Senate Bill sb2488c2

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    Florida Senate - 2004                    CS for CS for SB 2488

    By the Committees on Governmental Oversight and Productivity;
    Banking and Insurance; and Senator Alexander




    302-2558-04

  1                      A bill to be entitled

  2         An act relating to the Florida Hurricane

  3         Catastrophe Fund; amending s. 215.555, F.S.;

  4         redefining and defining terms; providing for

  5         the State Board of Administration to specify

  6         interest due on delinquent remittances;

  7         revising conditions of, amounts of, and

  8         procedures relating to reimbursement contracts;

  9         revising maximum rates of, procedures relating

10         to, and types of insurance subject to emergency

11         assessments; revising provisions relating to

12         reinsurance; deleting expired provisions;

13         requiring insurers writing a covered policy to

14         make a rate filing with the Office of Insurance

15         Regulation; providing effective dates.

16  

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

18  

19         Section 1.  Paragraphs (c), (d), (e), and (k) of

20  subsection (2) and subsections (3), (4), (7), and (16) of

21  section 215.555, Florida Statutes, are amended, and paragraph

22  (n) is added to subsection (2) of that section, to read:

23         215.555  Florida Hurricane Catastrophe Fund.--

24         (2)  DEFINITIONS.--As used in this section:

25         (c)  "Covered policy" means any insurance policy

26  covering residential property in this state, including, but

27  not limited to, any homeowner's, mobile home owner's, farm

28  owner's, condominium association, condominium unit owner's,

29  tenant's, or apartment building policy, or any other policy

30  covering a residential structure or its contents issued by any

31  authorized insurer, including the Citizens Property Insurance

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 1  Corporation and any joint underwriting association or similar

 2  entity created pursuant to law. The term "covered policy"

 3  includes any collateral protection insurance policy covering

 4  personal residences which protects both the borrower's and the

 5  lender's financial interests, in an amount at least equal to

 6  the coverage for the dwelling in place under the lapsed

 7  homeowner's policy, if such policy can be accurately reported

 8  as required in subsection (5). Additionally, covered policies

 9  include policies covering the peril of wind removed from the

10  Florida Residential Property and Casualty Joint Underwriting

11  Association or from the Citizens Property Insurance

12  Corporation, created pursuant to s. 627.351(6), or from the

13  Florida Windstorm Underwriting Association, created pursuant

14  to s. 627.351(2), by an authorized insurer under the terms and

15  conditions of an executed assumption agreement between the

16  authorized insurer and such association or Citizens Property

17  Insurance Corporation. Each assumption agreement between the

18  association and such authorized insurer or Citizens Property

19  Insurance Corporation must be approved by the Florida

20  Department of Insurance or the Office of Insurance Regulation

21  prior to the effective date of the assumption, and the

22  Department of Insurance or the Office of Insurance Regulation

23  must provide written notification to the board within 15

24  working days after such approval. "Covered policy" does not

25  include any policy that excludes wind coverage or hurricane

26  coverage or any reinsurance agreement and does not include any

27  policy otherwise meeting this definition which is issued by a

28  surplus lines insurer or a reinsurer. All commercial

29  residential excess policies and all deductible buy-back

30  policies that, based on sound actuarial principles, require

31  individual ratemaking shall be excluded by rule if the

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 1  actuarial soundness of the fund is not jeopardized. For this

 2  purpose, the term "excess policy" means a policy that provides

 3  insurance protection for large commercial property risks and

 4  that provides a layer of coverage above a primary layer

 5  insured by another insurer.

 6         (d)  "Losses" means direct incurred losses under

 7  covered policies, which shall include losses for additional

 8  living expenses not to exceed 40 20 percent of the insured

 9  value of a mobile homes or personal residential structure or

10  its structures and 40 percent of the insured value of contents

11  covered under a tenant's policy or a condominium unit owner's

12  policy and shall exclude loss adjustment expenses. "Losses"

13  does not include losses for fair rental value, loss of use,

14  associated with personal and commercial residential exposures

15  or business interruption losses associated with commercial

16  residential exposures.

17         (e)  "Retention" means the amount of losses below which

18  an insurer is not entitled to reimbursement from the fund. An

19  insurer's retention shall be calculated as follows:

20         1.  The board shall calculate and report to each

21  insurer the retention multiples for that year. For the

22  contract year beginning June 1, 1995, the retention multiple

23  shall be equal to $3 billion divided by the total estimated

24  reimbursement premium for the contract year; for subsequent

25  years, the retention multiple shall be equal to $3 billion,

26  adjusted based upon the reported exposure from the prior

27  contract year to reflect the percentage growth in exposure to

28  the fund for covered policies since 1998, divided by the total

29  estimated reimbursement premium for the contract year. Total

30  reimbursement premium for purposes of the calculation under

31  

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 1  this subparagraph shall be estimated using the assumption that

 2  all insurers have selected the 90-percent coverage level.

 3         2.  The retention multiple as determined under

 4  subparagraph 1. shall be adjusted to reflect the coverage

 5  level elected by the insurer.  For insurers electing the

 6  90-percent coverage level, the adjusted retention multiple is

 7  100 percent of the amount determined under subparagraph 1.

 8  For insurers electing the 75-percent coverage level, the

 9  retention multiple is 120 percent of the amount determined

10  under subparagraph 1.  For insurers electing the 45-percent

11  coverage level, the adjusted retention multiple is 200 percent

12  of the amount determined under subparagraph 1.

13         3.  An insurer shall determine its provisional

14  retention by multiplying its provisional reimbursement premium

15  by the applicable adjusted retention multiple and shall

16  determine its actual retention by multiplying its actual

17  reimbursement premium by the applicable adjusted retention

18  multiple.

19         (k)  "Pledged revenues" means all or any portion of

20  revenues to be derived from reimbursement premiums under

21  subsection (5) or from emergency assessments under paragraph

22  (6)(b) subparagraph (6)(a)3., as determined by the board.

23         (n)  "Corporation" means the Florida Hurricane

24  Catastrophe Fund Finance Corporation created in paragraph

25  (6)(d).

