Florida Senate - 2020 SB 540 By Senator Rader 29-00846-20 2020540__ Page 1 of 15 CODING: Words stricken are deletions; words underlined are additions. A bill to be entitled 1

An act relating to insurance guaranty associations; 2 creating s. 626.8621, F.S.; authorizing certain 3 guaranty association employees to adjust losses for 4 the Florida Insurance Guaranty Association if certain 5 conditions are met; amending s. 631.54, F.S.; 6 redefining the term “net direct written premiums” as 7 “direct written premiums” and revising the definition 8 of that term; amending s. 631.57, F.S.; deleting a 9 calculation of initial estimated assessments levied by 10 the Office of Insurance Regulation on insurers in the 11 Florida Insurance Guaranty Association; providing that 12 a notice requirement for initial assessments applies 13 to emergency assessments; revising the frequency of 14 payable installments for assessments if an installment 15 method is elected by the association; revising the 16 basis of calculating initial payments of assessments 17 for certain insurers; conforming a provision to 18 changes made by the act; amending ss. 625.012, 631.59, 19 and 631.912, F.S.; conforming provisions to changes 20 made by the act; amending s. 631.914, F.S.; deleting a 21 calculation of initial estimated assessments levied by 22 the office on insurers in the Florida Workers’ 23 Compensation Insurance Guaranty Association; revising 24 the method for calculating assessments; authorizing 25 the association to audit certain reports by insurers 26 and self-insurance funds; specifying a requirement for 27 the office in levying policy surcharges; revising a 28 procedure for collecting policy surcharges; revising 29

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 2 of 15 CODING: Words stricken are deletions; words underlined are additions. an installment method of payments to apply to policy 30 surcharges rather than to assessments; revising 31 requirements if the association elects to require 32 insurers to remit assessments before surcharging 33 policies; revising a requirement for annual 34 reconciliation reports by insurers; revising 35 construction; revising the applicability of premium 36 taxes, fees, and commissions; providing an effective 37 date. 38 39 Be It Enacted by the Legislature of the State of Florida: 40 41

Section

Section 626.8621, Florida Statutes, is created 42 to read: 43 626.8621 Adjustments by guaranty association employees.— 44

(1) An employee of the Florida Insurance Guaranty 45 Association, created under

part II of

chapter 631, may adjust 46 losses for the association if such employee holds, or has held 47 within the past 10 years, licensure in this state which allows 48 for the adjustment of such losses. 49

(2) An employee of a guaranty association established by 50 another state whose insurance regulators are members of the 51 National Association of Insurance Commissioners may adjust 52 losses for the Florida Insurance Guaranty Association. The 53 authorization for such employees to adjust losses must be 54 included in a contract with the Florida Insurance Guaranty 55 Association and the employee’s guaranty association or 56 association’s authorized representative. The Florida Insurance 57 Guaranty Association shall contract only for employees of other 58

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 3 of 15 CODING: Words stricken are deletions; words underlined are additions. state guaranty associations who maintain the appropriate 59 experience and training for adjusting such claims. 60

Section 2. Subsection (9) of

section 631.54, Florida 61 Statutes, is amended to read: 62 631.54

Definitions.—As used in this part: 63 (9) “Net Direct written premiums” means direct gross 64 premiums written in this state on insurance policies to which 65 this part applies, less return premiums thereon and dividends 66 paid or credited to policyholders on such direct business. The 67 term “Net direct written premiums” does not include premiums on 68 contracts between insurers or reinsurers. 69

Section 3. Paragraphs (a), (e), and (

f) of subsection (3) 70 of

section 631.57, Florida Statutes, are amended to read: 71 631.57 Powers and duties of the association.— 72 (3)(

a) To the extent necessary to secure funds for the 73 respective accounts for the payment of covered claims, to pay 74 the reasonable costs to administer such accounts, and to secure 75 funds for the account specified in s. 631.55(2)(

b) or to retire 76 indebtedness, including, without limitation, the principal, 77 redemption premium, if any, and interest on, and related costs 78 of issuance of, bonds issued under s. 631.695 and the funding of 79 reserves and other payments required under the bond resolution 80 or trust indenture pursuant to which such bonds have been 81 issued, the office, upon certification of the board of 82 directors, shall levy assessments, in accordance with 83 subparagraph (f)1. or subparagraph (f)2., initially estimated in 84 the proportion that each insurer’s net direct written premiums 85 in this state in the classes protected by the account bears to 86 the total of said net direct written premiums received in this 87

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 4 of 15 CODING: Words stricken are deletions; words underlined are additions. state by all such insurers for the preceding calendar year for 88 the kinds of insurance included within such account. Assessments 89 shall be remitted to and administered by the board of directors 90 in the manner specified by the approved plan and paragraph (f). 91 Each insurer so assessed shall have at least 30 days’ written 92 notice as to the date the initial assessment payment is due and 93 payable. Every assessment shall be a uniform percentage.

