FPCA Homeowners Division OIR Proposed Rule Regarding Reduced Collateral

Mar 27, 2014

Florida Property and Casualty Association Homeowners Division Members:

Attached are a notice of proposed rule development from OIR and drafts of the two affected rules (69O-144.005 and 69O-144.007).  These are pertaining to the Florida insurer’s ability to take full credit for loss reserves ceded to an unauthorized reinsurer without holding 100% collateral.  The changes are being made to make OIR’s rules conform to those adopted by the NAIC last year, including adopting certain forms that were promulgated by the NAIC.  The reinsurer must apply for certified status with the OIR and be approved via order/consent order.

Rule 69O-144.005 has two substantive changes:

1.            A domestic ceding insurer shall now be required to notify the OIR within thirty days if reinsurance recoverable from a single reinsurer or group (related) of reinsurers exceeds 50% of the cedant’s last reported surplus or it is determined likely to exceed this amount.

2.            A domestic ceding insurer shall now be required to notify the OIR within thirty days after the ceding more than 20% of it prior year gross written premiums, or after it is determined it will like exceed this amount, to any single reinsurer or group of reinsurers.

The substantive changes to Rule 69O-144.005 are as follows:

1.            In addition to the reinsurer’s last three years’ audited financial statements, the reinsurer must provide OIR with an actuarial opinion as filed with the insurer’s domiciliary jurisdiction.

2.            Provides for the submission of Form CR-1, in place of the documentation previously required that the reinsurer submits to U.S. jurisdiction, appoints an agent for service of process in Florida, and agrees to post 100% collateral for its Florida liabilities under certain circumstances.

3.            Require the reinsurer to submit any regulatory filings made with the reinsurer’s domiciliary jurisdiction.

4.            Provides for the submission of Form CR-F or CR-S, as applicable, in place of information regarding ceded and ceding insurance in the form of Schedule F.

5.            Requires the reinsurer to submit any other information the OIR reasonably deems appropriate to the application.

6.            Upon receipt of an application, the OIR shall now post notice on its website and allow a 30 day public comment period before taking final action on the application.

7.            Provides that each certified reinsurer shall be rated on a legal entity basis, with limited exception.

8.            Provides clarification of the factors considered by OIR in the evaluation process.

9.            Provides that the OIR shall publish a list of certified reinsurers on its website, including the rating assigned.

10.          Lists the information required to be filed annually by the reinsurer in order to maintain its rating.

11.          Requires a certified reinsurer to notify the OIR within ten days of any change in its ratings assigned by rating agencies or any regulatory actions taken again it.

12.          Adds NAIC accredited states to the definition of qualified jurisdiction.

13.          Clarifies the OIR’s authority to suspend, revoke, or otherwise modify a certified reinsurer’s certification.

14.          Provides that a certified reinsurer given an upgrade in status by the OIR must continue to post security under the previously applicable requirements for all contracts in force on or before the effective date of the upgrade.  Where OIR downgrades a certified reinsurer, the certified reinsurer must meet the security requirements for the new rating for all business it has assumed as a certified reinsurer.

At presently, OIR has only allowed reduced collateral for property catastrophe assumed business and not for other lines, such as workers compensation or liability lines of business.  We have been told that upon adoption of these rules, OIR may give consideration to applications for certified reinsurer status for other lines of business.

As of Yesterday, March 26, 2014 at 4:00pm, there has not been a request made, pursuant to the OIR’s Notice, for the workshop to be held.

Should you have any questions, please contact Katie Webb (kwebb@cftlaw.com) and William Stander (William@williamstander.com).