26         (3)  FLORIDA HURRICANE CATASTROPHE FUND CREATED.--There

27  is created the Florida Hurricane Catastrophe Fund to be

28  administered by the State Board of Administration. Moneys in

29  the fund may not be expended, loaned, or appropriated except

30  to pay obligations of the fund arising out of reimbursement

31  contracts entered into under subsection (4), payment of debt

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 1  service on revenue bonds issued under subsection (6), costs of

 2  the mitigation program under subsection (7), costs of

 3  procuring reinsurance, and costs of administration of the

 4  fund. The board shall invest the moneys in the fund pursuant

 5  to ss. 215.44-215.52. Except as otherwise provided in this

 6  section, earnings from all investments shall be retained in

 7  the fund. The board may employ or contract with such staff and

 8  professionals as the board deems necessary for the

 9  administration of the fund. The board may adopt such rules as

10  are reasonable and necessary to implement this section and

11  shall specify interest due on any delinquent remittances,

12  which interest may not exceed the fund's rate of return plus 5

13  percent. Such rules must conform to the Legislature's specific

14  intent in establishing the fund as expressed in subsection

15  (1), must enhance the fund's potential ability to respond to

16  claims for covered events, must contain general provisions so

17  that the rules can be applied with reasonable flexibility so

18  as to accommodate insurers in situations of an unusual nature

19  or where undue hardship may result, except that such

20  flexibility may not in any way impair, override, supersede, or

21  constrain the public purpose of the fund, and must be

22  consistent with sound insurance practices. The board may, by

23  rule, provide for the exemption from subsections (4) and (5)

24  of insurers writing covered policies with less than $10

25  million $500,000 in aggregate exposure for covered policies,

26  which exposure results in a de minimis reimbursement premium,

27  if the exemption does not affect the actuarial soundness of

28  the fund.

29         (4)  REIMBURSEMENT CONTRACTS.--

30         (a)  The board shall enter into a contract with each

31  insurer writing covered policies in this state to provide to

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 1  the insurer the reimbursement described in paragraphs (b) and

 2  (d), in exchange for the reimbursement premium paid into the

 3  fund under subsection (5). As a condition of doing business in

 4  this state, each such insurer shall enter into such a

 5  contract.

 6         (b)1.  The contract shall contain a promise by the

 7  board to reimburse the insurer for 45 percent, 75 percent, or

 8  90 percent of its losses from each covered event in excess of

 9  the insurer's retention, plus 5 percent of the reimbursed

10  losses to cover loss adjustment expenses.

11         2.  The insurer must elect one of the percentage

12  coverage levels specified in this paragraph and may, upon

13  renewal of a reimbursement contract, elect a lower percentage

14  coverage level if no revenue bonds issued under subsection (6)

15  after a covered event are outstanding, or elect a higher

16  percentage coverage level, regardless of whether or not

17  revenue bonds are outstanding. All members of an insurer group

18  must elect the same percentage coverage level.  Any joint

19  underwriting association, risk apportionment plan, or other

20  entity created under s. 627.351 must elect the 90-percent

21  coverage level.

22         3.  The contract shall provide that reimbursement

23  amounts shall not be reduced by reinsurance paid or payable to

24  the insurer from other sources; however, recoveries from such

25  other sources, taken together with reimbursements under the

26  contract, may not exceed 100 percent of the insurer's losses

27  from covered events. If such recoveries and reimbursements

28  exceed 100 percent of the insurer's losses from covered

29  events, and if there is no agreement between the insurer and

30  the reinsurer to the contrary, any amount in excess of 100

31  percent of the insurer's losses shall be returned to the fund.

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 1         (c)1.  The contract shall also provide that the

 2  obligation of the board with respect to all contracts covering

 3  a particular contract year shall not exceed the actual

 4  claims-paying capacity of the fund up to a limit of $11

 5  billion for that contract year, unless the board determines

 6  that there is sufficient estimated claims-paying capacity to

 7  provide $11 billion of capacity for the current contract year

 8  and an additional $11 billion of capacity for subsequent

 9  contract years. Upon such determination being made, the

10  estimated claims-paying capacity for the current contract year

11  shall be determined by adding to the $11 billion limit

12  one-half of the fund's estimated claims-paying capacity in

13  excess of $22 billion.

14         2.  In May before the start of the upcoming contract

15  year and in October during the contract year, the board shall

16  publish in the Florida Administrative Weekly a statement of

17  the fund's estimated borrowing capacity and the projected

18  balance of the fund as of December 31. After the end of each

19  calendar year, the board shall notify insurers of the

20  estimated borrowing capacity and the balance of the fund as of

21  December 31 to provide insurers with data necessary to assist

22  them in determining their retention and projected payout from

23  the fund for loss reimbursement purposes. In conjunction with

24  the development of the premium formula, as provided for in

25  subsection (5), the board shall publish factors or multiples

26  that assist insurers in determining their retention and

27  projected payout for the next contract year. For all

28  regulatory and reinsurance purposes, an insurer may calculate

29  its projected payout from the fund as its share of the total

30  fund premium for the current contract year multiplied by the

31  sum of the projected balance of the fund as of December 31 and

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 1  the estimated borrowing capacity for that contract year as

 2  reported under this subparagraph. The contract shall require

 3  the board to annually notify insurers of the fund's estimated

 4  borrowing capacity for the next contract year, the projected

 5  year-end balance of the fund, and the insurer's estimated

 6  share of total reimbursement premium to be paid to the fund.

 7  For all regulatory and reinsurance purposes, an insurer may

 8  calculate its projected payout from the fund as its share of

 9  the total fund premium for the current contract year

10  multiplied by the sum of the projected year-end fund balance

11  and the estimated borrowing capacity for that contract year as

12  reported under this paragraph. In May and October of each

13  year, the board shall publish in the Florida Administrative

14  Weekly a statement of the fund's estimated borrowing capacity

15  and the projected year-end balance of the fund for the current

16  contract year.

