Amendment
Bill No. CS/HB 5057

Amendment No. 296355

CHAMBER ACTION
Senate		House
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1	The Conference Committee on HB 5057 offered the following:
2
3	Conference Committee Amendment (with title amendment)
4	Remove everything after the enacting clause and insert:
5	Section 1.  Section 215.5595, Florida Statutes, is amended
6	to read:
7	215.5595  Insurance Capital Build-Up Incentive Program.--
8	(1)  Upon entering the 2008 2006 hurricane season, the
9	Legislature finds that:
10	(a)  The losses in this state Florida from eight hurricanes
11	in 2004 and 2005 have seriously strained the resources of both
12	the voluntary insurance market and the public sector mechanisms
13	of Citizens Property Insurance Corporation and the Florida
14	Hurricane Catastrophe Fund.
15	(b)  Private reinsurance is much less available and at a
16	significantly greater cost to residential property insurers as
17	compared to 1 year ago, particularly for amounts below the
18	insurer's retention or retained losses that must be paid before
19	reimbursement is provided by the Florida Hurricane Catastrophe
20	Fund.
21	(c)  The Office of Insurance Regulation has reported that
22	the insolvency of certain insurers may be imminent.
23	(d)  Hurricane forecast experts predict that the 2006
24	hurricane season will be an active hurricane season and that the
25	Atlantic and Gulf Coast regions face an active hurricane cycle
26	of 10 to 20 years or longer.
27	(b)(e)  Citizens Property Insurance Corporation has over
28	1.2 million policies in force and has the largest market share
29	of any insurer writing residential property insurance in this
30	state, and faces the threat of a catastrophic loss that The
31	number of cancellations or nonrenewals of residential property
32	insurance policies is expected to increase and the number of new
33	residential policies written in the voluntary market are likely
34	to decrease, causing increased policy growth and exposure to the
35	state insurer of last resort, Citizens Property Insurance
36	Corporation, and threatening to increase the deficit of the
37	corporation, currently estimated to be over $1.7 billion. This
38	deficit must be funded by assessments against insurers and
39	policyholders, unless otherwise funded by the state. The program
40	has a substantial positive effect on the depopulation efforts of
41	Citizens Property Insurance Corporation since companies
42	participating in the program have removed over 199,000 policies
43	from the corporation. Companies participating in the program
44	have issued a significant number of new policies, thereby
45	keeping an estimated 480,000 new policies out of the
46	corporation.
47	(c)(f)  Policyholders are subject to high increased
48	premiums and assessments that are increasingly making such
49	coverage unaffordable and that may force policyholders to sell
50	their homes and even leave the state.
51	(d)(g)  The increased risk to the public sector and private
52	sector continues to pose poses a serious threat to the economy
53	of this state, particularly the building and financing of
54	residential structures, and existing mortgages may be placed in
55	default.
56	(h)  The losses from 2004 and 2005, combined with the
57	expectation that the increase in hurricane activity will
58	continue for the foreseeable future, have caused both insurers
59	and reinsurers to limit the capital they are willing to commit
60	to covering the hurricane risk in Florida; attracting new
61	capital to the Florida market is a critical priority; and
62	providing a low-cost source of capital would enable insurers to
63	write additional residential property insurance coverage and act
64	to mitigate premium increases.
65	(e)(i)  Appropriating state funds to be exchanged for used
66	as surplus notes issued by for residential property insurers,
67	under conditions requiring the insurer to contribute additional
68	private sector capital and to write a minimum level of premiums
69	for residential hurricane coverage, is a valid and important
70	public purpose.
71	(f)  Extending the program will provide an incentive for
72	investors to commit additional capital to the residential
73	insurance market in this state.
