Senate Bill sb2192c1
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Florida Senate - 2002 CS for SB 2192
By the Committee on Banking and Insurance; and Senator
Sanderson
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1 A bill to be entitled
2 An act relating to solvency of insurers and
3 health maintenance organizations; amending s.
4 624.404, F.S.; revising a definition; amending
5 s. 624.80, F.S.; revising a definition;
6 amending s. 624.81, F.S.; specifying authority
7 of the Department of Insurance relating to
8 certain notice requirements; authorizing the
9 department to adopt certain rules; amending s.
10 624.84, F.S.; specifying that administrative
11 review of certain orders does not operate as an
12 automatic stay of such orders; amending s.
13 625.041, F.S.; revising the liabilities that a
14 workers' compensation insurer must include on
15 its financial statements; amending s. 627.481,
16 F.S.; revising the requirements for minimum
17 assets, reserves, and investments for entities
18 authorized to enter into donor annuity
19 agreements; amending s. 641.26, F.S.; revising
20 certain annual report requirements; amending s.
21 641.35, F.S.; specifying inclusion of certain
22 losses and claims under liabilities of a health
23 maintenance organization under certain
24 circumstances; providing an exception;
25 providing for the investment of funds of a
26 health maintenance organization in excess of
27 certain reserves and surplus under certain
28 circumstances; providing a limitation; amending
29 s. 641.365, F.S.; revising limitations on
30 certain dividend payments or distributions to
31 stockholders by a health maintenance
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1 organization; specifying criteria for making
2 payments, declaring dividends, or making
3 distributions; specifying criteria for
4 department approval of certain dividends or
5 distributions; amending s. 641.19, F.S.;
6 defining the term "health care risk contract";
7 providing an effective date.
8
9 Be It Enacted by the Legislature of the State of Florida:
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11 Section 1. Paragraph (b) of subsection (4) of section
12 624.404, Florida Statutes, is amended to read:
13 624.404 General eligibility of insurers for
14 certificate of authority.--To qualify for and hold authority
15 to transact insurance in this state, an insurer must be
16 otherwise in compliance with this code and with its charter
17 powers and must be an incorporated stock insurer, an
18 incorporated mutual insurer, or a reciprocal insurer, of the
19 same general type as may be formed as a domestic insurer under
20 this code; except that:
21 (4)
22 (b) A "fronting company" is an authorized insurer
23 which by reinsurance or otherwise generally transfers more
24 than 50 percent to one unauthorized insurer which does not
25 meet the requirements of s. 624.610(3)(a), (b), or (c) is not
26 an approved reinsurer, or more than 75 percent to two or more
27 unauthorized insurers which do not meet the requirements of s.
28 624.610(3)(a), (b), or (c) are not approved reinsurers, of the
29 entire risk of loss on all of the insurance written by it in
30 this state, or on one or more lines of insurance, on all of
31 the business produced through one or more agents or agencies,
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1 or on all of the business from a designated geographical
2 territory, without obtaining the prior approval of the
3 department.
4 Section 2. Subsection (2) of section 624.80, Florida
5 Statutes, is amended to read:
6 624.80 Definitions.--As used in this part:
7 (2) "Unsound condition" means that the department has
8 determined that one or more any of the following conditions
9 exist with respect to an insurer:
10 (a) The insurer's required surplus, capital, or
11 capital stock is impaired to an extent prohibited by law;
12 (b) The insurer continues to write new business when
13 it has not maintained the required surplus or capital; or
14 (c) The insurer attempts to dissolve or liquidate
15 without first having made provisions, satisfactory to the
16 department, for liabilities arising from insurance policies
17 issued by the insurer; or
18 (d) The insurer meets one or more of the grounds in s.
19 631.051 for the appointment of the department as receiver.
20 Section 3. Subsections (1) and (6) of section 624.81,
21 Florida Statutes, are amended, and subsection (10) is added to
22 that section, to read:
23 624.81 Notice to comply with written requirements of
24 department; noncompliance.--
25 (1) If the department determines that the conditions
26 set forth in subsection (2) exist, the department shall issue
27 an order placing notify the insurer in administrative
28 supervision writing of its determination, setting forth the
29 reasons giving rise to the determination, and specifying that
30 the department is applying and effectuating the provisions of
31 this part.