17         (d)1.  For purposes of determining potential liability

18  and to aid in the sound administration of the fund, the

19  contract shall require each insurer to report such insurer's

20  losses from each covered event on an interim basis, as

21  directed by the board.  The contract shall require the insurer

22  to report to the board no later than December 31 of each year,

23  and quarterly thereafter, its reimbursable losses from covered

24  events for the year. The contract shall require the board to

25  determine and pay, as soon as practicable after receiving

26  these reports of reimbursable losses, the initial amount of

27  reimbursement due and adjustments to this amount based on

28  later loss information. The adjustments to reimbursement

29  amounts shall require the board to pay, or the insurer to

30  return, amounts reflecting the most recent calculation of

31  losses.

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 1         2.  In determining reimbursements pursuant to this

 2  subsection, the contract shall provide that the board shall:

 3         a.  First reimburse insurers writing covered policies,

 4  which insurers are in full compliance with this section and

 5  have petitioned the Office of Insurance Regulation and

 6  qualified as limited apportionment companies under s.

 7  627.351(2)(b)3.  The amount of such reimbursement shall be the

 8  lesser of $10 million or an amount equal to 10 times the

 9  insurer's reimbursement premium for the current year.  The

10  amount of reimbursement paid under this sub-subparagraph may

11  not exceed the full amount of reimbursement promised in the

12  reimbursement contract. This sub-subparagraph does not apply

13  with respect to any contract year in which the year-end

14  projected cash balance of the fund, exclusive of any bonding

15  capacity of the fund, exceeds $2 billion. Only one member of

16  any insurer group may receive reimbursement under this

17  sub-subparagraph.

18         b.  Next pay to each insurer such insurer's projected

19  payout, which is the amount of reimbursement it is owed, up to

20  an amount equal to the insurer's share of the actual premium

21  paid for that contract year, multiplied by the actual

22  claims-paying capacity available for that contract year;

23  provided, entities created pursuant to s. 627.351 shall be

24  further reimbursed in accordance with sub-subparagraph c.

25         c.  Thereafter, establish, based on reimbursable

26  losses, the prorated reimbursement level at the highest level

27  for which any remaining fund balance or bond proceeds are

28  sufficient to reimburse entities created pursuant to s.

29  627.351 based on reimbursable for losses exceeding the amounts

30  payable pursuant to sub-subparagraph b. for the current

31  contract year.

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 1         (e)1.  Except as provided in subparagraphs 2. and 3.,

 2  the contract shall provide that if an insurer demonstrates to

 3  the board that it is likely to qualify for reimbursement under

 4  the contract, and demonstrates to the board that the immediate

 5  receipt of moneys from the board is likely to prevent the

 6  insurer from becoming insolvent, the board shall advance the

 7  insurer, at market interest rates, the amounts necessary to

 8  maintain the solvency of the insurer, up to 50 percent of the

 9  board's estimate of the reimbursement due the insurer. The

10  insurer's reimbursement shall be reduced by an amount equal to

11  the amount of the advance and interest thereon.

12         2.  With respect only to an entity created under s.

13  627.351, the contract shall also provide that the board may,

14  upon application by such entity, advance to such entity, at

15  market interest rates, up to 90 percent of the lesser of:

16         a.  The board's estimate of the amount of reimbursement

17  due to such entity; or

18         b.  The entity's share of the actual reimbursement

19  premium paid for that contract year, multiplied by the

20  currently available liquid assets of the fund.  In order for

21  the entity to qualify for an advance under this subparagraph,

22  the entity must demonstrate to the board that the advance is

23  essential to allow the entity to pay claims for a covered

24  event and the board must determine that the fund's assets are

25  sufficient and are sufficiently liquid to allow the board to

26  make an advance to the entity and still fulfill the board's

27  reimbursement obligations to other insurers. The entity's

28  final reimbursement for any contract year in which an advance

29  has been made under this subparagraph must be reduced by an

30  amount equal to the amount of the advance and any interest on

31  such advance. In order to determine what amounts, if any, are

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 1  due the entity, the board may require the entity to report its

 2  exposure and its losses at any time to determine retention

 3  levels and reimbursements payable.

 4         3.  The contract shall also provide specifically and

 5  solely with respect to any limited apportionment company under

 6  s. 627.351(2)(b)3. that the board may, upon application by

 7  such company, advance to such company the amount of the

 8  estimated reimbursement payable to such company as calculated

 9  pursuant to paragraph (d), at market interest rates, if the

10  board determines that the fund's assets are sufficient and are

11  sufficiently liquid to permit the board to make an advance to

12  such company and at the same time fulfill its reimbursement

13  obligations to the insurers that are participants in the fund.

14  Such company's final reimbursement for any contract year in

15  which an advance pursuant to this subparagraph has been made

16  shall be reduced by an amount equal to the amount of the

17  advance and interest thereon.  In order to determine what

18  amounts, if any, are due to such company, the board may

19  require such company to report its exposure and its losses at

20  such times as may be required to determine retention levels

21  and loss reimbursements payable.

22         (f)  In order to ensure that insurers have properly

23  reported the insured values on which the reimbursement premium

24  is based and to ensure that insurers have properly reported

25  the losses for which reimbursements have been made, the board

26  shall inspect, examine, and verify audit the records of each

27  insurer's covered policies at such times as the board deems

28  appropriate and according to standards established by rule for

29  the specific purpose of validating the accuracy of exposures

30  and losses required to be reported under the terms and

31  conditions of the reimbursement contract in such manner as is

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 1  consistent with generally accepted auditing standards.  The

 2  costs of the examinations audits shall be borne by the board.

 3  However, in order to remove any incentive for an insurer to

 4  delay preparations for an examination audit, the board shall

 5  be reimbursed by the insurer for any examination audit

 6  expenses incurred in addition to the usual and customary costs

 7  of the examination audit, which additional expenses were

 8  incurred as a result of an insurer's failure, despite proper

 9  notice, to be prepared for the examination audit or as a

10  result of an insurer's failure to provide requested

11  information while the examination audit is in progress. If the

12  board finds any insurer's records or other necessary

13  information to be inadequate or inadequately posted, recorded,

14  or maintained, the board may employ experts to reconstruct,

15  rewrite, record, post, or maintain such records or

16  information, at the expense of the insurer being examined

17  audited, if such insurer has failed to maintain, complete, or

18  correct such records or deficiencies after the board has given

19  the insurer notice and a reasonable opportunity to do so. Any

20  information contained in an examination audit report, which

21  information is described in s. 215.557, is confidential and

22  exempt from the provisions of s. 119.07(1) and s. 24(a), Art.