The 94 assessments levied against any insurer may not exceed in any one 95 calendar year more than 2 percent of that insurer’s net direct 96 written premiums in this state for the kinds of insurance 97 included within such account. 98 (e)1. In addition to assessments authorized in paragraph 99 (a), and to the extent necessary to secure the funds for the 100 account specified in s. 631.55(2)(

b) for the direct payment of 101 covered claims of insurers rendered insolvent by the effects of 102 a hurricane and to pay the reasonable costs to administer such 103 claims, or to retire indebtedness, including, without 104 limitation, the principal, redemption premium, if any, and 105 interest on, and related costs of issuance of, bonds issued 106 under s. 631.695 and the funding of any reserves and other 107 payments required under the bond resolution or trust indenture 108 pursuant to which such bonds have been issued, the office, upon 109 certification of the board of directors, shall levy emergency 110 assessments upon insurers holding a certificate of authority. 111 The emergency assessments levied against any insurer may not 112 exceed in any one calendar year more than 2 percent of that 113 insurer’s net written premiums in this state for the kinds of 114 insurance within the account specified in s. 631.55(2)(b). 115 2.

Emergency assessments authorized under this paragraph 116

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 5 of 15 CODING: Words stricken are deletions; words underlined are additions. shall be levied by the office upon insurers in accordance with 117 paragraph (f), upon certification as to the need for such 118 assessments by the board of directors.

If the board participates 119 in the issuance of bonds in accordance with s. 631.695, 120 emergency assessments shall be levied in each year that bonds 121 issued under s. 631.695 and secured by such emergency 122 assessments are outstanding in amounts up to such 2-percent 123 limit as required in order to provide for the full and timely 124 payment of the principal of, redemption premium, if any, and 125 interest on, and related costs of issuance of, such bonds.

The 126 emergency assessments are assigned and pledged to the 127 municipality, county, or legal entity issuing bonds under s. 128 631.695 for the benefit of the holders of such bonds in order to 129 provide for the payment of the principal of, redemption premium, 130 if any, and interest on such bonds, the cost of issuance of such 131 bonds, and the funding of any reserves and other payments 132 required under the bond resolution or trust indenture pursuant 133 to which such bonds have been issued, without further action by 134 the association, the office, or any other party.

If bonds are 135 issued under s. 631.695 and the association determines to secure 136 such bonds by a pledge of revenues received from the emergency 137 assessments, such bonds, upon such pledge of revenues, shall be 138 secured by and payable from the proceeds of such emergency 139 assessments, and the proceeds of emergency assessments levied 140 under this paragraph shall be remitted directly to and 141 administered by the trustee or custodian appointed for such 142 bonds. 143 3. Emergency assessments used to defease bonds issued under 144 this part may be payable in a single payment or, at the option 145

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 6 of 15 CODING: Words stricken are deletions; words underlined are additions. of the association, may be payable in quarterly 12 monthly 146 installments, with the first installment being due and payable 147 at the end of the month after an emergency assessment is levied 148 and subsequent installments being due by the end of each 149 succeeding month. 150 4.

If emergency assessments are imposed, the report 151 required by s. 631.695(7) must include an analysis of the 152 revenues generated from the emergency assessments imposed under 153 this paragraph. 154 5. If emergency assessments are imposed, the references in 155 sub-subparagraph (1)(a)3.b. and s. 631.695(2) and (7) to 156 assessments levied under paragraph (

a) must include emergency 157 assessments imposed under this paragraph. 158 6. If the board of directors participates in the issuance 159 of bonds in accordance with s. 631.695, an annual assessment 160 under this paragraph shall continue while the bonds issued with 161 respect to which the assessment was imposed are outstanding, 162 including any bonds the proceeds of which were used to refund 163 bonds issued pursuant to s. 631.695, unless adequate provision 164 has been made for the payment of the bonds in the documents 165 authorizing the issuance of such bonds. 166 (f)1. The association, office, and insurers remitting 167 assessments pursuant to paragraph (

a) or paragraph (

e) must 168 comply with the following: 169 a. In the order levying an assessment, the office shall 170 specify the actual percentage amount to be collected uniformly 171 from all the policyholders of insurers subject to the assessment 172 and the date on which the assessment year begins, which may not 173 begin before 90 days after the association board certifies such 174

