HB 5057

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

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