74	(2)  The purpose of this section is to provide funds in
75	exchange for surplus notes to be issued by new or existing
76	authorized residential property insurers under the Insurance
77	Capital Build-Up Incentive Program administered by the State
78	Board of Administration, under the following conditions:
79	(a)  The amount of state funds provided in exchange for a
80	the surplus note to for any insurer or insurer group, other than
81	an insurer writing only manufactured housing policies, may not
82	exceed $25 million or 20 percent of the total amount of funds
83	appropriated for available under the program, whichever is
84	greater. The amount of the surplus note for any insurer or
85	insurer group writing residential property insurance covering
86	only manufactured housing may not exceed $7 million.
87	(b)  The insurer must contribute an amount of new capital
88	to its surplus which is at least equal to the amount of the
89	surplus note and must apply to the board by September 1, 2008
90	July 1, 2006. If an insurer applies after September 1, 2008 July
91	1, 2006, but before June 1, 2009 2007, the amount of the surplus
92	note is limited to one-half of the new capital that the insurer
93	contributes to its surplus, except that an insurer writing only
94	manufactured housing policies is eligible to receive a surplus
95	note of up to $7 million. For purposes of this section, new
96	capital must be in the form of cash or cash equivalents as
97	specified in s. 625.012(1).
98	(c)  The insurer's surplus, new capital, and the surplus
99	note must total at least $50 million, except for insurers
100	writing residential property insurance covering only
101	manufactured housing. The insurer's surplus, new capital, and
102	the surplus note must total at least $14 million for insurers
103	writing only residential property insurance covering
104	manufactured housing policies as provided in paragraph (a).
105	(d)  The insurer must commit to increase its writings of
106	residential property insurance, including the peril of wind, and
107	to meet meeting a minimum writing ratio of net written premium
108	to surplus of at least 1:1 for the first calendar year after
109	receiving the state funds or renegotiation of the surplus note,
110	1.5:1 for the second calendar year, and 2:1 for the remaining
111	term of the surplus note. Alternatively, the insurer must meet a
112	minimum writing ratio of gross written premium to surplus of at
113	least 3:1 for the first calendar year after receiving the state
114	funds or renegotiation of the surplus note, 4.5:1 for the second
115	calendar year, and 6:1 for the remaining term of the surplus
116	note. The writing ratios, which shall be determined by the
117	Office of Insurance Regulation and certified quarterly to the
118	board. For this purpose, the term "net written premium" means
119	net written premium for residential property insurance in this
120	state Florida, including the peril of wind, and "surplus" means
121	the new capital and surplus note refers to the entire surplus of
122	the insurer. An insurer who makes an initial application after
123	July 1, 2008, must also commit to writing at least 15 percent of
124	its net or gross written premium for new policies, not including
125	renewal premiums, for policies taken out of Citizens Property
126	Insurance Corporation, during each of the first 3 years after
127	receiving the state funds in exchange for the surplus note,
128	which shall be determined by the Office of Insurance Regulation
129	and certified annually to the board. The office may determine
130	that an insurer meets the requirement for taking policies out of
131	the corporation, by written notice to the board, upon a finding
132	that the insurer made offers of coverage to policyholders of the
133	corporation which would have resulted in meeting this
134	requirement had the policyholders accepted the offer. The
135	insurer must also commit to maintaining a level of surplus and
136	reinsurance sufficient to cover in excess of its 1-in-100 years
137	probable maximum loss, as determined by a hurricane loss model
138	accepted by the Florida Commission on Hurricane Loss Projection
139	Methodology, which shall be determined by the Office of
140	Insurance Regulation and certified annually to the board. If the
141	board determines that the insurer has failed to meet any of the
142	requirements of this paragraph If the required ratio is not
143	maintained during the term of the surplus note, the board may
144	increase the interest rate, accelerate the repayment of interest
145	and principal, or shorten the term of the surplus note, subject
146	to approval by the Commissioner of Insurance of payments by the
147	insurer of principal and interest as provided in paragraph (f).
