Florida Senate - 2016                      CS for CS for SB 1422
       
       
        
       By the Committees on Appropriations; and Banking and Insurance;
       and Senator Simmons
       
       576-04232-16                                          20161422c2
    1                        A bill to be entitled                      
    2         An act relating to insurer regulatory reporting;
    3         creating s. 628.8015, F.S.; defining terms; requiring
    4         an insurer to maintain a risk management framework;
    5         requiring certain insurers and insurance groups to
    6         conduct an own-risk and solvency assessment; providing
    7         requirements for the preparation and submission of an
    8         own-risk and solvency assessment summary report;
    9         providing exemptions and waivers; requiring certain
   10         insurers and members of an insurance group to prepare
   11         and submit a corporate governance annual disclosure;
   12         requiring the initial corporate governance annual
   13         disclosure to be submitted to the Office of Insurance
   14         Regulation by a specified date; authorizing the office
   15         to require an insurer or insurance group to provide a
   16         corporate governance annual disclosure before such
   17         date under certain circumstances; specifying
   18         requirements for preparing and annually filing the
   19         corporate governance annual disclosure; specifying
   20         privilege requirements and prohibitions for certain
   21         filings and related documents; authorizing the office
   22         to retain third-party consultants for certain
   23         purposes; authorizing the Financial Services
   24         Commission to adopt rules; amending s. 628.803, F.S.;
   25         revising provisions relating to penalties to conform
   26         to the act; providing for contingent repeal of the
   27         act; providing a contingent effective date.
   28          
   29  Be It Enacted by the Legislature of the State of Florida:
   30  
   31         Section 1. Section 628.8015, Florida Statutes, is created
   32  to read:
   33         628.8015Own-risk and solvency assessment; corporate
   34  governance annual disclosure.—
   35         (1)DEFINITIONS.—As used in this section, the term:
   36         (a) “Corporate governance annual disclosure” means a report
   37  filed by an insurer or insurance group in accordance with this
   38  section.
   39         (b) “Insurance group” means insurers and affiliates
   40  included within an insurance holding company system.
   41         (c) “Insurer” has the same meaning as in s. 624.03.
   42  However, the term does not include agencies, authorities,
   43  instrumentalities, possessions, or territories of the United
   44  States, the Commonwealth of Puerto Rico, or the District of
   45  Columbia; or agencies, authorities, instrumentalities, or
   46  political subdivisions of a state.
   47         (d) “Own-risk and solvency assessment” or “ORSA” means an
   48  internal assessment, appropriate to the nature, scale, and
   49  complexity of an insurer or insurance group, conducted by that
   50  insurer or insurance group, of the material and relevant risks
   51  associated with the business plan of an insurer or insurance
   52  group and the sufficiency of capital resources to support those
   53  risks.
   54         (e)“ORSA guidance manual” means the own-risk and solvency
   55  assessment guidance manual developed and adopted by the National
   56  Association of Insurance Commissioners.
   57         (f) “ORSA summary report” means a high-level ORSA summary
   58  of an insurer or insurance group, consisting of a single report
   59  or combination of reports.
   60         (g) “Senior management” means any corporate officer
   61  responsible for reporting information to the board of directors
   62  at regular intervals or providing information to shareholders or
   63  regulators and includes, but is not limited to, the chief
   64  executive officer, chief financial officer, chief operations
   65  officer, chief risk officer, chief procurement officer, chief
   66  legal officer, chief information officer, chief technology
   67  officer, chief revenue officer, chief visionary officer, or any
   68  other executive performing one or more of these functions.
   69         (2) OWN-RISK AND SOLVENCY ASSESSMENT.—
   70         (a) Risk management framework.—An insurer shall maintain a
   71  risk management framework to assist in identifying, assessing,
   72  monitoring, managing, and reporting its material and relevant
   73  risks. An insurer may satisfy this requirement by being a member
   74  of an insurance group with a risk management framework
   75  applicable to the operations of the insurer.
   76         (b) ORSA requirement.—Subject to paragraph (c), an insurer,
   77  or the insurance group of which the insurer is a member, shall
   78  regularly conduct an ORSA consistent with and comparable to the
   79  process in the ORSA guidance manual. The ORSA must be conducted
   80  at least annually and whenever there have been significant
   81  changes to the risk profile of the insurer or the insurance
   82  group of which the insurer is a member.
   83         (c) ORSA summary report.
   84         1.a.A domestic insurer or insurer member of an insurance
   85  group of which the office is the lead state, as determined by
   86  the procedures in the most recent National Association of
   87  Insurance Commissioners Financial Analysis Handbook, shall:
   88         (I) Submit an ORSA summary report to the office once every
   89  calendar year.
