senate Bill S643

Enacts the "New York state catastrophe fund authority act"; appropriates $10,000,000 therefor

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Bill Status

  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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  • 12 / Jan / 2009
  • 18 / Mar / 2009
  • 06 / Jan / 2010


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Bill Details

Legislative Cycle:
Senate Insurance
Law Section:

Sponsor Memo



An act to amend the insurance law, in relation to establishing the New
York state catastrophe fund authority act and making an appropriation


This is a study bill to obtain comments on establishing a New York
State Catastrophe Fund Authority. Once established, this Fund could be
expanded to cover catastrophic losses in other states or regions of
the country. Such an Authority, if established, could help to
stabilize the property/casualty insurance market for residential and
commercial properties in this state if a mega catastrophe affected New

The purpose of this bill is to develop, on a consensus basis, a
financing mechanism to facilitate the accumulation of surplus capital
so that money will be available should a covered catastrophic event
strike the state. In addition, a regional or national approach may be
needed to address catastrophic losses in the United States. However,
the U.S. Congress has been hesitant to begin discussions on
establishing such a federally sponsored national catastrophe fund.
Instead, Washington seems to want to rely on a Ad Hoc response to
reacting to and recovering from natural disasters as they strike.

The States should not wait for the Federal Government to establish a
coherent and rapid response to catastrophic events. One of the
purposes of this bill is to establish a state-based financing
mechanism to respond to catastrophic events. Establishing a vehicle
such as a Catastrophe Fund that individual states can quickly join, at
their own initiative, would address the need of certain states to
rapidly create a financing system so that money would be available to
quickly respond to a natural disaster. The success of any Cat. Fund is
based on the need to spread risk over a wide and diverse geographical
area. Establishing a Cat. Fund that addresses the insurance needs of a
multitude of states should encourage more states to join such a Fund,
and thereby increase its ability to serve the risk management needs of
each individual state.

This bill will be submitted to the National Conference of Insurance
Legislators and the National Association of Insurance Commissioners
for discussion, comment and review. It is the sponsors' hope that this
legislation can be used as a vehicle to develop a multi-state
Catastrophe Fund that satisfies the needs of States that wish to
prepare disaster mitigation plans BEFORE the catastrophic event hits
and facilitate the financing of rebuilding activities AFTER the
event occurs to reduce the time needed to rebuild devastated


Section 1 & 2: Short title and Legislative findings.

Section 3: Adds Article 92 to the Insurance Law to establish the New
York State Catastrophe Fund Authority. The article sets out how the
Fund is to be established, financed, and administered. Further, it
lays out the standards the Authority should use in formulating and
approving reimbursement contracts and the methodology for setting
reimbursement premium rates. The article details how the Authority
will operate and ensure that all monies transferred to the Fund will
be exempt from Federal & state taxes and insulated so that New York

State or any other participating jurisdiction will not be able to raid
the fund to support unrelated budgetary items.

This bill is modeled after the already existing Florida Hurricane
Catastrophe Fund with some significant differences. The differences
are outlined below:

Most importantly, the New York Fund would be managed by a public
authority so that the fund could not be raided or money shifted from
the Fund to the New York State General Fund to be used for other
general public uses. The thrust of the Fund is to have a readily
accessible source of cash to rebuild communities after a natural
disaster strikes. A Cat. Fund, whose only asset is dry appropriation
notes guaranteed by the State of New York, would be of no use should a
storm hit New York's coastal areas.

Section 9201(d) expands the definition of "covered event" in several
ways. First, the NY Cat. Fund Authority expands the number of covered
perils and lines of business that are included when compared to the
Florida Hurricane Catastrophe Fund. The Florida Hurricane Cat. Fund
covers residential properties, while the New York Fund would cover
both residential and commercial properties. Second, it expands the
number of covered events that are included when compared to the
Florida Hurricane Catastrophe Fund. The Florida Fund covers hurricane
damage (i.e. wind damage), while the New York Fund would include, wind
borne damage (including wind-borne water damage), ice storm damage,
earthquakes, and other catastrophic events caused by nature or acts of
God. The reason earthquake perils are covered is so that if, at some
point, it is advantageous to merge with the California Earthquake
Authority, the New York Authority will be able to do so.

Section 9201(k) has approximately the same loss threshold contained in
the Florida Hurricane Cat. Fund ($4.5 Billion in 2005 and $ 5.3
Billion in 2006) before payments can be transferred from the NY Cat.
Authority to primary insurance carriers for covered losses ($6
Billion). The New York threshold of $ 6 Billion would increase each
year at the same percentage as the growth rate in premiums for covered
policies. State sponsored Cat. Funds should cover only truly
catastrophic events so that the international reinsurance market can
accumulate private capital to cover insurer losses that are under a $6
Billion threshold level or above $ 15 Billion level for each covered

In addition, the New York Cat. Authority caps its liability to pay for
catastrophic damage at $15 Billion per covered event. This is the same
approximate level as is contained in the Florida Hurricane Cat. Fund.