23  I of the State Constitution, as provided in s. 215.557.

24  Nothing in this paragraph expands the exemption in s. 215.557.

25         (g)  The contract shall provide that in the event of

26  the insolvency of an insurer, the fund shall pay directly to

27  the Florida Insurance Guaranty Association for the benefit of

28  Florida policyholders of the insurer the net amount of all

29  reimbursement moneys owed to the insurer.  As used in this

30  paragraph, the term "net amount of all reimbursement moneys"

31  means that amount which remains after reimbursement for:

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 1         1.  Preliminary or duplicate payments owed to private

 2  reinsurers or other inuring reinsurance payments to private

 3  reinsurers that satisfy statutory or contractual obligations

 4  of the insolvent insurer attributable to covered events to

 5  such reinsurers; or

 6         2.  Funds owed to a bank or other financial institution

 7  to cover obligations of the insolvent insurer under a credit

 8  agreement that assists the insolvent insurer in paying claims

 9  attributable to covered events.

10  

11  The Such private reinsurers, banks, or other financial

12  institutions shall be reimbursed or otherwise paid prior to

13  payment to the Florida Insurance Guaranty Association,

14  notwithstanding any law to the contrary.  The guaranty

15  association shall pay all claims up to the maximum amount

16  permitted by chapter 631; thereafter, any remaining moneys

17  shall be paid pro rata to claims not fully satisfied. This

18  paragraph does not apply to a joint underwriting association,

19  risk apportionment plan, or other entity created under s.

20  627.351.

21         (7)  ADDITIONAL POWERS AND DUTIES.--

22         (a)  The board may procure reinsurance from reinsurers

23  acceptable to the Office of Insurance Regulation approved

24  under s. 624.610 for the purpose of maximizing the capacity of

25  the fund.

26         (b)  In addition to borrowing under subsection (6), the

27  board may also borrow from, or enter into other financing

28  arrangements with, any market sources at prevailing interest

29  rates.

30         (c)  Each fiscal year, the Legislature shall

31  appropriate from the investment income of the Florida

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 1  Hurricane Catastrophe Fund an amount no less than $10 million

 2  and no more than 35 percent of the investment income based

 3  upon the most recent fiscal year-end audited financial

 4  statements from the prior fiscal year for the purpose of

 5  providing funding for local governments, state agencies,

 6  public and private educational institutions, and nonprofit

 7  organizations to support programs intended to improve

 8  hurricane preparedness, reduce potential losses in the event

 9  of a hurricane, provide research into means to reduce such

10  losses, educate or inform the public as to means to reduce

11  hurricane losses, assist the public in determining the

12  appropriateness of particular upgrades to structures or in the

13  financing of such upgrades, or protect local infrastructure

14  from potential damage from a hurricane. Moneys shall first be

15  available for appropriation under this paragraph in fiscal

16  year 1997-1998. Moneys in excess of the $10 million specified

17  in this paragraph shall not be available for appropriation

18  under this paragraph if the State Board of Administration

19  finds that an appropriation of investment income from the fund

20  would jeopardize the actuarial soundness of the fund.

21         (d)  The board may allow insurers to comply with

22  reporting requirements and reporting format requirements by

23  using alternative methods of reporting if the proper

24  administration of the fund is not thereby impaired and if the

25  alternative methods produce data which is consistent with the

26  purposes of this section.

27         (e)  In order to assure the equitable operation of the

28  fund, the board may impose a reasonable fee on an insurer to

29  recover costs involved in reprocessing inaccurate, incomplete,

30  or untimely exposure data submitted by the insurer.

31  

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 1         (16)  For the 2002-2003 fiscal year only, the State

 2  Board of Administration shall disburse funds, by nonoperating

 3  transfer, from the Florida Hurricane Catastrophe Fund to the

 4  Ecosystem Management and Restoration Trust Fund of the

 5  Department of Environmental Protection in an amount equal to

 6  8.47 percent of the appropriation made from the Ecosystem

 7  Management and Restoration Trust Fund for "Grants and Aids to

 8  Local Governments and Non-State Entities - Fixed Capital

 9  Outlay, Statewide Restoration Projects" in the 2002-2003

10  General Appropriations Act. This subsection expires July 1,

11  2003.

12         Section 2.  Effective June 1, 2005, paragraph (e) of

13  subsection (2), paragraph (c) of subsection (4), and

14  subsection (6) of section 215.555, Florida Statutes, as

15  amended by this act, are amended to read:

16         215.555  Florida Hurricane Catastrophe Fund.--

17         (2)  DEFINITIONS.--As used in this section:

18         (e)  "Retention" means the amount of losses below which

19  an insurer is not entitled to reimbursement from the fund. An

20  insurer's retention shall be calculated as follows:

21         1.  The board shall calculate and report to each

22  insurer the retention multiples for that year. For the

23  contract year beginning June 1, 2005 1995, the retention

24  multiple shall be equal to $4 $3 billion divided by the total

25  estimated reimbursement premium for the contract year; for

26  subsequent years, the retention multiple shall be equal to $4

27  $3 billion, adjusted based upon the reported exposure from the

28  prior contract year to reflect the percentage growth in

29  exposure to the fund for covered policies since 2004 1998,

30  divided by the total estimated reimbursement premium for the

31  contract year. Total reimbursement premium for purposes of the

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 1  calculation under this subparagraph shall be estimated using

 2  the assumption that all insurers have selected the 90-percent

 3  coverage level.

 4         2.  The retention multiple as determined under

 5  subparagraph 1. shall be adjusted to reflect the coverage

 6  level elected by the insurer.  For insurers electing the

 7  90-percent coverage level, the adjusted retention multiple is

 8  100 percent of the amount determined under subparagraph 1.

