September 20, 2001

The Board of County Commissioners of Brevard County, Florida, met in special emergency session on September 20, 2001 at 1:10 p.m. in the Government Center Commission Room, Building C, 2725 Judge Fran Jamieson Way, Viera, Florida. Present were: Chairman Susan Carlson, Commissioners Truman Scarborough, Nancy Higgs, and Jackie Colon, County Manager Tom Jenkins, and Assistant County Attorney Shannon Wilson. Absent was: *Commissioner Randy O'Brien and County Attorney Scott Knox.

The Invocation was given by Commissioner Jackie Colon, District 5.

Commissioner Susan Carlson led the assembly in the Pledge of Allegiance.

DISCUSSION, RE: COUNTY'S PROPERTY INSURANCE PROGRAM

Chairman Carlson advised the emergency meeting was called to discuss the County's property insurance; and requested Assistant County Attorney Shannon Wilson advise of the process.

Assistant County Attorney Shannon Wilson advised Risk Management contacted the County Attorney's Office about scheduling a special meeting pursuant to the provisions of the Charter because of conditions they were experiencing in replacing the casualty insurance. She stated the Agenda item discusses the issues relating to some of the quotes given to the County by insurers who are withdrawing their quotes; so the Board needs to move quickly to secure its position. She noted Mr. Abbate, Mr. Visco, and Ms. Judy Arenz with Arthur Gallagher are here to explain the situation to the Board.

Human Resources Director Frank Abbate advised the item was scheduled to come to the Board on Tuesday for approval of the property insurance program beginning October 1, 2001; and unfortunately, the World Trade Center disaster is impacting the County in the area of its property insurance program. He stated the program is made up of many layers of insurance with different carriers providing quotes of $5 million to $60 million, etc., so no single company has the total risk; after providing their quotes, insurance carriers go to other carriers to share the risk in case of a catastrophe; and those reinsurance carriers are facing astronomical losses because of the World Trade Center attack. He noted in some estimates it is up to $700 billion potentially for all lines of insurance, life insurance, workers compensation, business interruption, property damage, etc.; and some carriers may not have the ability to pay off the claims; therefore, everyone is concerned about insuring additional businesses. He stated some carriers the County obtained quotes from ten days ago have indicated, within the last 24 hours, that they are no longer willing to continue with their quotes and are retracting them; so Gallagher contacted staff and indicated it was in the County's best interest to bind coverage as quickly as possible to force the carriers to continue with the quotes of coverage. Mr. Abbate advised they are here to explain the current state and what can be done to best protect the County in obtaining property insurance, effective October 1, 2001; and Judy Arenz, who is the County's broker with Arthur J. Gallagher, will give the Board more details of where the program is.

Judy Arenz advised the property program is set up in two areas, the all-risk policy that responds to fire, wind, hurricane, and protects buildings up to a loss limit of $150 million, which means in any one occurrence, that is the most money that will be available to pay claims; and the second program is for flood insurance, which is referred to as difference in conditions. She stated the County buys flood insurance to protect its coastal properties that are situated in a special flood hazard zone or an A zone, which means in the 100-year and 500-year floodplain; and those are the two programs they have for the County. Ms. Arenz advised the all perils policy is structured in layers and spreads the risk through multiple carriers, each assuming a percentage of the risk; last week Westchester contacted them to retract its coverage in the limit of $70 million excess of $30 million; they used their clout and leverage with the market to get it to change its decision; and it is back and is now a firm participant in that layer.

*Commissioner O'Brien's presence was noted at this time.