In addition, Section 9201(k), unlike the Florida Hurricane Cat. Fund,
the New York Authority does not set out definitive coverage levels at
90 percent, 75 percent, or 45 percent. It permits the Authority to
establish loss coverage level bands of between 90 - 80 percent (first
coverage level), 80 - 70 percent (second coverage level), and 60 - 50
percent (third coverage level). Creating these coverage level bands
instead of fixed percentages will facilitate the ability of the
Authority to craft their contracts with primary insurers so that
coverage levels will be set at levels that best suit the needs of each
individual domestic insurer.

Section 9202-b expands the general powers of the New York Authority so
that it includes all of the general powers of the existing Florida
Fund that covers Florida perils to also include the ability to invest
in prudent catastrophe notes, bonds, options, swaps and risk futures
or other prudent financial instruments to maximize the financial
capacity of the fund. It is important to maximize the financial
capacity of the fund so that it is able to cover catastrophic covered
events that occur in New York.
Section 9203(b) includes provisions so that New York domestic insurers
can select from a wider array of catastrophic coverage levels to
better suit their individual businesses and book of business.

Like the Florida Hurricane Fund, the New York Authority, if it has no
money available to pay claims after a catastrophic event has hit, can
assess a fee on all property/casualty insurers in the state of no more
than 2 percent of the gross direct written premium in the entire
state. Section 9205 (c) is different from the Florida Cat. Fund in
that the Authority can also assess, in lieu of a state-wide fee, a fee
of 2 percent or less based on a smaller geographical region than the
entire state that has been hit by a catastrophic event. Upon a
declared emergency by the Governor, an assessment of up to 4 percent
can be levied, but under no circumstances can an annual assessment of
10 percent or more be levied even if there are 3 or more covered
events in one year.

Section 9206(c) authorizes the Authority to develop new financing
mechanisms to maximize the capacity of the Fund. The Authority should
work specifically with national and international reinsurers to
develop financial instruments so that reinsurers, insurers, and banks
can place capital with the fund and receive commensurate federal and
state income and franchise tax deductions, credits or deferrals.

Section 9206(c) also authorizes various public and private
organizations and businesses to work together to develop new ways to
mitigate catastrophic losses from a natural event before, during and
after the event. Further, it puts particular emphasis on increasing
the speed of recovery of local social, economic and political
institutions, businesses, and infrastructure after a covered
catastrophic event has occurred.

Section 9209 specifically mandates the New York Cat. Fund Authority to
work with other existing Catastrophe Funds to merge operations and/or
jointly or in a cooperative manner, provide insurance coverages or set
premium rates. This can be done by facilitating the expansion of the
New York Fund to include catastrophic coverages incurred in other
states (if adequate premiums are paid to the New York Fund) or merging
with other already existing federal, regional or state Cat. Funds.

Section 4: Appropriates $10 million to the Authority.




The national and New York residential and commercial property
insurance market has become tighter due to the massive losses
sustained by property/casualty insurers due to recent hurricanes,
floods and other natural disasters across the country. To promote
economic growth and to ensure that there is a mechanism in place to
rapidly pay claims and rebuild communities if a catastrophic event
occurs, this bill establishes a catastrophic fund authority as a back
stop financial entity to ensure that insurers have the financial
ability to pay claims and continue business operations after the
covered event.

The catastrophic losses sustained in hurricanes Andrew, Katrina, Rita,
and Wilma, earthquakes in California and the ice storms in New York
highlight the need to establish either reinsurance safeguards, a
catastrophe fund, or some other risk sharing mechanism so that there
will be sufficient financial resources to recover and rebuild after a
catastrophic event has occurred. This bill suggests a mechanism by
which insurers can obtain additional and affordable reinsurance
protection from significant natural disasters. This could help
property/casualty insurers to remain solvent should a catastrophe hit,
pay claims on a timely basis, and very importantly, allow carriers to
CONTINUE TO write more residential and commercial insurance to
protect local homes and businesses with minimal increases in premiums
AFTER a catastrophic event occurs.

One goal of introducing this bill is to develop, on a consensus
manner, a financing mechanism so that should a natural disaster hit,
policy holders will be able to quickly receive cash payments from
their insurers to facilitate home reconstruction. The fund is to be
managed by a public authority so that it can receive both state and
federal tax exempt status to allow capital to build up more quickly
and discourage the State from raiding such a fund.

Since Washington has been reluctant to begin to plan for future mega
natural disasters and has relied instead on an Ad Hoc basis to respond
to such events and finance recovery efforts, the States must join
forces to develop their own mechanism to mitigate against the loss of
life and property damage caused by future natural disasters and
facilitate reconstruction after the event.

This bill will be submitted to the National Conference of Insurance
Legislators and the National Association of Insurance Commissioners to
add to the ongoing discussions that are occurring to develop and
implement either a multi-state or national catastrophe fund or some
other risk sharing mechanism to finance reconstruction of communities
after a natural disaster has occurred.


Same as S.6673/A.9885 of 2005/2006. Portions of this bill were
derived from Senate Bill 2826 (Velella) of 1997. S.1883 of 2007/2008


$10 million.



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