 9  For insurers electing the 75-percent coverage level, the

10  retention multiple is 120 percent of the amount determined

11  under subparagraph 1.  For insurers electing the 45-percent

12  coverage level, the adjusted retention multiple is 200 percent

13  of the amount determined under subparagraph 1.

14         3.  An insurer shall determine its provisional

15  retention by multiplying its provisional reimbursement premium

16  by the applicable adjusted retention multiple and shall

17  determine its actual retention by multiplying its actual

18  reimbursement premium by the applicable adjusted retention

19  multiple.

20         (4)  REIMBURSEMENT CONTRACTS.--

21         (c)1.  The contract shall also provide that the

22  obligation of the board with respect to all contracts covering

23  a particular contract year shall not exceed the actual

24  claims-paying capacity of the fund up to a limit of $15 $11

25  billion for that contract year adjusted based upon the

26  reported exposure from the prior contract year to reflect the

27  percentage growth in exposure to the fund for covered policies

28  since 2004, provided that the dollar growth in the limit may

29  not increase in any year by an amount greater than the dollar

30  growth of the cash balance which occurred over the prior

31  calendar year, unless the board determines that there is

                                  16

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 1  sufficient estimated claims-paying capacity to provide $11

 2  billion of capacity for the current contract year and an

 3  additional $11 billion of capacity for subsequent contract

 4  years. Upon such determination being made, the estimated

 5  claims-paying capacity for the current contract year shall be

 6  determined by adding to the $11 billion limit one-half of the

 7  fund's estimated claims-paying capacity in excess of $22

 8  billion.

 9         2.  In May before the start of the upcoming contract

10  year and in October during the contract year, the board shall

11  publish in the Florida Administrative Weekly a statement of

12  the fund's estimated borrowing capacity and the projected

13  balance of the fund as of December 31. After the end of each

14  calendar year, the board shall notify insurers of the

15  estimated borrowing capacity and the balance of the fund as of

16  December 31 to provide insurers with data necessary to assist

17  them in determining their retention and projected payout from

18  the fund for loss reimbursement purposes. In conjunction with

19  the development of the premium formula, as provided for in

20  subsection (5), the board shall publish factors or multiples

21  that assist insurers in determining their retention and

22  projected payout for the next contract year. For all

23  regulatory and reinsurance purposes, an insurer may calculate

24  its projected payout from the fund as its share of the total

25  fund premium for the current contract year multiplied by the

26  sum of the projected balance of the fund as of December 31 and

27  the estimated borrowing capacity for that contract year as

28  reported under this subparagraph.

29         (6)  REVENUE BONDS.--

30         (a)  General provisions.--

31  

                                  17

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 1         1.  Upon the occurrence of a hurricane and a

 2  determination that the moneys in the fund are or will be

 3  insufficient to pay reimbursement at the levels promised in

 4  the reimbursement contracts, the board may take the necessary

 5  steps under paragraph (c) (b) or paragraph (d) (c) for the

 6  issuance of revenue bonds for the benefit of the fund.  The

 7  proceeds of such revenue bonds may be used to make

 8  reimbursement payments under reimbursement contracts; to

 9  refinance or replace previously existing borrowings or

10  financial arrangements; to pay interest on bonds; to fund

11  reserves for the bonds; to pay expenses incident to the

12  issuance or sale of any bond issued under this section,

13  including costs of validating, printing, and delivering the

14  bonds, costs of printing the official statement, costs of

15  publishing notices of sale of the bonds, and related

16  administrative expenses; or for such other purposes related to

17  the financial obligations of the fund as the board may

18  determine. The term of the bonds may not exceed 30 years. The

19  board may pledge or authorize the corporation to pledge all or

20  a portion of all revenues under subsection (5) and under

21  paragraph (b) subparagraph 3. to secure such revenue bonds and

22  the board may execute such agreements between the board and

23  the issuer of any revenue bonds and providers of other

24  financing arrangements under paragraph (7)(b) as the board

25  deems necessary to evidence, secure, preserve, and protect

26  such pledge. If reimbursement premiums received under

27  subsection (5) or earnings on such premiums are used to pay

28  debt service on revenue bonds, such premiums and earnings

29  shall be used only after the use of the moneys derived from

30  assessments under paragraph (b) subparagraph 3. The funds,

31  credit, property, or taxing power of the state or political

                                  18

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 1  subdivisions of the state shall not be pledged for the payment

 2  of such bonds. The board may also enter into agreements under

 3  paragraph (c) (b) or paragraph (d) (c) for the purpose of

 4  issuing revenue bonds in the absence of a hurricane upon a

 5  determination that such action would maximize the ability of

 6  the fund to meet future obligations.

 7         2.  The Legislature finds and declares that the

 8  issuance of bonds under this subsection is for the public

 9  purpose of paying the proceeds of the bonds to insurers,

10  thereby enabling insurers to pay the claims of policyholders

11  to assure that policyholders are able to pay the cost of

12  construction, reconstruction, repair, restoration, and other

13  costs associated with damage to property of policyholders of

14  covered policies after the occurrence of a hurricane. Revenue

15  bonds may not be issued under this subsection until validated

16  under chapter 75. The validation of at least the first

17  obligations incurred pursuant to this subsection shall be

18  appealed to the Supreme Court, to be handled on an expedited

19  basis.

20         (b)  Emergency assessments.--

21         1.  If the board determines that the amount of revenue

22  produced under subsection (5) is insufficient to fund the

23  obligations, costs, and expenses of the fund and the

24  corporation, including repayment of revenue bonds and that

25  portion of the debt service coverage not met by reimbursement

26  premiums, the board shall direct the Office of Insurance

27  Regulation to levy, by order, an emergency assessment on

28  direct premiums for all property and casualty lines of

29  business in this state, including property and casualty

30  business of surplus lines insurers regulated under part VIII

31  of chapter 626, but not including any workers' compensation

                                  19

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 1  premiums or medical malpractice premiums. As used in this

 2  subsection, the term "property and casualty business" includes

 3  all lines of business identified on Form 2, Exhibit of

 4  Premiums and Losses, in the annual statement required of

 5  authorized insurers by s. 624.424 and any rule adopted under

 6  this section, except for those lines identified as accident

 7  and health insurance and except for policies written under the

 8  National Flood Insurance Program. The assessment shall be

 9  specified as a percentage of future premium collections and is

10  subject to annual adjustments by the board to reflect changes

11  in premiums subject to assessments collected under this

12  subparagraph in order to meet debt obligations. The same

13  percentage shall apply to all policies in lines of business

14  subject to the assessment issued or renewed during the

15  12-month period beginning on the effective date of the

16  assessment.

