Florida Legislature Approves Solvency Modernization Legislation (CS/CS/SB 1308, CS/CS/SB 1300)
Apr 30, 2014
Two bills approved by the Florida Legislature are expected to benefit Florida policyholders by modernizing insurer solvency regulation, the Florida Office of Insurance Regulation (“OIR”) advised today, April 30, 2014.
Sponsored by Senator David Simmons and State Representative Clay Ingram, CS/CS/SB 1308, along with CS/CS/SB 1300–a linked bill relating to public records–the package would make fundamental changes to the way insurance companies and their affiliates are supervised by state regulators. CS/CS/SB 1308 was accepted today by the Florida House of Representatives by a vote of 112 to 1, thus approving a principle-based approach to establishing insurer reserves for term life and certain universal life insurance products.
“The new solvency requirements are, in part, responsive to the financial crisis and strengthen the state regulation of insurance holding companies,” explained Florida Insurance Commissioner McCarty, who helped develop the standards during his tenure as National Association of Insurance Commissioners (“NAIC”) President in 2012. “Having a more complete picture of an entire enterprise will put us in a much better position to respond effectively to threats to the financial stability of insurance companies. We thank the Legislature for passing, and Senator Simmons and Representative Ingram for sponsoring this important priority during this legislative session,” he added.
The solvency changes largely adhere to national standards developed by the NAIC in the aftermath of the 2008 financial crisis. They equip the OIR with the tools needed to better monitor and respond to the risks posed to the financial stability of entire insurance enterprises.
An International Monetary Fund review following the 2008 turmoil was complimentary of U.S. regulation, but noted the need for a broader scope when examining a company’s various groups, and the way in which they interact and affect the financial stability of the overall enterprise. The NAIC responded proactively and devised a more effective set of standards and requirements, the OIR explained.
Specifically, the revisions approved by the Florida Legislature today call for enterprise risk reporting at the insurance holding company level, enhanced regulator access to data and information from non-insurance operations, clear authority to participate in supervisory colleges, and enhanced information sharing among regulators.
If approved by Florida Governor Rick Scott, the bill would also establish a new approach to evaluating a life insurance company’s reserves that is intended to ensure appropriate reserve levels are established for various life insurance products.
“Principle-based reserving will replace the current ‘one-size-fits-all’ formula to determine appropriate reserve levels with an approach that more closely reflects the risks associated with today’s highly complex insurance products,” Commissioner McCarty said. “It will ‘right-size reserves’-reducing reserves that may be too high for some products and increasing reserves that may be too low for other products.
Florida will become the 14th state to adopt the new principle-based reserving standard, which takes effect in 2017 upon the approval of 42 other states adopting the same measure. So far, six state legislatures are considering the measure, which became available last year for adoption. It is expected to be expanded to apply to health insurance and eventually other insurance lines of business.
Except as otherwise expressly provided, CS/CS/SB 1308 and CS/CS/SB 1300 would take effect on October 1, 2014.
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