House Bill hb0307

CODING: Words stricken are deletions; words underlined are additions.




    Florida House of Representatives - 2001                 HB 307

        By Representative Clarke






  1                      A bill to be entitled

  2         An act relating to statutory accounting

  3         principles; creating s. 625.011, F.S.; defining

  4         the terms "statutory accounting principles" and

  5         "surplus notes"; amending s. 625.012, F.S.;

  6         providing for what constitutes an asset of an

  7         insurer; amending s. 625.031, F.S.; providing

  8         for assets not allowed in determining financial

  9         condition of an insurer; amending s. 625.041,

10         F.S.; revising what constitutes a liability;

11         amending s. 625.141, F.S.; providing for the

12         valuation of bonds; amending s. 625.161, F.S.;

13         revising requirements for new appraisals in

14         valuation of real property; amending s. 641.19,

15         F.S.; redefining the terms "reporting period,"

16         "statutory accounting principles," "surplus,"

17         and "surplus notes" for purposes of the Health

18         Maintenance Organization Act; amending s.

19         641.35, F.S.; providing for what constitutes an

20         asset or liability in determining the financial

21         condition of a health maintenance organization;

22         providing a retroactive effective date.

23

24  Be It Enacted by the Legislature of the State of Florida:

25

26         Section 1.  Section 625.011, Florida Statutes, is

27  created to read:

28         625.011  Definitions.--As used in this chapter, the

29  term:

30         (1)  "Statutory accounting principles" means accounting

31  principles adopted by the National Association of Insurance

                                  1

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  Commissioners Accounting Practices and Procedures Manual

  2  effective January 1, 2001.

  3         (2)  "Surplus notes" means financial instruments that

  4  are subject to strict control by the Department of Insurance

  5  of the reporting entity's state of domicile and that have been

  6  approved by the department as to form and content. These

  7  instruments include surplus notes, surplus debentures, and

  8  contribution certificates. The National Association of

  9  Insurance Commissioners Statement of Statutory Accounting

10  Principles No. 41, adopted effective January 1, 2001, provides

11  the specific characteristics of surplus notes and provides

12  accounting guidance for surplus notes.

13         Section 2.  Subsections (1) and (11) of section

14  625.012, Florida Statutes, are amended, present subsection

15  (12) of that section is redesignated as subsection (17), and

16  new subsections (12), (13), (14), (15), and (16) are added to

17  that section to read:

18         625.012  "Assets" defined.--In any determination of the

19  financial condition of an insurer, there shall be allowed as

20  "assets" only such assets as are owned by the insurer and

21  which consist of:

22         (1)  Cash or cash equivalents, in the possession of the

23  insurer, or in transit under its control, and including the

24  true balance of any deposit in a solvent bank, savings and

25  loan association, or trust company. Cash equivalents are

26  short-term, highly liquid investments, with original

27  maturities of 3 months or less, which are both readily

28  convertible to known amounts of cash and so near their

29  maturity that they present insignificant risk of changes in

30  value because of changes in interest rates.

31

                                  2

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         (11)  Electronic and mechanical machines, including

  2  computer-operating software equipment and operating software

  3  constituting a data processing and accounting system, if the

  4  cost of which such system is at least $25,000, which cost

  5  shall be amortized in full over a period not to exceed 3 7

  6  calendar years. The aggregate amount admitted under this

  7  subsection shall be limited to 3 percent of the insurer's

  8  capital and surplus, adjusted to exclude any electronic data

  9  processing equipment and operating software, net deferred tax

10  assets, and net positive goodwill, as reported on the

11  insurer's most recently filed annual statement.