   90         (II) Notify the office of its proposed annual submission
   91  date by December 1, 2016. The initial ORSA summary report must
   92  be submitted by December 31, 2017.
   93         b. An insurer not required to submit an ORSA summary report
   94  pursuant to sub-subparagraph a. shall:
   95         (I) Submit an ORSA summary report at the request of the
   96  office, but not more than once per calendar year.
   97         (II) Notify the office of the proposed submission date
   98  within 30 days after the request of the office.
   99         2. An insurer may comply with sub-subparagraph 1.a. or sub
  100  subparagraph 1.b. by providing the most recent and substantially
  101  similar ORSA summary report submitted by the insurer, or another
  102  member of an insurance group of which the insurer is a member,
  103  to the chief insurance regulatory official of another state or
  104  the supervisor or regulator of a foreign jurisdiction. For
  105  purposes of this subparagraph, a “substantially similar” ORSA
  106  summary report is one that contains information comparable to
  107  the information described in the ORSA guidance manual as
  108  determined by the commissioner of the office. If the report is
  109  in a language other than English, it must be accompanied by an
  110  English translation.
  111         3. The chief risk officer or chief executive officer of the
  112  insurer or insurance group responsible for overseeing the
  113  enterprise risk management process must sign the ORSA summary
  114  report attesting that, to the best of his or her knowledge and
  115  belief, the insurer or insurance group applied the enterprise
  116  risk management process described in the ORSA summary report and
  117  provided a copy of the report to the board of directors or the
  118  appropriate board committee.
  119         4. The ORSA summary report must be prepared in accordance
  120  with the ORSA guidance manual. Documentation and supporting
  121  information must be maintained by the insurer and made available
  122  upon examination pursuant to s. 624.316 or upon the request of
  123  the office.
  124         5. The ORSA summary report must include a brief description
  125  of material changes and updates since the prior year report.
  126         6. The office’s review of the ORSA summary report must be
  127  conducted, and any additional requests for information must be
  128  made, using procedures similar to those used in the analysis and
  129  examination of multistate or global insurers and insurance
  130  groups.
  131         (d) Exemption.
  132         1. An insurer is exempt from the requirements of this
  133  subsection if:
  134         a. The insurer has annual direct written and unaffiliated
  135  assumed premium, including international direct and assumed
  136  premium, but excluding premiums reinsured with the Federal Crop
  137  Insurance Corporation and the National Flood Insurance Program,
  138  of less than $500 million; or
  139         b. The insurer is a member of an insurance group and the
  140  insurance group has annual direct written and unaffiliated
  141  assumed premium, including international direct and assumed
  142  premium, but excluding premiums reinsured with the Federal Crop
  143  Insurance Corporation and the National Flood Insurance Program,
  144  of less than $1 billion.
  145         2. If an insurer is:
  146         a. Exempt under sub-subparagraph 1.a., but the insurance
  147  group of which the insurer is a member is not exempt under sub
  148  subparagraph 1.b., the ORSA summary report must include every
  149  insurer within the insurance group. The insurer may satisfy this
  150  requirement by submitting more than one ORSA summary report for
  151  any combination of insurers if any combination of reports
  152  includes every insurer within the insurance group.
  153         b. Not exempt under sub-subparagraph 1.a., but the
  154  insurance group of which it is a member is exempt under sub
  155  subparagraph 1.b., the insurer must submit to the office the
  156  ORSA summary report applicable only to that insurer.
  157         3. The office may require an exempt insurer to maintain a
  158  risk management framework, conduct an ORSA, and file an ORSA
  159  summary report:
  160         a. Based on unique circumstances, including, but not
  161  limited to, the type and volume of business written, ownership
  162  and organizational structure, federal agency requests, and
  163  international supervisor requests;
  164         b. If the insurer has risk-based capital for a company
  165  action level event pursuant to s. 624.4085(3), meets one or more
  166  of the standards of an insurer deemed to be in hazardous
  167  financial condition as defined in rules adopted by the
  168  commission pursuant to s. 624.81(11), or exhibits qualities of
  169  an insurer in hazardous financial condition as determined by the
  170  office; or
  171         c. If the office determines it is in the best interest of
  172  the state.
  173         4. If an exempt insurer becomes disqualified for an
  174  exemption because of changes in premium as reported on the most
  175  recent annual statement of the insurer or annual statements of
  176  the insurers within the insurance group of which the insurer is
  177  a member, the insurer must comply with the requirements of this
  178  section effective 1 year after the year in which the insurer
  179  exceeded the premium thresholds.
  180         (e) Waiver.—An insurer that does not qualify for an
  181  exemption under paragraph (d) may request a waiver from the
  182  office based upon unique circumstances. If the insurer is part
  183  of an insurance group with insurers domiciled in more than one
  184  state, the office must coordinate with the lead state and with
  185  the other domiciliary regulators in deciding whether to grant a
  186  waiver. In deciding whether to grant a waiver, the office may
  187  consider:
  188         1. The type and volume of business written by the insurer.