148	(e)  If the requirements of this section are met, the board
149	may approve an application by an insurer for funds in exchange
150	for issuance of a surplus note, unless the board determines that
151	the financial condition of the insurer and its business plan for
152	writing residential property insurance in Florida places an
153	unreasonably high level of financial risk to the state of
154	nonpayment in full of the interest and principal. The board
155	shall consult with the Office of Insurance Regulation and may
156	contract with independent financial and insurance consultants in
157	making this determination.
158	(f)  The surplus note must be repayable to the state with a
159	term of 20 years. The surplus note shall accrue interest on the
160	unpaid principal balance at a rate equivalent to the 10-year
161	U.S. Treasury Bond rate, require the payment only of interest
162	during the first 3 years, and include such other terms as
163	approved by the board. The board may charge late fees up to 5
164	percent for late payments or other late remittances. Payment of
165	principal, or interest, or late fees by the insurer on the
166	surplus note must be approved by the Commissioner of Insurance,
167	who shall approve such payment unless the commissioner
168	determines that such payment will substantially impair the
169	financial condition of the insurer. If such a determination is
170	made, the commissioner shall approve such payment that will not
171	substantially impair the financial condition of the insurer.
172	(g)  The total amount of funds available for the program is
173	limited to the amount appropriated by the Legislature for this
174	purpose. If the amount of surplus notes requested by insurers
175	exceeds the amount of funds available, the board may prioritize
176	insurers that are eligible and approved, with priority for
177	funding given to insurers writing only manufactured housing
178	policies, regardless of the date of application, based on the
179	financial strength of the insurer, the viability of its proposed
180	business plan for writing additional residential property
181	insurance in the state, and the effect on competition in the
182	residential property insurance market. Between insurers writing
183	residential property insurance covering manufactured housing,
184	priority shall be given to the insurer writing the highest
185	percentage of its policies covering manufactured housing.
186	(h)  The board may allocate portions of the funds available
187	for the program and establish dates for insurers to apply for
188	surplus notes from such allocation which are earlier than the
189	dates established in paragraph (b).
190	(h)(i)  Notwithstanding paragraph (d), a newly formed
191	manufactured housing insurer that is eligible for a surplus note
192	under this section shall meet the premium to surplus ratio
193	provisions of s. 624.4095.
194	(i)(j)  As used in this section, "an insurer writing only
195	manufactured housing policies" includes:
196	1.  A Florida domiciled insurer that begins writing
197	personal lines residential manufactured housing policies in
198	Florida after March 1, 2007, and that removes a minimum of
199	50,000 policies from Citizens Property Insurance Corporation
200	without accepting a bonus, provided at least 25 percent of its
201	policies cover manufactured housing. Such an insurer may count
202	any funds above the minimum capital and surplus requirement that
203	were contributed into the insurer after March 1, 2007, as new
204	capital under this section.
205	2.  A Florida domiciled insurer that writes at least 40
206	percent of its policies covering manufactured housing in
207	Florida.
208	(3)  As used in this section, the term:
209	(a)  "Board" means the State Board of Administration.
210	(b)  "Program" means the Insurance Capital Build-Up
211	Incentive Program established by this section.
212	(4)  The state funds provided to the insurer in exchange
213	for the A surplus note provided to an insurer pursuant to this
214	section are is considered borrowed surplus an asset of the
215	insurer pursuant to s. 628.401 625.012.
216	(5)  If an insurer that receives funds in exchange for the
217	issuance of a surplus note pursuant to this section is rendered
218	insolvent, the state is a class 3 creditor pursuant to s.
219	631.271 for the unpaid principal and interest on the surplus
220	note.
221	(6)  The board shall adopt rules prescribing the
222	procedures, administration, and criteria for approving the
223	applications of insurers to receive funds in exchange for
224	issuance of surplus notes pursuant to this section, which may be
225	adopted pursuant to the procedures for emergency rules of
226	chapter 120. Otherwise, actions and determinations by the board
227	pursuant to this section are exempt from chapter 120.
228	(7)  The board shall invest and reinvest the funds
229	appropriated for the program in accordance with s. 215.47 and
230	consistent with board policy.
