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

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