12         (12)  Goodwill arising from acquisitions and mergers

13  occurring after January 1, 2001. The term "goodwill" means the

14  difference between the cost of acquiring the entity and the

15  acquiring or surviving entity's share of the book value of the

16  acquired entity, in accordance with the National Association

17  of Insurance Commissioners Statement of Statutory Accounting

18  Principles No. 68, adopted effective January 1, 2001.

19  Admissible goodwill is limited to 10 percent of the reporting

20  entity's capital and surplus reported on its most recently

21  filed annual statement, adjusted to exclude any net positive

22  goodwill, electronic data processing equipment and operating

23  software, and net deferred tax assets.

24         (13)  Loans or advances by an insurer to its parent or

25  principal owner if approved by the department and if the loan

26  or advance is determined to be collectible based on the parent

27  or principal owner's independent payment ability. Loans or

28  advances by an insurer to all other related parties if they

29  constitute arm's-length transactions or economic transactions

30  under the National Association of Insurance Commissioners

31

                                  3

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  Statement of Statutory Accounting Principles No. 25, adopted

  2  effective January 1, 2001.

  3         (14)  Deferred tax assets and liabilities resulting

  4  from the expected future tax consequences of temporary

  5  differences generated by statutory accounting as defined in

  6  paragraph 11 of the Financial Accounting Standards Board's

  7  Statement of Financial Accounting Standards No. 109,

  8  accounting for income taxes or as a difference between the tax

  9  basis of an asset or a liability and its reported amount in

10  the statutory statement of financial position which will

11  result in taxable or deductible amounts in some future year or

12  years when the reported amounts of assets are recovered and

13  the reported amounts of liabilities are settled. Deferred tax

14  assets and liabilities are to be calculated and recorded in

15  accordance with the provisions of the National Association of

16  Insurance Commissioners Statement of Statutory Accounting

17  Principles No. 10, adopted effective January 1, 2001. Deferred

18  tax assets are admitted assets in an amount equal to the sum

19  of:

20         (a)  Federal income taxes paid in prior years that can

21  be recovered through loss carrybacks for existing temporary

22  differences that reverse by the end of the subsequent calendar

23  year, and

24         (b)  The lesser of:

25         1.  The amount of gross deferred tax assets, after

26  application of paragraph (a), expected to be realized within 1

27  year of the balance sheet date, or

28         2.  Ten percent of statutory surplus reported on the

29  reporting entity's most recently filed annual report, adjusted

30  to exclude goodwill, electronic data processing equipment and

31  operating software, and

                                  4

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         (c)  The amount of gross deferred tax assets, after

  2  application of paragraphs (a) and (b), which can be offset

  3  against gross deferred tax liabilities.

  4         (15)  Current income tax recoverables, as defined in

  5  the National Association of Insurance Commissioners Statement

  6  of Statutory Accounting Principles No. 10, adopted effective

  7  January 1, 2001, are admitted assets.

  8         (16)  Capitalized interest that is the interest cost

  9  incurred during the period of time necessary to complete the

10  activities required to bring an asset to the condition and

11  location necessary for its intended use, in accordance with

12  the National Association of Insurance Commissioners Statement

13  of Statutory Accounting Principles No. 44, adopted effective

14  January 1, 2001.

15         (17)(12)  Other assets, not inconsistent with the

16  provisions of this section, deemed by the department to be

17  available for the payment of losses and claims, at values to

18  be determined by it.

19         Section 3.  Section 625.031, Florida Statutes, is

20  amended to read:

21         625.031  Assets not allowed.--In addition to assets

22  impliedly excluded by the provisions of s. 625.012, the

23  following expressly shall not be allowed as assets in any

24  determination of the financial condition of an insurer:

25         (1)  Good will, Trade names, patents, agreements not to

26  compete, and other like intangible assets.

27         (2)  Advances (other than policy loans) to officers

28  and, directors, and controlling stockholders, whether secured

29  or not, and advances to employees, agents, and other persons

30  on personal security only.

31

                                  5

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         (3)  Stock of such insurer, owned by it, or any

  2  material equity therein or loans secured thereby, or any

  3  material proportionate interest in such stock acquired or held

  4  through the ownership by such insurer of an interest in

  5  another firm, corporation, or business unit.

