The Florida Senate

The losses in this state 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.

Citizens Property Insurance Corporation has over 1.2 million policies in force, has the largest market share of any insurer writing residential property insurance in the state, and faces the threat of a catastrophic loss that must be funded by assessments against insurers and policyholders, unless otherwise funded by the state. The program has a substantial positive effect on the depopulation efforts of Citizens Property Insurance Corporation since companies participating in the program have removed over 199,000 policies from the corporation. Companies participating in the program have issued a significant number of new policies, thereby keeping an estimated 480,000 new policies out of the corporation.

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

The increased risk to the public sector and private sector continues to pose 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.

Appropriating state funds to be exchanged for surplus notes issued by 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.

Extending the Insurance Capital Build-Up Incentive Program will provide an incentive for investors to commit additional capital to Florida’s residential insurance market.

The amount of state funds provided in exchange for a surplus note to any insurer, other than an insurer writing only manufactured housing policies, may not exceed $25 million or 20 percent of the total amount of funds appropriated for the program, whichever is greater. The amount of the surplus note for any insurer or insurer group writing residential property insurance covering only manufactured housing may not exceed $7 million.

On or after April 1, 2008, 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 September 1, 2008. If an insurer applies after September 1, 2008, but before June 1, 2009, the amount of the surplus note is limited to one-half of the new capital that the insurer contributes to its surplus, except that an insurer writing only manufactured housing policies is eligible to receive a surplus note of up to $7 million. For purposes of this section, new capital must be in the form of cash or cash equivalents as specified in s. 625.012(1).

The insurer’s surplus, new capital, and the surplus note must total at least $50 million, except for insurers writing residential property insurance covering only manufactured housing. The insurer’s surplus, new capital, and the surplus note must total at least $14 million for insurers writing only residential property insurance covering manufactured housing policies as provided in paragraph (a).

The insurer must commit to increase its writings of residential property insurance, including the peril of wind, and to meet a minimum writing ratio of net written premium to surplus of at least 1:1 for the first calendar year after receiving the state funds or renegotiation of the surplus note, 1.5:1 for the second calendar year, and 2:1 for the remaining term of the surplus note. Alternatively, the insurer must meet a minimum writing ratio of gross written premium to surplus of at least 3:1 for the first calendar year after receiving the state funds or renegotiation of the surplus note, 4.5:1 for the second calendar year, and 6:1 for the remaining term of the surplus note. The writing ratios shall be determined by the Office of Insurance Regulation and certified quarterly to the board. For this purpose, the term “premium” means premium for residential property insurance in this state, including the peril of wind, and “surplus” means the new capital and surplus note of the insurer. An insurer that makes an initial application after July 1, 2008, must also commit to writing at least 15 percent of its net or gross written premium for new policies, not including renewal premiums, for policies taken out of Citizens Property Insurance Corporation, during each of the first 3 years after receiving the state funds in exchange for the surplus note, which shall be determined by the Office of Insurance Regulation and certified annually to the board. The insurer must also commit to maintaining a level of surplus and reinsurance sufficient to cover in excess of its 1-in-100 year probable maximum loss, as determined by a hurricane loss model accepted by the Florida Commission on Hurricane Loss Projection Methodology, which shall be determined by the Office of Insurance Regulation and certified annually to the board. If the board determines that the insurer has failed to meet any of the requirements of this paragraph 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).

If the requirements of this section are met, the board may approve an application by an insurer for funds in exchange for issuance of 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.

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, with priority for funding given to insurers writing only manufactured housing policies, 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. Between insurers writing residential property insurance covering manufactured housing, priority shall be given to the insurer writing the highest percentage of its policies covering manufactured housing.

Notwithstanding paragraph (d), a newly formed manufactured housing insurer that is eligible for a surplus note under this section shall meet the premium to surplus ratio provisions of s. 624.4095.

As used in this section, “an insurer writing only manufactured housing policies” includes:

“Board” means the State Board of Administration.

“Program” means the Insurance Capital Build-Up Incentive Program established by this section.