231	(8)  Costs and fees incurred by the board in administering
232	this program, including fees for investment services, shall be
233	paid from funds appropriated by the Legislature for this
234	program, but are limited to 1 percent of the amount
235	appropriated.
236	(9)  The board shall submit a report to the President of
237	the Senate and the Speaker of the House of Representatives by
238	February 1 of each year as to the results of the program and
239	each insurer's compliance with the terms of its surplus note.
240	(10)  The amendments to this section enacted in 2008 do not
241	affect the terms or conditions of surplus notes that were
242	approved prior to January 1, 2008. However, the board may
243	renegotiate the terms of any surplus note issued by an insurer
244	prior to January 2008 under this program, upon the agreement of
245	the insurer and the board, consistent with the requirements of
246	this section as amended in 2008.
247	(11)  By December 15, 2008, Citizens Property Insurance
248	Corporation shall transfer $250 million to the General Revenue
249	Fund if the combined surplus of each account as defined in s.
250	627.351(6) exceeds $1 billion. The board of governors of the
251	corporation shall make a reasonable estimate of such surplus on
252	or after December 1, 2008, and no later than December 14, 2008,
253	using generally accepted actuarial and accounting practices,
254	recognizing that audited financial statements will not yet be
255	available.
256	(12)  Beginning July 1, 2009, the board shall make
257	quarterly transfers of any interest earned prior to the issuance
258	of any surplus notes, interest paid, and principal repaid to the
259	state for any surplus notes issued by the program after December
260	1, 2008, to Citizens Property Insurance Corporation, provided
261	such surplus notes were funded exclusively by an appropriation
262	to the program by the Legislature for the 2008-2009 fiscal year.
263	The corporation shall credit each account as defined in s.
264	627.351(6) in a pro rata manner for the funds removed from each
265	account to make the transfer required by subsection (11).
266	Section 2.  Citizens Property Insurance Corporation may not
267	use any amendments made to s. 215.5595, Florida Statutes, by
268	this act or any transfer of funds authorized by this act as
269	justification or cause in seeking any rate or assessment
270	increase.
271	Section 3.  This act shall take effect July 1, 2008.
272
273
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275	T I T L E  A M E N D M E N T
276	Remove the entire title and insert:
277	A bill to be entitled
278	An act relating to the Insurance Capital Build-Up
279	Incentive Program; amending s. 215.5595, F.S.; revising
280	legislative findings; providing for an appropriation of
281	state funds in exchange for surplus notes issued by
282	residential property insurers under the program; revising
283	the conditions and requirements for providing funds to
284	insurers under the program; requiring a commitment by the
285	insurer to meet minimum premium-to-surplus writing ratios
286	for residential property insurance and for taking policies
287	out of Citizens Property Insurance Corporation; requiring
288	insurers to commit to maintaining certain levels of
289	surplus and reinsurance; authorizing the State Board of
290	Administration to charge a fee for late payments;
291	providing for payment of costs and fees incurred by the
292	board in administering the program from funds appropriated
293	to the program, subject to a specified limit; requiring
294	the board to submit an annual report to the Legislature on
295	the program and insurer compliance with certain
296	requirements; providing that amendments made by the act do
297	not affect the terms of surplus notes approved prior to a
298	specified date; authorizing the State Board of
299	Administration and an insurer to renegotiate such terms
300	consistent with such amendments; requiring Citizens
301	Property Insurance Corporation to transfer certain funds
302	to the General Revenue Fund if the combined surplus of
303	certain accounts exceeds $1 billion; requiring the
304	corporation to make certain reasonable estimates of such
305	surplus funds; requiring the board to make quarterly
306	transfers of funds to the corporation under certain
307	circumstances; requiring the corporation to credit certain
308	accounts for funds removed to make certain transfers;
309	prohibiting Citizens Property Insurance Corporation from
310	using certain statutory changes or authorized transfers of
311	funds as justification or cause to seek any rate or
312	assessment increase; providing an effective date.

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