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1 (6) If the department and the insurer are unable to
2 agree on the provisions of the plan, the department may
3 require the insurer to take such corrective action as may be
4 reasonably necessary to remove the causes and conditions
5 giving rise to the need for administrative supervision proceed
6 under applicable provisions of this code other than the
7 provisions of this part.
8 (10) The department may adopt rules to define
9 standards of hazardous financial condition and corrective
10 action similar to that indicated in the National Association
11 of Insurance Commissioners' 1997 "Model Regulation to Define
12 Standards and Commissioner's Authority for Companies Deemed to
13 Be in Hazardous Financial Condition," which are necessary to
14 implement the provisions of this part.
15 Section 4. Section 624.84, Florida Statutes, is
16 amended to read:
17 624.84 Review and stay of action.--Review under s.
18 120.57 of an order placing an insurer in administrative
19 supervision does not operate as an automatic stay of the
20 order. During the period of supervision, the insurer may
21 contest an action taken or proposed to be taken by the
22 supervisor, specifying the manner wherein the action
23 complained of would not result in improving the condition of
24 the insurer. Such a, and the request shall not stay the action
25 specified pending reconsideration of the action by the
26 department. If upon reconsideration the action of the
27 department is upheld, the stay shall be lifted. Denial of the
28 insurer's request upon reconsideration entitles the insurer to
29 request a proceeding under ss. 120.569 and 120.57. Such a
30 proceeding shall not operate as a stay of the action.
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1 Section 5. Effective retroactively to January 1, 2002,
2 subsection (5) is added to section 625.041, Florida Statutes,
3 to read:
4 625.041 Liabilities, in general.--In any determination
5 of the financial condition of an insurer, liabilities to be
6 charged against its assets shall include:
7 (5) A workers' compensation insurer shall include as
8 liabilities on their financial statements only Special
9 Disability Trust Fund annual assessments that the insurer has
10 actually received and such assessments that the insurer has
11 been notified in writing are or will be due and payable.
12 Section 6. Subsection (2) of section 627.481, Florida
13 Statutes, is amended to read:
14 627.481 Requirements for certain annuity agreements.--
15 (2)(a) Every such domestic corporation or such
16 domestic or foreign trust shall have and maintain admitted
17 assets at least equal to the sum of the reserves on its
18 outstanding annuity agreements, calculated in accordance with
19 the United States Internal Revenue Code as set forth in s.
20 220.03(1)(n), and a surplus of 10 25 percent of such reserves,
21 calculated using:.
22 1.a. The present value of future guaranteed benefits
23 for individual annuities that have either commenced paying
24 benefits or have fixed a future date of the first benefit
25 payment.
26 b. The commissioner's annuity reserve method, as set
27 forth in s. 625.121(7)(c), for individual deferred annuities
28 that have not fixed a date for the first benefit payment.
29 2. The mortality tables used to value individual
30 annuities, as defined in s. 625.121(5).
31 a. For annuities issued prior to July 1, 1998:
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1 (I) The mortality tables described in s.
2 625.121(5)(h), for individual annuities;
3 (II) At the option of the corporation or trust, the
4 1983 Individual Annuity Mortality Table; or
5 (III) At the option of the corporation or trust, the
6 2000 Individual Annuity Mortality Table for annuities issued
7 between January 1, 1998, and June 30, 1998, inclusive.
8 b. For annuities issued on or after July 1, 1998:
9 (I) The mortality tables set forth in s.
10 625.121(5)(i)3.;
11 (II) Any other mortality tables required to be used by
12 insurers in accordance with s. 625.121; or
13 (III) At the option of the corporation or trust, any
14 other mortality tables authorized to be used by insurers in
15 accordance with s. 625.121.
16 3. An interest rate not greater than the maximum
17 interest rate permitted for the valuation of individual
18 annuities issued during the same calendar year as the
19 charitable gift annuity for individual annuities as set forth
20 in s. 625.121(6)(b)-(f).