  6         (4)  Furniture, fixtures, furnishings, safes, vehicles,

  7  libraries, stationery, literature, and supplies, other than

  8  data processing and accounting systems authorized under s.

  9  625.012(11), except in the case of title insurers such

10  materials and plants as the insurer is expressly authorized to

11  invest in under s. 625.330 and except, in the case of any

12  insurer, such personal property as the insurer is permitted to

13  hold pursuant to part II of this chapter, or which is acquired

14  through foreclosure of chattel mortgages acquired pursuant to

15  s. 625.329, or which is reasonably necessary for the

16  maintenance and operation of real estate lawfully acquired and

17  held by the insurer other than real estate used by it for home

18  office, branch office, and similar purposes.

19         (5)  The amount, if any, by which the aggregate book

20  value of investments as carried in the ledger assets of the

21  insurer exceeds the aggregate value thereof as determined

22  under this code.

23         (6)  Bonds, notes, or other evidences of indebtedness

24  which are secured by mortgages or deeds of trust which are in

25  default.

26         (7)  Prepaid and deferred expenses.

27         (8)  Federal income tax refunds when a refund is not

28  assured.

29         Section 4.  Paragraph (d) of subsection (2) of section

30  625.041, Florida Statutes, is amended to read:

31

                                  6

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         625.041  Liabilities, in general.--In any determination

  2  of the financial condition of an insurer, liabilities to be

  3  charged against its assets shall include:

  4         (2)  With reference to life and health insurance and

  5  annuity contracts:

  6         (d)  Any additional reserves that which may be required

  7  by the department consistent with practice formulated or

  8  approved by the National Association of Insurance

  9  Commissioners or its successor organization, on account of

10  such insurance, including contract and premium deficiency

11  reserves as described in the National Association of Insurance

12  Commissioners Statement of Statutory Accounting Principles No.

13  55, adopted effective January 1, 2001.

14         Section 5.  Subsection (2) of section 625.141, Florida

15  Statutes, is amended to read:

16         625.141  Valuation of bonds.--

17         (2)  The department shall have full discretion in

18  determining the method of calculating values according to the

19  rules set forth in this section, but no such method or

20  valuation shall be inconsistent with the method formulated or

21  approved by the National Association of Insurance

22  Commissioners or its successor organization and set forth in

23  the latest edition of its publication "Valuation of

24  Securities"; provided that such valuation methodology is

25  substantially similar to the methodology used by the National

26  Association of Insurance Commissioners in its 1988 edition of

27  such publication. Amortization of bond premium or discount

28  must be calculated using the scientific (constant yield)

29  interest method taking into consideration specified interest

30  and principal provisions over the life of the bond.

31

                                  7

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         Section 6.  Subsection (2) of section 625.161, Florida

  2  Statutes, is amended to read:

  3         625.161  Valuation of property.--

  4         (2)  Other real property held by an insurer shall not

  5  be valued at an amount in excess of fair value as determined

  6  by recent appraisal. If valuation is based on an appraisal

  7  more than 5 3 years old, the department may, at its

  8  discretion, call for and require a new appraisal in order to

  9  determine fair value.

10         Section 7.  Subsections (16), (17), (19), and (20) of

11  section 641.19, Florida Statutes, are amended to read:

12         641.19  Definitions.--As used in this part, the term:

13         (16)  "Reporting period" means the annual calendar year

14  accounting period or any part thereof or the fiscal year of

15  the health maintenance organization.

16         (17)  "Statutory accounting principles" means

17  accounting principles set forth in the National Association of

18  Insurance Commissioners Accounting Practices and Procedures

19  Manual, adopted effective January 1, 2001 generally accepted

20  accounting principles, except as modified by this part.