17         2.  A premium is not subject to an annual assessment

18  under this paragraph in excess of 6 percent of premium with

19  respect to obligations arising out of losses attributable to

20  any one contract year and a premium is not subject to an

21  aggregate annual assessment under this paragraph in excess of

22  10 percent of premium. An annual assessment under this

23  paragraph shall continue until the revenue bonds issued with

24  respect to which the assessment was imposed are outstanding,

25  including any bonds the proceeds of which were used to refund

26  the revenue bonds, unless adequate provision has been made for

27  the payment of the bonds under the documents authorizing

28  issuance of the bonds.

29         3.  With respect to each insurer collecting premiums

30  that are subject to the assessment, the insurer shall collect

31  the assessment at the same time as it collects the premium

                                  20

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 1  payment for each policy and shall remit the assessment

 2  collected to the fund or corporation as provided in the order

 3  issued by the Office of Insurance Regulation. The office shall

 4  verify the accurate and timely collection and remittance of

 5  emergency assessments and shall report the information to the

 6  board in a form and at a time specified by the board. Each

 7  insurer collecting assessments shall provide the information

 8  with respect to premiums and collections as may be required by

 9  the office to enable the office to monitor and verify

10  compliance with this paragraph.

11         4.  With respect to assessments of surplus lines

12  premiums, each surplus lines agent shall collect the

13  assessment at the same time as the agent collects the surplus

14  lines tax required by s. 626.932, and the surplus lines agent

15  shall remit the assessment to the Florida Surplus Lines

16  Service Office created by s. 626.921 at the same time as the

17  agent remits the surplus lines tax to the Florida Surplus

18  Lines Service Office. The emergency assessment on each insured

19  procuring coverage and filing under s. 626.938 shall be

20  remitted by the insured to the Florida Surplus Lines Service

21  Office at the time the insured pays the surplus lines tax to

22  the Florida Surplus Lines Service Office. The Florida Surplus

23  Lines Office shall remit the collected assessments to the fund

24  or corporation as provided in the order levied by the Office

25  of Insurance Regulation. The Florida Surplus Lines Service

26  Office shall verify the proper application of such emergency

27  assessments and shall assist the board in ensuring the

28  accurate and timely collection and remittance of assessments

29  as required by the board. The Florida Surplus Lines Service

30  Office shall annually calculate the aggregate written premium

31  on property and casualty business, other than workers'

                                  21

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 1  compensation and medical malpractice, procured through surplus

 2  lines agents and insureds procuring coverage and filing under

 3  s. 626.938 and shall report the information to the board in a

 4  form and at a time specified by the board.

 5         5.  Any assessment authority not used for a particular

 6  contract year may be used for a subsequent contract year. If,

 7  for a subsequent contract year, the board determines that the

 8  amount of revenue produced under subsection (5) is

 9  insufficient to fund the obligations, costs, and expenses of

10  the fund and the corporation, including repayment of revenue

11  bonds and that portion of the debt service coverage not met by

12  reimbursement premiums, the board shall direct the Office of

13  Insurance Regulation to levy an emergency assessment up to an

14  amount not exceeding the amount of unused assessment authority

15  from a previous contract year or years, plus an additional 4

16  percent provided that the assessments in the aggregate do not

17  exceed the limits specified in subparagraph 2.

18         6.  The assessments otherwise payable to the

19  corporation under this paragraph shall be paid to the fund

20  unless and until the Office of Insurance Regulation and the

21  Florida Surplus Lines Service Office have received from the

22  corporation and the fund a notice, which shall be conclusive

23  and upon which they may rely without further inquiry, that the

24  corporation has issued bonds and the fund has no agreements in

25  effect with local governments under paragraph (c). On or after

26  the date of the notice and until the date the corporation has

27  no bonds outstanding, the fund shall have no right, title, or

28  interest in or to the assessments, except as provided in the

29  fund's agreement with the corporation.

30         7.  Emergency assessments are not premium and are not

31  subject to the premium tax, to the surplus lines tax, to any

                                  22

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 1  fees, or to any commissions. An insurer is liable for all

 2  assessments that it collects and must treat the failure of an

 3  insured to pay an assessment as a failure to pay the premium.

 4  An insurer is not liable for uncollectible assessments.

 5         8.  When an insurer is required to return an unearned

 6  premium, it shall also return any collected assessment

 7  attributable to the unearned premium. A credit adjustment to

 8  the collected assessment may be made by the insurer with

 9  regard to future remittances that are payable to the fund or

10  corporation, but the insurer is not entitled to a refund.

11         9.  When a surplus lines insured or an insured who has

12  procured coverage and filed under s. 626.938 is entitled to

13  the return of an unearned premium, the Florida Surplus Lines

14  Service Office shall provide a credit or refund to the agent

15  or such insured for the collected assessment attributable to

16  the unearned premium prior to remitting the emergency

17  assessment collected to the fund or corporation.