21 a. The maximum statutory valuation interest rates for
22 single-premium immediate annuities for 1992 may be used for
23 annuities issued in 1992 or any prior year. The maximum
24 statutory valuation interest rates for single-premium
25 immediate annuities issued in 1992 through 2001 are as
26 follows:
27
28 Year of Issue Single Premium Immediate
29 Annuity Interest Rate
30 1992 7.75 percent
31 1993 7.00 percent
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1 1994 6.50 percent
2 1995 7.25 percent
3 1996 6.75 percent
4 1997 6.75 percent
5 1998 6.25 percent
6 1999 6.25 percent
7 2000 7.00 percent
8 2001 6.75 percent
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10 b. For 2002 and subsequent years, until an interest
11 rate for a specified year can be determined in accordance with
12 s. 625.121(6), the prior year's rate shall be used unless the
13 department requires use of a lower rate.
14 (b) In determining the reserves of any such
15 corporation or trust, a deduction shall be made for all or any
16 portion of an annuity risk which is reinsured by a life
17 insurance company authorized to do business in this state.
18 (c)1. The assets of such corporation or trust in an
19 amount at least equal to the sum of such reserves and surplus
20 shall be invested only in mutual funds or investments
21 securities permitted under part II of chapter 625 for the
22 investment of the reserves of authorized life insurance
23 companies.
24 2. For purposes of this section, the provisions of s.
25 625.305(2)(a) shall not apply. In lieu thereof, the fair
26 market value of investments made by such corporation or trust
27 in stock authorized by s. 625.324 may not exceed 50 percent of
28 such corporation's or trust's required reserves and surplus.
29 The fair market value in stock of any one corporation or
30 mutual fund may not exceed 10 percent of such corporation's or
31 trust's required reserves and surplus. All other provisions of
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1 s. 625.305 shall apply. ; and Such assets shall be segregated
2 as separate and distinct funds, independent of all other funds
3 of such corporation or trust, and shall not be applied for the
4 payment of the debts and obligations of the corporation or
5 trust or for any purpose other than the annuity benefits
6 specified in this section.
7 Section 7. Paragraph (f) of subsection (1) and
8 subsections (3) and (8) of section 641.26, Florida Statutes,
9 are amended to read:
10 641.26 Annual report.--
11 (1) Every health maintenance organization shall,
12 annually within 3 months after the end of its fiscal year, or
13 within an extension of time therefor as the department, for
14 good cause, may grant, in a form prescribed by the department,
15 file a report with the department, verified by the oath of two
16 officers of the organization or, if not a corporation, of two
17 persons who are principal managing directors of the affairs of
18 the organization, properly notarized, showing its condition on
19 the last day of the immediately preceding reporting period.
20 Such report shall include:
21 (f) An actuarial certification that:
22 1. The health maintenance organization is actuarially
23 sound, which certification shall consider the rates, benefits,
24 and expenses of, and any other funds available for the payment
25 of obligations of, the organization.
26 2. The rates being charged or to be charged are
27 actuarially adequate to the end of the period for which rates
28 have been guaranteed.
29 3. Incurred but not reported claims and claims
30 reported but not fully paid have been adequately provided for.
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1 4. The health maintenance organization has adequately
2 provided for all obligations required by s. 641.35(3)(a).
3 (3) Every health maintenance organization shall file
4 quarterly, for the first three calendar quarters of each year
5 within 45 days after each of its quarterly reporting periods,
6 an unaudited financial statement of the organization as
7 described in paragraphs (1)(a) and (b). The statement for the
8 quarter ending March 31 shall be filed on or before May 15,
9 the statement for the quarter ending June 30 shall be filed on
10 or before August 15, and the statement for the quarter ending
11 September 30 shall be filed on or before November 15. The
12 quarterly report shall be verified by the oath of two officers
13 of the organization, properly notarized.
14 (8) Each health maintenance organization shall file
15 one copy of its annual statement convention blank in
16 electronic form, along with such additional filings as
17 prescribed by the department for the preceding calendar year
18 or quarter, with the National Association of Insurance
19 Commissioners. Each health maintenance organization shall pay
20 fees assessed by the National Association of Insurance
21 Commissioners to the department a reasonable fee to cover
22 costs associated with the filing and analysis of the documents
23 by the National Association of Insurance Commissioners.
