The Florida Senate

215.5595  Insurance Capital Build-Up Incentive Program.--

(1)  Upon entering the 2006 hurricane season, the Legislature finds that:

(a)  The losses in Florida from eight hurricanes in 2004 and 2005 have seriously strained the resources of both the voluntary insurance market and the public sector mechanisms of Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

(b)  Private reinsurance is much less available and at a significantly greater cost to residential property insurers as compared to 1 year ago, particularly for amounts below the insurer's retention or retained losses that must be paid before reimbursement is provided by the Florida Hurricane Catastrophe Fund.

(c)  The Office of Insurance Regulation has reported that the insolvency of certain insurers may be imminent.

(d)  Hurricane forecast experts predict that the 2006 hurricane season will be an active hurricane season and that the Atlantic and Gulf Coast regions face an active hurricane cycle of 10 to 20 years or longer.

(e)  The number of cancellations or nonrenewals of residential property insurance policies is expected to increase and the number of new residential policies written in the voluntary market are likely to decrease, causing increased policy growth and exposure to the state insurer of last resort, Citizens Property Insurance Corporation, and threatening to increase the deficit of the corporation, currently estimated to be over $1.7 billion. This deficit must be funded by assessments against insurers and policyholders, unless otherwise funded by the state.

(f)  Policyholders are subject to increased premiums and assessments that are increasingly making such coverage unaffordable and that may force policyholders to sell their homes and even leave the state.

(g)  The increased risk to the public sector and private sector poses a serious threat to the economy of this state, particularly the building and financing of residential structures, and existing mortgages may be placed in default.

(h)  The losses from 2004 and 2005, combined with the expectation that the increase in hurricane activity will continue for the foreseeable future, have caused both insurers and reinsurers to limit the capital they are willing to commit to covering the hurricane risk in Florida; attracting new capital to the Florida market is a critical priority; and providing a low-cost source of capital would enable insurers to write additional residential property insurance coverage and act to mitigate premium increases.

(i)  Appropriating state funds to be used as surplus notes for residential property insurers, under conditions requiring the insurer to contribute additional private sector capital and to write a minimum level of premiums for residential hurricane coverage, is a valid and important public purpose.

(2)  The purpose of this section is to provide surplus notes to new or existing authorized residential property insurers under the Insurance Capital Build-Up Incentive Program administered by the State Board of Administration, under the following conditions:

(a)  The amount of the surplus note for any insurer or insurer group may not exceed $25 million or 20 percent of the total amount of funds available under the program, whichever is greater.

(b)  The insurer must contribute an amount of new capital to its surplus which is at least equal to the amount of the surplus note and must apply to the board by July 1, 2006. If an insurer applies after July 1, 2006, but before June 1, 2007, the amount of the surplus note is limited to one-half of the new capital that the insurer contributes to its surplus. For purposes of this section, new capital must be in the form of cash or cash equivalents as specified in s. 625.012(1).

(c)  The insurer's surplus, new capital, and the surplus note must total at least $50 million.

(d)  The insurer must commit to meeting a minimum writing ratio of net written premium to surplus of at least 2:1 for the term of the surplus note, which shall be determined by the Office of Insurance Regulation and certified quarterly to the board. For this purpose, the term "net written premium" means net written premium for residential property insurance in Florida, including the peril of wind, and "surplus" refers to the entire surplus of the insurer. If the required ratio is not maintained during the term of the surplus note, the board may increase the interest rate, accelerate the repayment of interest and principal, or shorten the term of the surplus note, subject to approval by the Commissioner of Insurance of payments by the insurer of principal and interest as provided in paragraph (f).

(e)  If the requirements of this section are met, the board may approve an application by an insurer for a surplus note, unless the board determines that the financial condition of the insurer and its business plan for writing residential property insurance in Florida places an unreasonably high level of financial risk to the state of nonpayment in full of the interest and principal. The board shall consult with the Office of Insurance Regulation and may contract with independent financial and insurance consultants in making this determination.

(f)  The surplus note must be repayable to the state with a term of 20 years. The surplus note shall accrue interest on the unpaid principal balance at a rate equivalent to the 10-year U.S. Treasury Bond rate, require the payment only of interest during the first 3 years, and include such other terms as approved by the board. Payment of principal or interest by the insurer on the surplus note must be approved by the Commissioner of Insurance, who shall approve such payment unless the commissioner determines that such payment will substantially impair the financial condition of the insurer. If such a determination is made, the commissioner shall approve such payment that will not substantially impair the financial condition of the insurer.

(g)  The total amount of funds available for the program is limited to the amount appropriated by the Legislature for this purpose. If the amount of surplus notes requested by insurers exceeds the amount of funds available, the board may prioritize insurers that are eligible and approved, regardless of the date of application, based on the financial strength of the insurer, the viability of its proposed business plan for writing additional residential property insurance in the state, and the effect on competition in the residential property insurance market.

(h)  The board may allocate portions of the funds available for the program and establish dates for insurers to apply for surplus notes from such allocation which are earlier than the dates established in paragraph (b).

(3)  As used in this section, the term:

(a)  "Board" means the State Board of Administration.

(b)  "Program" means the Insurance Capital Build-Up Incentive Program established by this section.

(4)  A surplus note provided to an insurer pursuant to this section is considered an asset of the insurer pursuant to s. 625.012

(5)  If an insurer that receives a surplus note pursuant to this section is rendered insolvent, the state is a class 3 creditor pursuant to s. 631.271 for the unpaid principal and interest on the surplus note.

(6)  The board shall adopt rules prescribing the procedures, administration, and criteria for approving the issuance of surplus notes pursuant to this section, which may be adopted pursuant to the procedures for emergency rules of chapter 120. Otherwise, actions and determinations by the board pursuant to this section are exempt from chapter 120.

(7)  The board shall invest and reinvest the funds appropriated for the program in accordance with s. 215.47 and consistent with board policy.

History.--s. 5, ch. 2006-12.