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 7 of 15 CODING: Words stricken are deletions; words underlined are additions. an assessment. 175 b. Insurers shall make an initial payment to the 176 association before the beginning of the assessment year on or 177 before the date specified in the order of the office. Each 178 insurer shall have at least 30 days’ written notice as to the 179 date on which the initial assessment payment is due and payable. 180 c.

Insurers that have written insurance in the calendar 181 year before the year in which the assessment is certified by the 182 board shall make an initial payment based on the net direct 183 written premium in this state for the classes protected by the 184 account amount from the previous calendar year as set forth in 185 the insurer’s annual statement, multiplied by the uniform 186 percentage of premium specified in the order issued by the 187 office.

Insurers that have not written insurance in the previous 188 calendar year in any of the lines under the account which are 189 being assessed, but which are writing insurance as of, or after, 190 the date the board certifies the assessment to the office, shall 191 pay an amount based on a good faith estimate of the amount of 192 net direct written premium anticipated to be written in the 193 subject lines of business for the assessment year, multiplied by 194 the uniform percentage of premium specified in the order issued 195 by the office. 196 d.

Insurers shall file a reconciliation report with the 197 association which indicates the amount of the initial payment to 198 the association before the assessment year, whether such amount 199 was based on net direct written premium contained in a previous 200 calendar year annual statement or a good faith projection, the 201 amount actually collected during the assessment year, and such 202 other information contained on a form adopted by the association 203

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 8 of 15 CODING: Words stricken are deletions; words underlined are additions. and provided to the insurers in advance. If the insurer 204 collected from policyholders more than the amount initially 205 paid, the insurer shall pay the excess amount to the 206 association. If the insurer collected from policyholders an 207 amount which is less than the amount initially paid to the 208 association, the association shall credit the insurer that 209 amount against future assessments.

Such payment reconciliation 210 report, and any payment of excess amounts collected from 211 policyholders, shall be completed and remitted to the 212 association within 90 days after the end of the assessment year. 213 The association shall send a final reconciliation report on all 214 insurers to the office within 120 days after each assessment 215 year. 216 e. Insurers remitting reconciliation reports under this 217 paragraph to the association are subject to s. 626.9541(1)(e). 218 2. For assessments required under paragraph (

a) or 219 paragraph (e), the association may use a quarterly monthly 220 installment method instead of the method described in sub-221 subparagraphs 1.b. and c. or in combination thereof based on the 222 association’s projected cash flow. If the association projects 223 that it has cash on hand for the payment of anticipated claims 224 in the applicable account for at least 6 months, the board may 225 make an estimate of the assessment needed and may recommend to 226 the office the assessment percentage that may be collected as a 227 quarterly monthly assessment.

The office may, in the order 228 levying the assessment on insurers, specify that the assessment 229 is due and payable quarterly monthly as the funds are collected 230 from insureds throughout the assessment year, in which case the 231 assessment shall be a uniform percentage of premium collected 232

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 9 of 15 CODING: Words stricken are deletions; words underlined are additions. during the assessment year and shall be collected from all 233 policyholders with policies in the classes protected by the 234 account. All insurers shall collect the assessment without 235 regard to whether the insurers reported premium in the year 236 preceding the assessment. Insurers are not required to advance 237 funds if the association and the office elect to use the 238 quarterly monthly installment option.