24 Section 8. Paragraph (a) of subsection (3) and
25 subsection (15) of section 641.35, Florida Statutes, are
26 amended to read:
27 641.35 Assets, liabilities, and investments.--
28 (3) LIABILITIES.--In any determination of the
29 financial condition of a health maintenance organization,
30 liabilities to be charged against its assets shall include:
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1 (a) The amount, estimated consistently with the
2 provisions of this part, necessary to pay all of its unpaid
3 losses and claims incurred for or on behalf of a subscriber,
4 on or prior to the end of the reporting period, whether
5 reported or unreported, including contract and premium
6 deficiency reserves. If a health maintenance organization,
7 through a health care risk contract, transfers to any entity
8 the obligation to pay any provider for any claim arising from
9 services provided to or for the benefit of any subscriber, the
10 liabilities of the health maintenance organization under this
11 section shall include the amount of those losses and claims to
12 the extent that the provider has not received payment. No
13 liability need be established if the entity has provided to
14 the health maintenance organization a financial instrument
15 acceptable to the department securing the obligations under
16 the contract or if the health maintenance organization has in
17 place an escrow or withhold agreement approved by the
18 department which assures full payment of those claims. As used
19 in this paragraph, the term "entity" does not include this
20 state, the United States, or an agency thereof or an insurer
21 or health maintenance organization authorized in this state.
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23 The department, upon determining that a health maintenance
24 organization has failed to report liabilities that should have
25 been reported, shall require a corrected report which reflects
26 the proper liabilities to be submitted by the organization to
27 the department within 10 working days of receipt of written
28 notification.
29 (15) SPECIAL CONSENT INVESTMENT OF EXCESS FUNDS.--
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1 (a) After satisfying the requirements of this part,
2 any funds of a health maintenance organization in excess of
3 its statutorily required reserves and surplus may be invested:
4 1. Without limitation in any investments otherwise
5 authorized by this part; or
6 2. In such other investments not specifically
7 authorized by this part provided such investments do not
8 exceed the lesser 5 percent of the health maintenance
9 organization's admitted assets or 25 percent of the amount by
10 which a health maintenance organization's surplus exceeds its
11 statutorily required minimum surplus. A health maintenance
12 organization may exceed the limitations of this subparagraph
13 only with the prior written approval of the department.
14 (b) Nothing in this section authorizes a health
15 maintenance organization to:
16 1. Invest any funds in excess of the amount by which
17 its actual surplus exceeds its statutorily required minimum
18 surplus; or
19 2. Make any investment prohibited by this code Any
20 investment of the health maintenance organization's funds not
21 enumerated in this part requires the prior approval of the
22 department.
23 Section 9. Subsections (1) and (2) of section 641.365,
24 Florida Statutes, are amended to read:
25 641.365 Dividends.--
26 (1)(a) A health maintenance organization shall not pay
27 any dividend or distribute cash or other property to
28 stockholders except out of that part of its available and
29 accumulated surplus funds which is derived from realized net
30 operating profits on its business and net realized capital
31 gains. Dividend payments or distributions to stockholders
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1 shall not exceed 10 percent of such surplus in any one year
2 unless otherwise approved by the department. In addition to
3 such limited payments, a health maintenance organization may
4 make dividend payments or distributions out of the health
5 maintenance organization's entire net operating profits and
6 realized net capital gains derived during the immediately
7 preceding calendar or fiscal year, as applicable.
8 (b) Unless prior written approval is obtained from the
9 department, a health maintenance organization may not pay or
10 declare any dividend or distribute cash or other property to
11 or on behalf of any stockholder if, immediately before or
12 after such distribution, the health maintenance organization's
13 available and accumulated surplus funds, which are derived
14 from realized net operating profits on its business and net
15 realized gains, are or would be less than zero.
16 (c) A health maintenance organization may make
17 dividend payments or distributions to stockholders without the
18 prior written approval of the department when:
19 1. The dividend is equal to or less than the greater
20 of:
21 a. Ten percent of the health maintenance
22 organization's accumulated surplus funds which are derived
23 from realized net operating profits on its business and net
24 realized capital gains as of the immediate preceding calendar
25 year; or
26 b. The health maintenance organization's entire net
27 operating profit and realized net capital gains derived during
28 the immediately preceding calendar year.
