Provides that HHRF, assisted by DCCA Insurance Division, shall develop a plan to establish a Hawaii-based captive insurance company to use moneys from the dissolved HHRF to reinsure the Hawaii Insurance Guaranty Fund for hurricane insurance policy claims left unpaid by insurer insolvency due to a covered event.

A BILL FOR AN ACT

SECTION 1. The Hawaii hurricane relief fund (HHRF) was established as a temporary means of stabilizing Hawaii's property insurance market after Hurricane Iniki hit the islands in 1992. In its aftermath, Iniki left behind several insolvent insurers, left thirty per cent of the state's residential policyholders without coverage, and made property insurance difficult, if not impossible to obtain. HHRF capped the liability of property insurers for hurricane losses at $500,000,000, and assumed liability in excess of that amount. HHRF allowed homeowners to obtain homeowners policies written by property insurers and hurricane risk policies written by HHRF. Funding held by HHRF to cover its obligations comes from a variety of sources, which primarily include hurricane policy premiums, insurer assessments based on insurance company property and casualty premiums, and a special mortgage recording fee.

The legislature finds that it is time to provide for an orderly dismantling of HHRF. HHRF is well on its way toward fulfilling its original purpose. It has stabilized the property insurance market, and private insurers offering hurricane coverage have begun to return to the market. Any phase-out of HHRF, however, should recognize the continued risk that Hawaii may be hit by another hurricane like Iniki. The legislature finds that for this reason, when HHRF is dissolved, fund moneys should not revert to the general fund as currently provided by statute. Instead, HHRF moneys should continue to be used for the purpose for which they were paid and collected: to benefit policyholders and stabilize Hawaii's property insurance market in the event of another catastrophic hurricane.

The purpose of this Act is to provide that upon dissolution of the HHRF, the net moneys in the hurricane reserve trust fund shall be used to establish a captive insurance company for the purpose of reinsuring the Hawaii insurance guaranty fund (HIGA), the State's property and liability insurance guaranty association. The captive insurance company shall reinsure, up to the amount of funds in the captive, claims under hurricane risk policies left unpaid by insurer insolvency due to a hurricane. The captive insurance company shall protect Hawaii's hurricane policyholders by providing for prompt payment of claims by HIGA in the event of insurer insolvency due to a hurricane, and strengthen Hawaii's property insurance market by reducing HIGA post-hurricane assessments of solvent property insurers.

SECTION 2. Section 431P-16, Hawaii Revised Statutes, is amended by amending subsection (i) to read as follows:

"(i) Solely upon dissolution of the Hawaii hurricane relief fund, the net moneys in the hurricane reserve trust fund shall [revert to the state general fund,] be transferred to the account of the captive insurance company established to reinsure the Hawaii insurance guaranty fund for claims under hurricane insurance policies left unpaid by insurer insolvency due to a covered event; provided that this shall occur after any payments by the fund on behalf of licensed property and casualty insurers or the State that are required to be made pursuant to any federal disaster insurance program enacted to provide insurance or reinsurance for hurricane risks. In the event such moneys are paid on behalf of licensed property and casualty insurers, payment shall be made in proportion to the premiums from policies of hurricane property insurance serviced by the insurers in the twelve months prior to dissolution of the fund."

SECTION 3. The Hawaii hurricane relief fund, with the assistance of the insurance division of the department of commerce and consumer affairs, and at the fund's expense, shall develop a plan for the establishment of a captive insurance company to receive the net moneys in the hurricane reserve trust fund upon dissolution of the Hawaii hurricane relief fund. The captive insurance company shall be based in Hawaii and shall use the moneys received from the Hawaii hurricane relief fund to reinsure the Hawaii insurance guaranty fund for claims under hurricane insurance policies left unpaid by insurer insolvency due to a covered event. The plan shall include an estimate and evaluation of the costs of establishing and operating the captive insurance company. The Hawaii hurricane relief fund shall submit its plan along with any proposed legislation, if necessary, to the legislature no later than twenty days before the convening of the regular session of 2002.

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.