18         3.  If the board determines that the amount of revenue

19  produced under subsection (5) is insufficient to fund the

20  obligations, costs, and expenses of the fund and the

21  corporation, including repayment of revenue bonds, the board

22  shall direct the Office of Insurance Regulation to levy an

23  emergency assessment on each insurer writing property and

24  casualty business in this state. Pursuant to the emergency

25  assessment, each such insurer shall pay to the corporation by

26  July 1 of each year an amount set by the board not exceeding 2

27  percent of its gross direct written premium for the prior year

28  from all property and casualty business in this state except

29  for workers' compensation, except that, if the Governor has

30  declared a state of emergency under s. 252.36 due to the

31  occurrence of a covered event, the amount of the assessment

                                  23

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 1  for the contract year may be increased to an amount not

 2  exceeding 4 percent of such premium. Any assessment authority

 3  not used for the contract year may be used for a subsequent

 4  contract year. If, for a subsequent contract year, the board

 5  determines that the amount of revenue produced under

 6  subsection (5) is insufficient to fund the obligations, costs,

 7  and expenses of the fund and the corporation, including

 8  repayment of revenue bonds for that contract year, the board

 9  shall direct the Office of Insurance Regulation to levy an

10  emergency assessment up to an amount not exceeding the amount

11  of unused assessment authority from a previous contract year

12  or years, plus an additional 2 percent if the Governor has

13  declared a state of emergency under s. 252.36 due to the

14  occurrence of a covered event. Any assessment authority not

15  used for the contract year may be used for a subsequent

16  contract year. As used in this subsection, the term "property

17  and casualty business" includes all lines of business

18  identified on Form 2, Exhibit of Premiums and Losses, in the

19  annual statement required by s. 624.424 and any rules adopted

20  under such section, except for those lines identified as

21  accident and health insurance. The annual assessments under

22  this subparagraph shall continue as long as the revenue bonds

23  issued with respect to which the assessment was imposed are

24  outstanding, unless adequate provision has been made for the

25  payment of such bonds pursuant to the documents authorizing

26  issuance of the bonds. An insurer shall not at any time be

27  subject to aggregate annual assessments under this

28  subparagraph of more than 2 percent of premium, except that in

29  the case of a declared emergency, an insurer shall not at any

30  time be subject to aggregate annual assessments under this

31  subparagraph of more than 6 percent of premium; provided, no

                                  24

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 1  more than 4 percent may be assessed for any one contract year.

 2  Any rate filing or portion of a rate filing reflecting a rate

 3  change attributable entirely to the assessment levied under

 4  this subparagraph shall be deemed approved when made, subject

 5  to the authority of the Office of Insurance Regulation to

 6  require actuarial justification as to the adequacy of any rate

 7  at any time.  If the rate filing reflects only a rate change

 8  attributable to the assessment under this paragraph, the

 9  filing may consist of a certification so stating. The

10  assessments otherwise payable to the corporation pursuant to

11  this subparagraph shall be paid instead to the fund unless and

12  until the Office of Insurance Regulation has received from the

13  corporation and the fund a notice, which shall be conclusive

14  and upon which the Office of Insurance Regulation may rely

15  without further inquiry, that the corporation has issued bonds

16  and the fund has no agreements in effect with local

17  governments pursuant to paragraph (b).  On or after the date

18  of such notice and until such date as the corporation has no

19  bonds outstanding, the fund shall have no right, title, or

20  interest in or to the assessments, except as provided in the

21  fund's agreements with the corporation.

22         (c)(b)  Revenue bond issuance through counties or

23  municipalities.--

24         1.  If the board elects to enter into agreements with

25  local governments for the issuance of revenue bonds for the

26  benefit of the fund, the board shall enter into such contracts

27  with one or more local governments, including agreements

28  providing for the pledge of revenues, as are necessary to

29  effect such issuance. The governing body of a county or

30  municipality is authorized to issue bonds as defined in s.

31  125.013 or s. 166.101 from time to time to fund an assistance

                                  25

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 1  program, in conjunction with the Florida Hurricane Catastrophe

 2  Fund, for the purposes set forth in this section or for the

 3  purpose of paying the costs of construction, reconstruction,

 4  repair, restoration, and other costs associated with damage to

 5  properties of policyholders of covered policies due to the

 6  occurrence of a hurricane by assuring that policyholders

 7  located in this state are able to recover claims under

 8  property insurance policies after a covered event.

 9         2.  In order to avoid needless and indiscriminate

10  proliferation, duplication, and fragmentation of such

11  assistance programs, any local government may provide for the

12  payment of fund reimbursements, regardless of whether or not

13  the losses for which reimbursement is made occurred within or

14  outside of the territorial jurisdiction of the local

15  government.

16         3.  The state hereby covenants with holders of bonds

17  issued under this paragraph that the state will not repeal or

18  abrogate the power of the board to direct the Office of

19  Insurance Regulation to levy the assessments and to collect

20  the proceeds of the revenues pledged to the payment of such

21  bonds as long as any such bonds remain outstanding unless

22  adequate provision has been made for the payment of such bonds

23  pursuant to the documents authorizing the issuance of such

24  bonds.

25         4.  There shall be no liability on the part of, and no

26  cause of action shall arise against any members or employees

27  of the governing body of a local government for any actions

28  taken by them in the performance of their duties under this

29  paragraph.

30         (d)(c)  Florida Hurricane Catastrophe Fund Finance

31  Corporation.--

                                  26

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 1         1.  In addition to the findings and declarations in

 2  subsection (1), the Legislature also finds and declares that:

 3         a.  The public benefits corporation created under this

 4  paragraph will provide a mechanism necessary for the

 5  cost-effective and efficient issuance of bonds. This mechanism

 6  will eliminate unnecessary costs in the bond issuance process,

 7  thereby increasing the amounts available to pay reimbursement

 8  for losses to property sustained as a result of hurricane

 9  damage.

10         b.  The purpose of such bonds is to fund reimbursements

11  through the Florida Hurricane Catastrophe Fund to pay for the

12  costs of construction, reconstruction, repair, restoration,

13  and other costs associated with damage to properties of

14  policyholders of covered policies due to the occurrence of a

15  hurricane.

16         c.  The efficacy of the financing mechanism will be

17  enhanced by the corporation's ownership of the assessments, by

18  the insulation of the assessments from possible bankruptcy

19  proceedings, and by covenants of the state with the

20  corporation's bondholders.

21         2.a.  There is created a public benefits corporation,

22  which is an instrumentality of the state, to be known as the

23  Florida Hurricane Catastrophe Fund Finance Corporation.

24         b.  The corporation shall operate under a five-member

25  board of directors consisting of the Governor or a designee,

26  the Chief Financial Officer or a designee, the Attorney

27  General or a designee, the director of the Division of Bond

28  Finance of the State Board of Administration, and the senior

29  employee of the State Board of Administration responsible for

30  operations of the Florida Hurricane Catastrophe Fund.