29 2. The health maintenance organization will have
30 surplus equal to or exceeding 115 percent of the minimum
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1 required statutory surplus after the dividend or distribution
2 is made.
3 3. The health maintenance organization has filed a
4 notice with the department at least 30 days prior to the
5 dividend payment or distribution, or such shorter period of
6 time as approved by the department on a case-by-case basis.
7 4. The notice includes a certification by an officer
8 of the health maintenance organization attesting that after
9 payment of the dividend or distribution the health maintenance
10 organization will have at least 115 percent of required
11 statutory surplus.
12 5. The health maintenance organization has negative
13 retained earnings, statutory surplus in excess of $50 million,
14 and statutory surplus greater than or equal to 150 percent of
15 its required statutory surplus before and after the dividend
16 distribution is made based upon the health maintenance
17 organization's most recently filed annual financial statement.
18 (2) The department shall not approve a dividend or
19 distribution in excess of the maximum amount allowed in
20 subsection (1) unless it determines that the distribution or
21 dividend would not jeopardize the financial condition of the
22 health maintenance organization, considering:
23 (a) The liquidity, quality, and diversification of the
24 health maintenance organization's assets and the effect on its
25 ability to meet its obligations.
26 (b) Any reduction of investment portfolio and
27 investment income.
28 (c) History of capital contributions.
29 (d) Prior dividend distributions of the health
30 maintenance organization.
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1 (e) Whether the dividend is only a pass-through
2 dividend from a subsidiary of the health maintenance
3 organization.
4 (21) "Health care risk contract" means a contract
5 under which an individual or entity receives consideration or
6 other compensation in an amount greater than 1 percent of the
7 health maintenance organization's annual gross written premium
8 in exchange for providing to the health maintenance
9 organization a provider network or other services, which may
10 include administrative services.
11 Section 10. Subsection (21) is added to section
12 641.19, Florida Statutes, to read:
13 641.19 Definitions.--As used in this part, the term:
14 (21) "Health care risk contract" means a contract
15 under which an individual or entity receives consideration or
16 other compensation in an amount greater than 1 percent of the
17 health maintenance organization's annual gross written premium
18 in exchange for providing to the health maintenance
19 organization a provider network or other services, which may
20 include administrative services. The 1-percent threshold shall
21 be calculated on a contract-by-contract basis for each such
22 individual or entity and not in the aggregate for all health
23 care risk contracts.
24 Section 11. This act shall take effect October 1,
25 2002.
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1 STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
COMMITTEE SUBSTITUTE FOR
2 Senate Bill 2192
3
4 Allows HMOs to invest funds in excess of statutory reserves
and surplus up to specified limits.
5
Provides an insurer's right for review before the Division of
6 Administrative Hearings (DOAH) under s. 120.57, F.S., of a
Department of Insurance order placing the insurer under
7 administrative supervision does not operate as an automatic
stay of the order, and that during the period of supervision,
8 an insurer may contest an action by the Department to DOAH,
but such an appeal would not operate as an automatic stay.
9
Deletes the provision which prohibited insurers from appealing
10 actions taken by the Department, during the administration
supervision of the insurer, to the Division of Administrative
11 Hearings.
12 Substitutes the term "health care risk contract" for the terms
"capitation or other contractual arrangement" and defines this
13 term.
14 Exempts HMOs from recording liabilities associated with
certain transferred risk when such HMOs have in place an
15 acceptable financial instruments or agreement approved by the
Department which assures full payment of those claims.
16
Permits HMOs with no retained earnings to pay or declare
17 dividends if they obtain prior written approval from the
Department, and requires the Department to consider certain
18 factors when considering whether to approve a dividend in
excess of a certain amount.
19
Revises financial requirements for charitable organizations
20 that are authorized by the Department to issue donor annuity
agreements.
21
Specifies the method for how insurers report liabilities for
22 Special Disability Trust Fund assessments.
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