  189         2. The ownership and organizational structure of the
  190  insurer.
  191         3. Any other factor the office considers relevant to the
  192  insurer or insurance group of which the insurer is a member.
  193  
  194  A waiver granted pursuant to this paragraph is valid until
  195  withdrawn by the office.
  196         (3) CORPORATE GOVERNANCE ANNUAL DISCLOSURE.—
  197         (a) Scope.This section does not prescribe or impose
  198  corporate governance standards and internal procedures beyond
  199  those required under applicable state corporate law or limit the
  200  authority of the office, or the rights or obligations of third
  201  parties, under s. 624.316.
  202         (b) Disclosure requirement.
  203         1.a. An insurer, or insurer member of an insurance group,
  204  of which the office is the lead state regulator, as determined
  205  by the procedures in the most recent National Association of
  206  Insurance Commissioners Financial Analysis Handbook, shall
  207  submit a corporate governance annual disclosure to the office by
  208  June 1 of each calendar year. The initial corporate governance
  209  annual disclosure must be submitted by December 31, 2018.
  210         b. An insurer or insurance group not required to submit a
  211  corporate governance annual disclosure under sub-subparagraph a.
  212  shall do so at the request of the office, but not more than once
  213  per calendar year. The insurer or insurance group shall notify
  214  the office of the proposed submission date within 30 days after
  215  the request of the office.
  216         c. Before December 31, 2018, the office may require an
  217  insurer or insurance group to provide a corporate governance
  218  annual disclosure:
  219         (I) Based on unique circumstances, including, but not
  220  limited to, the type and volume of business written, the
  221  ownership and organizational structure, federal agency requests,
  222  and international supervisor requests;
  223         (II) If the insurer has risk-based capital for a company
  224  action level event pursuant to s. 624.4085(3), meets one or more
  225  of the standards of an insurer deemed to be in hazardous
  226  financial condition as defined in rules adopted pursuant to s.
  227  624.81(11), or exhibits qualities of an insurer in hazardous
  228  financial condition as determined by the office;
  229         (III) If the insurer is the member of an insurer group of
  230  which the office acts as the lead state regulator as determined
  231  by the procedures in the most recent National Association of
  232  Insurance Commissioners Financial Analysis Handbook; or
  233         (IV) If the office determines that it is in the best
  234  interest of the state.
  235         2. The chief executive officer or corporate secretary of
  236  the insurer or the insurance group must sign the corporate
  237  governance annual disclosure attesting that, to the best of his
  238  or her knowledge and belief, the insurer has implemented the
  239  corporate governance practices and provided a copy of the
  240  disclosure to the board of directors or the appropriate board
  241  committee.
  242         3.a. Depending on the structure of its system of corporate
  243  governance, the insurer or insurance group may provide corporate
  244  governance information at one of the following levels:
  245         (I) The ultimate controlling parent level;
  246         (II) An intermediate holding company level; or
  247         (III) The individual legal entity level.
  248         b. The insurer or insurance group may make the corporate
  249  governance annual disclosure at:
  250         (I) The level used to determine the risk appetite of the
  251  insurer or insurance group;
  252         (II) The level at which the earnings, capital, liquidity,
  253  operations, and reputation of the insurer are collectively
  254  overseen and the supervision of those factors is coordinated and
  255  exercised; or
  256         (III) The level at which legal liability for failure of
  257  general corporate governance duties would be placed.
  258  
  259  An insurer or insurance group must indicate the level of
  260  reporting used and explain any subsequent changes in the
  261  reporting level.
  262         4. The review of the corporate governance annual disclosure
  263  and any additional requests for information shall be made
  264  through the lead state as determined by the procedures in the
  265  most recent National Association of Insurance Commissioners
  266  Financial Analysis Handbook.
  267         5. An insurer or insurance group may comply with this
  268  paragraph by cross-referencing other existing relevant and
  269  applicable documents, including, but not limited to, the ORSA
  270  summary report, Holding Company Form B or F filings, Securities
  271  and Exchange Commission proxy statements, or foreign regulatory
  272  reporting requirements, if the documents contain information
  273  substantially similar to the information described in paragraph
  274  (c). The insurer or insurance group shall clearly identify and
  275  reference the specific location of the relevant and applicable
  276  information within the corporate governance annual disclosure
  277  and attach the referenced document if it has not already been
  278  filed with, or made available to, the office.
