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

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