Ms. Arenz advised unfortunately, they received word from St. Paul, which owns USF&G Insurance Company, that it has decided to pull all its quotations for new and renewal businesses in the State of Florida, specifically its catastrophic wind-prone areas; it is reassessing its position with its reinsurers; and the reinsurers are those people who are taking the largest part of the risk that the individual insurance company does not retain in-house. She stated they are working with them constantly to get them to make a change, and talking to other carriers that may be able to come in and absorb that amount of insurance and fill the gap; and they will pursue only those carriers that will participate at the same premium level they established. She stated they do not want to make any changes or attract a carrier that wants a higher amount of premium; if they do that, then it changes the premium for the entire layer; and if a carrier is being paid $2,000 for a million dollar cover and the next carrier wants $3,000 that is a $70,000 increase on that layer of $70,000,000 excess of $30,000,000; and their goal is to hold the price and manipulate the program to move carriers in and out of layers where they are more suited and can hold the premium. Ms. Arenz advised as an absolute option, they may need to reduce the loss limit from $150 million to $125 million; that will still give the County substantial protection; it is over 70 miles from north to south; so it has a good spread of risk and would probably have a maximum loss of $8 to $10 million for one occurrence. She stated that would allow them to move into different areas and control the cost. She stated the second issue is flood insurance; the primary limit of $5 million is in place; but the gap is the $5 million excess of $5 million. She stated there are other avenues they can look at; at this point they are not buying government flood insurance because they are buying better coverage through the flood insurance product known as a difference in conditions policy; they have done the flood mapping for Brevard County; and about 17 to 18 locations will fall in the special flood hazard zone known as an A zone. She stated they could produce policies in those areas but would need to buy one policy per building; they cannot put multiple buildings on one policy; and they will analyze that cost. She stated that is another step they can take to try and purchase the maximum amount of coverage for the County, but still hold the premium as they proposed.

DISCUSSION, RE: COUNTY'S PROPERTY INSURANCE PROGRAM (CONTINUED)

Mr. Abbate advised when staff asked the Board to have this emergency meeting, they were under the impression of having only one carrier at $20 million pull out; since 9:00 a.m., the flood insurance issue came up; so it tells the Board how volatile the insurance market is and why there is a need to move quickly. He stated the Board-approved premiums are $1,550,373; and staff is requesting approval to use those premium dollars to layer a program as Ms. Arenz described to maximize the coverage under the insurance program with the goal of $150 million; and if they are not able to successfully do that, they request authorization to bring the limit to $125 million, put that package together, and bind it immediately upon having secure quotes.

Ms. Arenz advised the market has been a moving target for some time; they have been working on the County's account on a daily basis to secure the best terms they possibly can and have been dodging bullets of the insurance companies changing their minds on a day-to-day basis; and the situation would not be this critical if it had not been for the September 11, 2001 occurrence in New York. She stated the carriers, especially in the reinsurance market, are exposed to billions of dollars in losses; there is concern whether the reinsurers are going to be solvent to pay the dollars they have promised to the carriers who are taking the front line of insurance; and there is concern for the AIG's American International, The Allianz, and St. Paul Companies, on whether they would be in a position to recoup the dollars from the reinsurance for those exposures of the World Trade Center. She noted what is driving the whole movement in the property insurance market is the concern that they cannot take on more exposure because they do not even have sufficient reinsurance right now to cover the potential losses that have occurred in New York; they are trying to set themselves in a position to be as solvent as possible; and that is the major reason for a carrier like St. Paul making such a sudden change. Ms. Arenz advised Allianz Insurance Company sent them a mandate that they are not honoring any new business; they have a moratorium on immediately; they are highly exposed to the New York disaster; so it is starting to trickle down to all carriers. She stated Gallagher's concern, as the County's broker, is that if they do not act promptly and swiftly on a firm quotation, they will continue to have more and more gaps as the carriers meet and make decisions to put holds on any programs that have not been given binding instructions prior to those meetings.

County Manager Tom Jenkins advised Gallagher will provide documentation that will support all the quotes received and the comparisons for the record. He stated it is a very sizable amount of money that they are asking for the ability to negotiate; and they will keep a very detailed record of what quotes they get from whom, etc., so the County will have documentation to support anything they do.

