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

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