21         (19)  "Surplus" means total statutory assets in excess

22  of total liabilities, except that assets pledged to secure

23  debts not reflected on the books of the health maintenance

24  organization shall not be included in surplus.  Surplus

25  includes capital stock, capital in excess of par, other

26  contributed capital, retained earnings, and surplus notes.

27         (20)  "Surplus notes" means financial instruments that

28  are subject to strict control by the Department of Insurance

29  of the reporting entity's state of domicile and have been

30  approved by the department as to form and content. These

31  instruments include surplus notes, surplus debentures, and

                                  8

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  contribution certificates. The National Association of

  2  Insurance Commissioners Statement of Statutory Accounting

  3  Principles No. 41, adopted effective January 1, 2001, provides

  4  the specific characteristics of surplus notes and provides

  5  accounting guidance for surplus notes. debt which has been

  6  guaranteed by the United States Government or its agencies, or

  7  debt which has been subordinated to all claims of subscribers

  8  and general creditors of the organization.

  9         Section 8.  Subsections (1), (2), and (3) of section

10  641.35, Florida Statutes, are amended to read:

11         641.35  Assets, liabilities, and investments.--

12         (1)  ASSETS.--In any determination of the financial

13  condition of a health maintenance organization, there shall be

14  allowed as "assets" only those assets that are owned by the

15  health maintenance organization and which assets consist of:

16         (a)  Cash or cash equivalents in the possession of the

17  health maintenance organization, or in transit under its

18  control, including the true balance of any deposit in a

19  solvent bank, savings and loan association, or trust company

20  which is domiciled in the United States. Cash equivalents are

21  short-term, highly liquid investments, with original

22  maturities of 3 months or less, which are both readily

23  convertible to known amounts of cash and so near their

24  maturity that they present insignificant risk of changes in

25  value because of changes in interest rates.

26         (b)  Investments, securities, properties, and loans

27  acquired or held in accordance with this part, and in

28  connection therewith the following items:

29         1.  Interest due or accrued on any bond or evidence of

30  indebtedness which is not in default and which is not valued

31  on a basis including accrued interest.

                                  9

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         2.  Declared and unpaid dividends on stock and shares,

  2  unless the amount of the dividends has otherwise been allowed

  3  as an asset.

  4         3.  Interest due or accrued upon a collateral loan

  5  which is not in default in an amount not to exceed 1 year's

  6  interest thereon.

  7         4.  Interest due or accrued on deposits or certificates

  8  of deposit in solvent banks, savings and loan associations,

  9  and trust companies domiciled in the United States, and

10  interest due or accrued on other assets, if such interest is

11  in the judgment of the department a collectible asset.

12         5.  Interest due or accrued on current mortgage loans,

13  in an amount not exceeding in any event the amount, if any, of

14  the excess of the value of the property less delinquent taxes

15  thereon over the unpaid principal; but in no event shall

16  interest accrued for a period in excess of 90 days be allowed

17  as an asset.

18         6.  Rent due or accrued on real property if such rent

19  is not in arrears for more than 3 months.  However, in no

20  event shall rent accrued for a period in excess of 90 days be

21  allowed as an asset.

22         7.  The unaccrued portion of taxes paid prior to the

23  due date on real property.

24         (c)  Premiums in the course of collection, not more

25  than 3 months past due, less commissions payable thereon.  The

26  foregoing limitation shall not apply to premiums payable

27  directly or indirectly by any governmental body in the United

28  States or by any of their instrumentalities.

29         (d)  The full amount of reinsurance recoverable from a

30  solvent reinsurer, which reinsurance is authorized under s.

31  624.610.

                                  10

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         (e)  Furniture, fixtures, furnishings, vehicles,

  2  medical libraries, and equipment, if the original cost of each

  3  item is at least $200, which cost shall be amortized in full

  4  over a period not to exceed 5 calendar years, unless otherwise

  5  approved by the department.

  6         (e)(f)  Pharmaceutical and medical supply inventories.

  7         (g)  The liquidation value of prepaid expenses.