  279         6. Each year following the initial filing of the corporate
  280  governance annual disclosure, the insurer or insurance group
  281  shall file an amended version of the previously filed corporate
  282  governance annual disclosure indicating changes that have been
  283  made. If changes have not been made in the previously filed
  284  disclosure, the insurer or insurance group should so indicate.
  285         (c) Preparation of the corporate governance annual
  286  disclosure.
  287         1. The corporate governance annual disclosure must be
  288  prepared in a manner consistent with this subsection.
  289  Documentation and supporting information must be maintained and
  290  made available upon examination pursuant to s. 624.316 or upon
  291  the request of the office.
  292         2. The corporate governance annual disclosure must be as
  293  descriptive as possible and include any attachments or example
  294  documents used in the governance process.
  295         3. The insurer or insurance group has discretion in
  296  determining the appropriate format of the corporate governance
  297  annual disclosure in communicating the required information and
  298  responding to inquiries, provided that the corporate governance
  299  annual disclosure includes material and relevant information
  300  sufficient to enable the office to understand the corporate
  301  governance structure, policies, and practices used by the
  302  insurer or insurance group.
  303         4. The corporate governance annual disclosure must describe
  304  the:
  305         a. Corporate governance framework and structure of the
  306  insurer or insurance group.
  307         b. Policies and practices of the most senior governing
  308  entity and significant committees.
  309         c. Policies and practices for directing senior management.
  310         d. Processes by which the board, its committees, and senior
  311  management ensure an appropriate amount of oversight to the
  312  critical risk areas that have an impact on the insurer’s
  313  business activities.
  314         (4)CONFIDENTIALITY.—The filings and related documents
  315  submitted pursuant to subsections (2) and (3) are privileged
  316  such that they may not be produced in response to a subpoena or
  317  other discovery directed to the office, and any such filings and
  318  related documents, if obtained from the office, are not
  319  admissible in evidence in any private civil action. However, the
  320  department or office may use these filings and related documents
  321  in the furtherance of any regulatory or legal action brought
  322  against an insurer as part of the official duties of the
  323  department or office. A waiver of any applicable claim of
  324  privilege in these filings and related documents may not occur
  325  because of a disclosure to the office under this section,
  326  because of any other provision of the Insurance Code, or because
  327  of sharing under s. 624.4212. The office or a person receiving
  328  these filings and related documents, while acting under the
  329  authority of the office, or with whom such filings and related
  330  documents are shared pursuant to s. 624.4212, is not permitted
  331  or required to testify in any private civil action concerning
  332  any such filings or related documents.
  333         (5) USE OF THIRD-PARTY CONSULTANTS.—The office may retain
  334  third-party consultants at the expense of the insurer or
  335  insurance group for the purpose of assisting it in the
  336  performance of its regulatory responsibilities under this
  337  section, including, but not limited to, the risk management
  338  framework, the ORSA, the ORSA summary report, and the corporate
  339  governance annual disclosure. A third-party consultant must
  340  agree, in writing, to:
  341         (a) Adhere to confidentiality standards and requirements
  342  applicable to the office governing the sharing and use of such
  343  filings and related documents.
  344         (b) Verify to the office, with notice to the insurer, that
  345  the consultant is free of any conflict of interest.
  346         (c) Monitor compliance with applicable confidentiality and
  347  conflict of interest standards pursuant to a system of internal
  348  procedures.
  349         (6) RULE ADOPTION.—The commission may adopt rules to
  350  administer this section.
  351         Section 2. Subsections (1) and (4) of section 628.803,
  352  Florida Statutes, are amended to read:
  353         628.803 Sanctions.—
  354         (1) Any company failing, without just cause, to file any
  355  registration statement or certificate of exemption required to
  356  be filed pursuant to commission rules relating to this part or
  357  to submit an ORSA summary report or a corporate governance
  358  annual disclosure required pursuant to s. 628.8015 shall, in
  359  addition to other penalties prescribed under the Florida
  360  Insurance Code, be subject to pay a penalty of $100 for each
  361  day’s delay, not to exceed a total of $10,000.
  362         (4) If the office determines that any person violated s.
  363  628.461, or s. 628.801, or s. 628.8015, the violation may serve
  364  as an independent basis for disapproving dividends or
  365  distributions and for placing the insurer under an order of
  366  supervision in accordance with part VI of chapter 624.
  367         Section 3. Section 628.8015, Florida Statutes, and the
  368  amendments made by this act to s. 628.803, Florida Statutes, are
  369  repealed on October 2, 2021, unless, before that date, the
  370  Legislature saves from repeal through reenactment the amendments
  371  to s. 624.4212, Florida Statutes, made by SB 1416 or similar
  372  legislation.
  373         Section 4. This act shall take effect October 1, 2016, if
  374  SB 1416 or similar legislation is adopted in the same
  375  legislative session or an extension thereof and becomes a law.