All funds collected shall 239 be retained by the association for the payment of current or 240 future claims. This subparagraph does not alter the obligation 241 of an insurer to remit assessments levied pursuant to this 242 subsection to the association. 243

Section 4. Paragraph (

b) of subsection (15) of

section 244 625.012, Florida Statutes, is amended to read: 245 625.012 “Assets” defined.—In any determination of the 246 financial condition of an insurer, there shall be allowed as 247 “assets” only such assets as are owned by the insurer and which 248 consist of: 249 (15) 250 (

b) Assessments levied as monthly installments pursuant to 251 s. 631.57(3)(e)3. or s. 631.914 which are paid after policy 252 surcharges are collected so that the recognition of assets is 253 based on actual premium written offset by the obligation to the 254 Florida Insurance Guaranty Association or the Florida Workers’ 255 Compensation Insurance Guaranty Association, Incorporated. 256

Section 5. Subsection (3) of

section 631.59, Florida 257 Statutes, is amended to read: 258 631.59 Duties and powers of department and office.— 259

(3) The office shall, upon request of the board of 260 directors, provide the association with a statement of the net 261

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 10 of 15 CODING: Words stricken are deletions; words underlined are additions. direct written premiums of each member insurer. 262

Section 6. Subsection (1) of

section 631.912, Florida 263 Statutes, is amended to read: 264 631.912 Board of directors.— 265

(1) The board of directors of the corporation shall consist 266 of 11 persons, 1 of whom is the insurance consumer advocate 267 appointed under s. 627.0613 or designee and 1 of whom is 268 designated by the Chief Financial Officer. The department shall 269 appoint to the board 6 persons selected by private carriers from 270 among the 20 workers’ compensation insurers with the largest 271 amount of net direct written premium as determined by the 272 department, and 2 persons selected by the self-insurance funds. 273 The Governor shall appoint one person who has commercial 274 insurance experience.

At least two of the private carriers shall 275 be foreign carriers authorized to do business in this state. The 276 board shall elect a chairperson from among its members. The 277 Chief Financial Officer may remove any board member for cause. 278 Each board member shall be appointed to serve a 4-year term and 279 may be reappointed. A vacancy on the board shall be filled for 280 the remaining period of the term in the same manner by which the 281 original appointment was made. 282

Section 7. Subsections (1), (2), and (3) of

section 283 631.914, Florida Statutes, are amended to read: 284 631.914 Assessments.— 285 (1)(

a) To the extent necessary to secure the funds for the 286 payment of covered claims, and also to pay the reasonable costs 287 to administer the same, the Office of Insurance Regulation, upon 288 certification by the board, shall levy assessments on each 289 insurer initially estimated in the proportion that the insurer’s 290

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 11 of 15 CODING: Words stricken are deletions; words underlined are additions. net direct written premiums in this state bears to the total of 291 said net direct written premiums received in this state by all 292 such workers’ compensation insurers for the preceding calendar 293 year.

Assessments levied against insurers and self-insurance 294 funds pursuant to this paragraph must be computed and levied on 295 the basis of the full policy premium value on the net direct 296 written premium amount as set forth in the state for workers’ 297 compensation insurance without consideration of any applicable 298 discount or credit for deductibles.

An insurer’s direct written 299 premium calculated for the purposes of determining the insurer’s 300 assessment or policy surcharge may not be reduced by any 301 discount or credit for deductibles in a policy or by any premium 302 adjustment to a retrospectively rated policy. Insurers and self-303 insurance funds must report premiums in compliance with this 304 paragraph, and the association may audit the reports. 305 Assessments shall be remitted to and administered by the board 306 of directors in the manner specified by the approved plan of 307 operation and paragraph (d).

Each assessment shall be a uniform 308 percentage applicable to the net direct written premiums of each 309 insurer writing workers’ compensation insurance. Assessments 310 levied against insurers and self-insurance funds shall not 311 exceed in any calendar year more than 2 percent of that 312 insurer’s net direct written premiums in this state for workers’ 313 compensation insurance. 314 (c)(

b) The office shall levy the uniform surcharge 315 percentage on all policies of the same kind or line as were 316 considered by the office in determining the assessment liability 317 of the insurer. Member insurers shall collect policy surcharges 318 at a uniform percentage rate on new and renewal policies issued 319

