hurricane Catastrophe Fund Advisory Council
Professional Team Members:
Staff Members:
Mark Brannon, FCAS, MAAA, CPCU, Actuary
Jenni Evans, Ph.D., Meteorologist
Paul Fishwick, Ph.D., Computer Scientist
Ronald Iman, Ph.D., Statistician
Mark Johnson, Ph.D., Statistician, Team Leader
Richard Nance, Ph.D., Computer Scientist
Tom Schroeder, Ph.D., Meteorologist
Martin Simons, ACAS, Actuary
Masoud Zadeh, Ph.D., P.E., Structural Engineer
Tracy Allen
Anne Bert
Emily Moore
Donna Sirmons
Ramona Worley
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DRAFT
September 11, 2009
Note: Page References to be updated;
Changes adopted during September meetings to be updated.
TABLE OF CONTENTS
PAGE
I.
Introduction
II.
Principles
14
III.
Commission Structure
17
IV.
Findings of the Commission
33
1. Concerning Model Accuracy and Reliability
34
2. Concerning Trade Secrets
36
Process for Determining the Acceptability of a
Computer Simulation Model
37
1. Trade Secret List
46
2. Model Submission Checklist
49
VI.
On-Site Review
50
VII.
2009 Standards, Disclosures, and Forms
57
1. Model Identification
58
2. Submission Data
59
3. Comparison of 2009 Standards to 2008 Standards
65
4. General Standards
G-1
Scope of the Computer Model and Its Implementation
G-2
Qualifications of Modeler Personnel and Consultants
G-3
Risk Location
G-4
Independence of Model Components
G-5
Editorial Compliance
Form G-1
General Standards Expert Certification
Form G-2
Meteorological Standards Expert Certification
Form G-3
Vulnerability Standards Expert Certification
Form G-4
Actuarial Standards Expert Certification
Form G-5
Statistical Standards Expert Certification
Form G-6
Computer Standards Expert Certification
Form G-7
Editorial Certification
66
66
68
71
72
73
74
75
76
77
78
79
80
5. Meteorological Standards
M-1
Base Hurricane Storm Set
M-2
Hurricane Parameters and Characteristics
M-3
Hurricane Probabilities
M-4
Hurricane Windfield Structure
M-5
Landfall and Over-Land Weakening Methodologies
M-6
Logical Relationships of Hurricane Characteristics
Form M-1
Annual Occurrence Rates
81
81
83
85
86
88
90
91
V.
8
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DRAFT
September 11, 2009
Note: Page References to be updated;
Changes adopted during September meetings to be updated.
TABLE OF CONTENTS
PAGE
Form M-2
Form M-3
Maps of Maximum Winds
94
Radius of Maximum Winds and Radii of Standard Wind Thresholds 95
6. Vulnerability Standards
V-1
Derivation of Vulnerability Functions
V-2
Mitigation Measures
Form V-1
One Hypothetical Event
Form V-2
Mitigation Measures – Range of Changes in Damage
Form V-3
Mitigation Measures – Mean Damage Ratio (Trade Secret List)
96
96
99
101
104
106
7. Actuarial Standards
108
A-1
Modeled Loss Costs and Probable Maximum Loss Levels
108
A-2
Underwriting Assumptions
109
A-3
Loss Cost Projections and Probable Maximum Loss Levels
111
A-4
Demand Surge
112
A-5
User Inputs
113
A-6
Logical Relationship to Risk
114
A-7
Deductibles, Policy Limits, and Coinsurance
116
A-8
Contents
118
A-9
Time Element Coverage
119
A-10
Output Ranges
121
A-11
Probable Maximum Loss
123
Form A-1
Personal Residential Loss Costs
124
Form A-2
Zero Deductible Personal Residential Loss Costs by ZIP Code
126
Form A-3
Base Hurricane Storm Set Statewide Personal Residential Loss Costs127
Form A-4
Hurricane Andrew (1992) Percent of Personal Residential Losses 129
Form A-5
Cumulative Personal Residential Losses from the 2004
130
Hurricane Season
Form A-6
Personal Residential Output Ranges
131
Form A-7
Percentage Change in Personal Residential Output Ranges
136
Form A-8
Percentage Change in Personal Residential Output Ranges by
138
County
Form A-9
Personal Residential Probable Maximum Loss for Florida
139
8. Statistical Standards
S-1
Modeled Results and Goodness-of-Fit
S-2
Sensitivity Analysis for Model Output
S-3
Uncertainty Analysis for Model Output
S-4
County Level Aggregation
S-5
Replication of Known Hurricane Losses
S-6
Comparison of Projected Hurricane Loss Costs
Form S-1
Probability and Frequency of Florida Landfalling Hurricanes
per Year
Form S-2
Examples of Loss Exceedance Estimates
TABLE OF CONTENTS
5
142
142
144
146
148
149
151
152
153
DRAFT
September 11, 2009
Note: Page References to be updated;
Changes adopted during September meetings to be updated.
PAGE
Form S-3
Form S-4
Form S-5
Form S-6
Distributions of Stochastic Hurricane Parameters
Validation Comparisons
Average Annual Zero Deductible Statewide Personal Residential
Loss Costs – Historical versus Modeled
Hypothetical Events for Sensitivity and Uncertainty Analysis
154
155
156
157
9. Computer Standards
C-1
Documentation
C-2
Requirements
C-3
Model Architecture and Component Design
C-4
Implementation
C-5
Verification
C-6
Model Maintenance and Revision
C-7
Security
165
165
167
169
170
172
174
175
10. Working Definitions of Terms Used in the Report of Activities
176
11. References
192
VIII.
Inquiries or Investigations
194
IX.
Appendices
211
1. Florida Statutes, 2009
212
2. Meeting Schedule and Topics of Discussion
215
3. Transcript Information
219
4. Commission Documentation
222
Figures
Figure 1
Florida County Codes
63
Figure 2
State of Florida Map by County
64
Figure 3
State of Florida and Neighboring States Map by Region
93
Figure 4
State of Florida Map by North/Central/South Regions
136
Figure 5
State of Florida Map by Coastal/Inland Counties
136
Figure 6
Probability 158
Distributions for Model Input Variables
TABLE OF CONTENTS
PAGE
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DRAFT
September 11, 2009
Note: Page References to be updated;
Changes adopted during September meetings to be updated.
Figure 7
Uncertainty
Envelope for the Conversion Factor
159
Figure 8
Grid for Calculating Hourly Wind
Velocities
161
Figure 9
161
Map Version of Grid for Calculating Hourly Wind Velocities
Figure 10
162
Comparison of Cumulative Empirical
Distribution Functions for all Storm Categories
Figure 11
163
Contour Plot of Loss Cost for a
Category 1 Storm
Figure 12
163
Contour Plot of Loss Cost for a Category 3 Storm
Figure 13
164
Contour Plot of Loss Cost
For a Category 5 Storm
Figure 14
164
Standardized Regression Coefficients
For Expected Loss Cost for all Input Variables for all Storm Categories
Figure 15
Expected Percentage Reduction for Expected Loss Cost for all Input 165
Variables for all Storm Categories
7