  8         (f)  Goodwill, created by acquisitions and mergers

  9  occurring after January 1, 2001. The term goodwill means the

10  difference between the cost of acquiring the entity and the

11  acquiring or surviving entity's share of the book value of the

12  acquired entity, in accordance with the National Association

13  of Insurance Commissioners Statement of Statutory Accounting

14  Principles No. 68, adopted effective January 1, 2001.

15  Admissible goodwill is limited to 10 percent of the reporting

16  entity's capital and surplus reported on its most recently

17  filed annual report, adjusted to exclude any net positive

18  goodwill, electronic data processing equipment and operating

19  software, and net deferred tax assets.

20         (g)  Loans or advances by a health maintenance

21  organization to its parent or principal owner if approved by

22  the department and the loan or advance is determined to be

23  collectible based on the parent or principal owner's

24  independent payment ability. Loans or advances to all other

25  related parties if they constitute arm's-length transactions

26  or economic transactions under the National Association of

27  Insurance Commissioners Statement of Statutory Accounting

28  Principles No. 25, adopted effective January 1, 2001.

29         (h)  Deferred tax assets and liabilities resulting from

30  the expected future tax consequences of temporary differences

31  generated by statutory accounting as defined in paragraph 11

                                  11

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  of the Financial Accounting Standards Board's Statement of

  2  Financial Accounting Standards No. 109, accounting for income

  3  taxes or as a difference between the tax basis of an asset or

  4  a liability and its reported amount in the statutory statement

  5  of financial position which will result in taxable or

  6  deductible amounts in some future year or years when the

  7  reported amounts of assets are recovered and the reported

  8  amounts of liabilities are settled. Deferred tax assets and

  9  liabilities are to be calculated and recorded in accordance

10  with the provisions of the National Association of Insurance

11  Commissioners Statement of Statutory Accounting Principles No.

12  10, adopted effective January 1, 2001. Deferred tax assets are

13  admitted assets in an amount equal to the sum of:

14         1.  Federal income taxes paid in prior years that can

15  be recovered through loss carrybacks for existing temporary

16  differences that reverse by the end of the subsequent calendar

17  year, and

18         2.  The lesser of:

19         a.  The amount of gross deferred tax assets, after

20  application of subparagraph 1., expected to be realized within

21  1 year of the balance sheet date, or

22         b.  Ten percent of statutory surplus reported on the

23  reporting entity's most recently filed annual report, adjusted

24  to exclude goodwill, electronic data processing equipment, and

25  operating software, and

26         3.  The amount of gross deferred tax assets, after

27  application of subparagraphs 1. and 2., which can be offset

28  against gross deferred tax liabilities.

29         (i)  Current income tax recoverables, as defined in the

30  National Association of Insurance Commissioners Statement of

31

                                  12

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  Statutory Accounting Principles No. 10, adopted effective

  2  January 1, 2001, are admitted assets.

  3         (j)  Capitalized interest that is the interest cost

  4  incurred during the period of time necessary to complete the

  5  activities required to bring an asset to the condition and

  6  location necessary for its intended use, in accordance with

  7  the National Association of Insurance Commissioners Statement

  8  of Statutory Accounting Principles No. 44, adopted effective

  9  January 1, 2001.

10         (k)(h)  Other assets, not inconsistent with the

11  provisions of this section, deemed by the department to be

12  available for the payment of losses and claims, at values to

13  be determined by it.

14

15  The department, upon determining that a health maintenance

16  organization's asset has not been evaluated according to

17  applicable law or that it does not qualify as an asset, shall

18  require the health maintenance organization to properly

19  reevaluate the asset or replace the asset with an asset

20  suitable to the department within 30 days of receipt of

21  written notification by the department of this determination,

22  if the removal of the asset from the organization's assets

23  would impair the organization's solvency.