31  

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 1         c.  The corporation has all of the powers of

 2  corporations under chapter 607 and under chapter 617, subject

 3  only to the provisions of this subsection.

 4         d.  The corporation may issue bonds and engage in such

 5  other financial transactions as are necessary to provide

 6  sufficient funds to achieve the purposes of this section.

 7         e.  The corporation may invest in any of the

 8  investments authorized under s. 215.47.

 9         f.  There shall be no liability on the part of, and no

10  cause of action shall arise against, any board members or

11  employees of the corporation for any actions taken by them in

12  the performance of their duties under this paragraph.

13         3.a.  In actions under chapter 75 to validate any bonds

14  issued by the corporation, the notice required by s. 75.06

15  shall be published only in Leon County and in two newspapers

16  of general circulation in the state, and the complaint and

17  order of the court shall be served only on the State Attorney

18  of the Second Judicial Circuit.

19         b.  The state hereby covenants with holders of bonds of

20  the corporation that the state will not repeal or abrogate the

21  power of the board to direct the Office of Insurance

22  Regulation to levy the assessments and to collect the proceeds

23  of the revenues pledged to the payment of such bonds as long

24  as any such bonds remain outstanding unless adequate provision

25  has been made for the payment of such bonds pursuant to the

26  documents authorizing the issuance of such bonds.

27         4.  The bonds of the corporation are not a debt of the

28  state or of any political subdivision, and neither the state

29  nor any political subdivision is liable on such bonds. The

30  corporation does not have the power to pledge the credit, the

31  revenues, or the taxing power of the state or of any political

                                  28

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 1  subdivision. The credit, revenues, or taxing power of the

 2  state or of any political subdivision shall not be deemed to

 3  be pledged to the payment of any bonds of the corporation.

 4         5.a.  The property, revenues, and other assets of the

 5  corporation; the transactions and operations of the

 6  corporation and the income from such transactions and

 7  operations; and all bonds issued under this paragraph and

 8  interest on such bonds are exempt from taxation by the state

 9  and any political subdivision, including the intangibles tax

10  under chapter 199 and the income tax under chapter 220. This

11  exemption does not apply to any tax imposed by chapter 220 on

12  interest, income, or profits on debt obligations owned by

13  corporations other than the Florida Hurricane Catastrophe Fund

14  Finance Corporation.

15         b.  All bonds of the corporation shall be and

16  constitute legal investments without limitation for all public

17  bodies of this state; for all banks, trust companies, savings

18  banks, savings associations, savings and loan associations,

19  and investment companies; for all administrators, executors,

20  trustees, and other fiduciaries; for all insurance companies

21  and associations and other persons carrying on an insurance

22  business; and for all other persons who are now or may

23  hereafter be authorized to invest in bonds or other

24  obligations of the state and shall be and constitute eligible

25  securities to be deposited as collateral for the security of

26  any state, county, municipal, or other public funds. This

27  sub-subparagraph shall be considered as additional and

28  supplemental authority and shall not be limited without

29  specific reference to this sub-subparagraph.

30         6.  The corporation and its corporate existence shall

31  continue until terminated by law; however, no such law shall

                                  29

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 1  take effect as long as the corporation has bonds outstanding

 2  unless adequate provision has been made for the payment of

 3  such bonds pursuant to the documents authorizing the issuance

 4  of such bonds. Upon termination of the existence of the

 5  corporation, all of its rights and properties in excess of its

 6  obligations shall pass to and be vested in the state.

 7         (e)(d)  Protection of bondholders.--

 8         1.  As long as the corporation has any bonds

 9  outstanding, neither the fund nor the corporation shall have

10  the authority to file a voluntary petition under chapter 9 of

11  the federal Bankruptcy Code or such corresponding chapter or

12  sections as may be in effect, from time to time, and neither

13  any public officer nor any organization, entity, or other

14  person shall authorize the fund or the corporation to be or

15  become a debtor under chapter 9 of the federal Bankruptcy Code

16  or such corresponding chapter or sections as may be in effect,

17  from time to time, during any such period.

18         2.  The state hereby covenants with holders of bonds of

19  the corporation that the state will not limit or alter the

20  denial of authority under this paragraph or the rights under

21  this section vested in the fund or the corporation to fulfill

22  the terms of any agreements made with such bondholders or in

23  any way impair the rights and remedies of such bondholders as

24  long as any such bonds remain outstanding unless adequate

25  provision has been made for the payment of such bonds pursuant

26  to the documents authorizing the issuance of such bonds.

27         3.  Notwithstanding any other provision of law, any

28  pledge of or other security interest in revenue, money,

29  accounts, contract rights, general intangibles, or other

30  personal property made or created by the fund or the

31  corporation shall be valid, binding, and perfected from the

                                  30

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 1  time such pledge is made or other security interest attaches

 2  without any physical delivery of the collateral or further act

 3  and the lien of any such pledge or other security interest

 4  shall be valid, binding, and perfected against all parties

 5  having claims of any kind in tort, contract, or otherwise

 6  against the fund or the corporation irrespective of whether or

 7  not such parties have notice of such claims.  No instrument by

 8  which such a pledge or security interest is created nor any

 9  financing statement need be recorded or filed.

10         Section 3.  No later than December 31, 2005, each

11  insurer writing a covered policy as defined in section

12  215.555(2)(c), Florida Statutes, shall submit to the Office of

13  Insurance Regulation a rate filing for the line of insurance

14  insuring a covered policy under section 215.555, Florida

15  Statutes, reflecting the overall rate reduction or increase

16  due to the provisions of this act. Such rate reduction or

17  increase shall apply retroactively to policies issued or

18  renewed on or after the effective date of this act.

19         Section 4.  Except as otherwise expressly provided in

20  this act, this act shall take effect upon becoming a law.

21  

22          STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
                       COMMITTEE SUBSTITUTE FOR
23                          CS for SB 2488

24                                 

25  The CS for CS for SB 2488 clarifies that emergency assessments
    are levied on direct premiums only and it corrects the
26  placement of a prior amendment to the text of existing law.

27  

28  

29  

30  

31  

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