Commissioner Scarborough inquired if Ms. Arenz is saying it is not the primary insurers but the reinsurers that may go insolvent; with Ms. Arenz responding that is right; and reinsurance is where the real criticality is right now. She stated she provided a report for the Board to read that addresses the reinsurance arena specifically; there is a lot of concern, not only with reinsurers, but with Lloyds of London as to how stable the syndicates are that have been providing coverage for a lot of the highly exposed risks; so it is going to be more than just a national or United States issue, it is going to be an international issue. Commissioner Scarborough inquired if the failure of the reinsurer to come through will drop the loss to the primary insurer; with Ms. Arenz responding that is correct. Commissioner Scarborough inquired if there has been an assessment of the financial viability of the carriers the County is looking to in the event of the collapse of the reinsurers, or is that too complex to analyze; with Ms. Arenz responding in the County's insurance proposal, they do analyze the financial stability of the markets they utilize and give the Board a report in that proposal. Commissioner Scarborough inquired about the potential loss from the New York dilemma; with Ms. Arenz responding they cannot look at it going forward; what they look at is what provides a financial review of all insurers; and Gallagher has a division in its corporate office that specifically analyzes financial stability of insurers. Commissioner Scarborough inquired if Ms. Arenz knows who has the greatest risk from the primary insurers because of the World Trade Center collapse; with Ms. Arenz responding they do not know that specifically. Commissioner Scarborough inquired if Ms. Arenz knows what primary insurers used what reinsurers, which would cause a secondary risk if the collapse of the reinsurers occur with residual effects on the primary insurers; with Ms. Arenz responding they do not know that. Commissioner Scarborough noted the County is walking into this situation a little blind. Ms. Arenz advised they deal with carriers that are all A-rated; they are the highest level of insurers that are doing business in the United States; and they look at their surplus, best ratings, which is not just how many dollars they have in the bank, management, how the organization is structured, and what types of insurance they are writing. Risk Management Director Jerry Visco advised the Agenda Package has the ratings for the primary carriers. Commissioner Scarborough stated with the events of last week, there can be devastating effects if the reinsurer happens to be one that goes under and the primary insurer has to pick up losses it did not anticipate. Ms. Arenz advised primary insurers use a variety of reinsurers; they approach reinsurance in a multiple fashion; they may have reinsurance specifically for something like the World Trade Center as a separate contract; and they have other insurances like groupings. She stated it is very hard to pinpoint what exactly is behind each one of the insurance companies as far as their insurance program.

Motion by Commissioner Scarborough, seconded by Commissioner Higgs, to approve the Property Insurance Program for FY 2001-02; authorize Arthur J. Gallagher & Company to use the premiums to layer the program and maximize coverage with a goal of $150 million, and if not successful, to lower the limit to $125 million, bind the contracts immediately upon having secure quotes, and adjust carriers in the different layers if necessary.

Chairman Carlson inquired if there are any comments on the 42% increase that is going to reflect; with Mr. Jenkins responding they have budgeted to have an increase of that much. Mr. Abbate stated initially they were hoping to see an increase in the 25% range; but the carriers were unwilling to do that; it had nothing to do with the World Trade Center; the County was facing a 41% premium increase; and that is common, especially among coastal counties in Florida. He stated they checked with West Palm Beach, which has $300 million in coverage and is paying over $5 million in premiums. Chairman Carlson inquired if there are contingency dollars to cover the premium increase; with Mr. Jenkins responding he believes there are. Mr. Jenkins advised staff asked the FACT Trust, which is the insurance program set up by the County Governments, to investigate the feasibility of expanding into property insurance because there may be a cost effective way of doing it; however, it will not help this year, but could be discussed for subsequent years.

Commissioner Colon advised in the property layer program there are different layers and different companies; and she thought it meant one company, but realizes there are several. Mr. Abbate advised there is a multitude of companies involved, and in each of those companies there are contracts with different reinsurers; so there are many parties involved. Commissioner Colon inquired if staff is trying to meet the deadline or is this common practice throughout the State where counties are looking at this situation and trying to reevaluate their investments; with Mr. Abbate responding the new program starts October 1, 2001; they would have had no problems coming to the Board on Tuesday; but the quotes that were put on the table are being reassessed and are no longer being offered; so counties that need to have coverage in November, December, or January are going to have a hard time finding that coverage.

Chairman Carlson called for a vote on the motion. Motion carried and ordered unanimously.

REPORT, RE: ACCIDENT ON HUBERT HUMPHREY BRIDGE

Commissioner O'Brien apologized for being late; and advised of an accident on Hubert Humphrey Bridge westbound on SR 520. He stated he was stuck in traffic for 15 minutes and did not move; and when they finally started to move, it was at 3 miles per hour.

Chairman Carlson advised the Board waited ten to fifteen minutes for Commissioner O'Brien, but he is excused for being late.

Upon motion and vote, the meeting adjourned at 1:35 p.m.

ATTEST: ________________________________
SUSAN CARLSON, CHAIRMAN
BOARD OF COUNTY COMMISSIONERS
BREVARD COUNTY, FLORIDA

____________________
SCOTT ELLIS, CLERK

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