24         (2)  ASSETS NOT ALLOWED.--In addition to assets

25  impliedly excluded by the provisions of subsection (1), the

26  following assets expressly shall not be allowed as assets in

27  any determination of the financial condition of a health

28  maintenance organization:

29         (a)  Goodwill, Subscriber lists, patents, trade names,

30  agreements not to compete, and other like intangible assets.

31

                                  13

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         (b)  Any note or account receivable from or advances to

  2  officers, directors, or controlling stockholders, whether

  3  secured or not, and advances to employees, agents, or other

  4  persons on personal security only, other than those

  5  transactions authorized under paragraph (1)(g).

  6         (c)  Stock of the health maintenance organization owned

  7  by it directly or owned by it through any entity in which the

  8  organization owns or controls, directly or indirectly, more

  9  than 25 percent of the ownership interest.

10         (d)  Leasehold improvements, nonmedical libraries,

11  stationery, literature, and nonmedical supply inventories,

12  except that leasehold improvements made prior to October 1,

13  1985, shall be allowed as an asset and shall be amortized over

14  the shortest of the following periods:

15         1.  The life of the lease.

16         2.  The useful life of the improvements.

17         3.  The 3-year period following October 1, 1985.

18         (e)  Furniture, fixtures, furnishings, vehicles,

19  medical libraries, and equipment, other than those items

20  authorized under paragraph (1)(e).

21         (f)  Notes or other evidences of indebtedness which are

22  secured by mortgages or deeds of trust which are in default

23  and beyond the express period specified in the instrument for

24  curing the default.

25         (g)  Bonds in default for more than 60 days.

26         (h)  Deferred costs other than the liquidation value of

27  Prepaid and deferred expenses.

28         (i)  Any note, account receivable, advance, or other

29  evidence of indebtedness, or investment in:

30         1.  The parent of the health maintenance organization;

31

                                  14

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1         2.  Any entity directly or indirectly controlled by the

  2  health maintenance organization parent; or

  3         3.  An affiliate of the parent or the health

  4  maintenance organization,

  5

  6  except as allowed in subsections (1), (11), and (12).  The

  7  department may, however, allow all or a portion of such asset,

  8  at values to be determined by the department, if deemed by the

  9  department to be available for the payment of losses and

10  claims.

11         (3)  LIABILITIES.--In any determination of the

12  financial condition of a health maintenance organization,

13  liabilities to be charged against its assets shall include:

14         (a)  The amount, estimated consistently with the

15  provisions of this part, necessary to pay all of its unpaid

16  losses and claims incurred for or on behalf of a subscriber,

17  on or prior to the end of the reporting period, whether

18  reported or unreported, including contract and premium

19  deficiency reserves as described in the National Association

20  of Insurance Commissioners Statement of Statutory Accounting

21  Principles No. 10, adopted effective January 1, 2001.

22         (b)  The amount equal to the unearned portions of the

23  gross premiums charged on health maintenance contracts in

24  force.

25         (c)  Taxes, expenses, and other obligations due or

26  accrued at the date of the statement.

27

28  The department, upon determining that a health maintenance

29  organization has failed to report liabilities that should have

30  been reported, shall require a corrected report which reflects

31  the proper liabilities to be submitted by the organization to

                                  15

CODING: Words stricken are deletions; words underlined are additions.






    Florida House of Representatives - 2001                 HB 307

    758-102-01






  1  the department within 10 working days of receipt of written

  2  notification.

  3         Section 9.  This act shall take effect upon becoming a

  4  law and shall apply retroactively to January 1, 2001.

  5

  6            *****************************************

  7                          SENATE SUMMARY

  8    Provides for the determination of the financial condition
      of certain insurers and health maintenance organizations
  9    in accordance with specified parts of the National
      Association of Insurance Commissioners Statement of
10    Statutory Accounting Principles, adopted on January 1,
      2001. Provides a retroactive effective date.
11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

                                  16

CODING: Words stricken are deletions; words underlined are additions.