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 12 of 15 CODING: Words stricken are deletions; words underlined are additions. and effective during the period of 12 months beginning on 320 January 1, April 1, July 1, or October 1, whichever is the first 321 day of the following calendar quarter as specified in an order 322 issued by the office directing insurers to pay an assessment to 323 the association. The policy surcharge may not begin until 90 324 days after the board of directors certifies the assessment. 325 (b)(

c) If assessments otherwise authorized in paragraph (a) 326 are insufficient to make all payments on reimbursements then 327 owing to claimants in a calendar year, then upon certification 328 by the board, the office shall levy additional assessments of up 329 to 1.5 percent of the insurer’s net direct written premiums in 330 this state. 331 (

d) The association may use an installment method to 332 require the insurer to remit the policy surcharge assessment as 333 collected premium is written or may require the insurer to remit 334 the assessment to the association before collecting the policy 335 policyholder surcharge. If the assessment is remitted before the 336 surcharge is collected, the assessment remitted must be based on 337 an estimate of the assessment due based on the proportion of 338 each insurer’s net direct written premium in this state for the 339 preceding calendar year as described in paragraph (

a) and 340 adjusted following the end of the 12-month period during which 341 the assessment is levied. 342 1. If the association elects to use the installment method, 343 the office may, in the order levying the assessment on insurers, 344 specify that the policy surcharge assessment is due and payable 345 quarterly as collected premium is written throughout the 346 assessment year. Insurers shall collect policy surcharges at a 347 uniform percentage rate specified by order as described in 348

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 13 of 15 CODING: Words stricken are deletions; words underlined are additions. paragraph (c) (b). Insurers are not required to advance funds if 349 the association and the office elect to use the installment 350 option. Assessments levied under this subparagraph are paid 351 after policy surcharges are collected, and the recognition of 352 assets is based on actual policy surcharges collected premium 353 written offset by the obligation to the association. 354 2.

If the association elects to require insurers to remit 355 the assessment before surcharging the policy policyholder, the 356 following shall apply: 357 a. On or before the date specified in the order of the 358 office, insurers shall make an initial payment to the 359 association of the percentage specified in the order multiplied 360 by the insurer’s direct written premiums received in this state 361 for the preceding calendar year for the kinds of insurance 362 included within such account before the beginning of the 363 assessment year. 364 b.a.

The levy order shall provide each insurer so assessed 365 at least 30 days’ written notice of the date the initial 366 assessment payment is due and payable by the insurer. 367 c.b. Insurers shall collect policy surcharges at a uniform 368 percentage rate specified by the order, as described in 369 paragraph (c) (b). 370 d.c. Assessments levied under this subparagraph and are 371 paid by an insurer constitute advances of funds from the insurer 372 to the association before policy surcharges are billed and 373 result in a receivable for policy surcharges to be billed in the 374 future.

The amount of billed policy surcharges, to the extent it 375 is likely that it will be realized, meets the definition of an 376 admissible asset as specified in the National Association of 377

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 14 of 15 CODING: Words stricken are deletions; words underlined are additions. Insurance Commissioners’ Statement of Statutory Accounting 378 Principles No. 4. The asset shall be established and recorded 379 separately from the liability. If an insurer is unable to fully 380 recoup the amount of the assessment, the amount recorded as an 381 asset shall be reduced to the amount reasonably expected to be 382 recouped. 383 3.

Insurers must submit a reconciliation report to the 384 association within 120 days after the end of the 12-month 385 assessment period and annually thereafter for a period of 3 386 years. The report must indicate the amount of the initial 387 payment or installment payments made to the association and the 388 amount of policy surcharges collected written premium pursuant 389 to paragraph (

a) for the assessment year. If the insurer’s 390 reconciled assessment obligation is more than the amount paid to 391 the association, the insurer shall pay the excess policy 392 surcharges collected to the association. If the insurer’s 393 reconciled assessment obligation is less than the initial amount 394 paid to the association, the association shall return the 395 overpayment to the insurer. 396

(2) Policy surcharges collected Assessments levied under 397 this

section are not premium and are not subject to any premium 398 tax, fees, or commissions. Insurers shall treat the failure of 399 an insured to pay policy assessment-related surcharges as a 400 failure to pay premium. An insurer is not liable for any 401 uncollectible policy assessment-related surcharges levied 402 pursuant to this section. 403

(3) Assessments levied under this

section may be levied 404 only upon insurers. This

section does not create a cause of 405 action by a policyholder with respect to the levying of an 406

Florida Senate - 2020 SB 540 29-00846-20 2020540__ Page 15 of 15 CODING: Words stricken are deletions; words underlined are additions. assessment or a policyholder’s duty to pay assessment-related 407 policy surcharges. 408

Section 8. This act shall take effect July 1, 2020. 409