FPCA Members: Florida Senator Garrett Richter Seeking Insurer Feedback on Proposed OIR Solvency and Holding Company Bill; Analysis Included
Jan 3, 2013
Florida Property and Casualty Association Members:
Florida Senator Garrett Richter is presently seeking insurance industry input on draft solvency and holding company legislation promulgated last month by the Florida Office of Insurance Regulation (“OIR”) that would provide for Florida compliance with portions of the National Association of Insurance Commissioners’ (“NAIC”) Model Holding Company Act (“Model Act”) and Model Holding Company Regulation. If ultimately enacted, the proposal would become effective on October 1, 2013.
The OIR’s proposed legislation and corresponding summary are attached, along with a draft proposal providing for a coordinating confidentiality exemption. Neither has yet been filed as a bill.
Colodny Fass& Webb’s Claude Mueller has prepared notations on the OIR draft bill below, which are intended to assist in FPCA members in contemplating additional comments to submit themselves.
- Any FPCA member comments should be submitted to Mr. Mueller (firstname.lastname@example.org) no later than the close of business on January 3, 2013 in order to facilitate their timely transmittal to Senator Richter.
Notations on Proposed OIR “Solvency and Holding Company Act”
Risk-Based Capital Trend Test (Lines 42 – 49)
- Adds additional trigger for Company Action Level Risk-Based Capital (“RBC”) event based on NAIC established trend test found in NAIC’s Risk-Based Capital Forecasting and Instructions, Property and Casualty
- RBC remains confidential under §624.40851.
Related Points to Note:
- How many more Florida domestic property and casualty insurers would have incurred company action level events over the past two years had the trend test been in place?
- Have there been any insurer insolvencies that the OIR could identify as having been preventable through corrective action the trend test had been in place sooner?
Statement of Actuarial Opinion and Actuarial Opinion Summary (Lines 92 – 103)
- The filing of a Statement of Actuarial Opinion is already required under §624.424(1)(b), (see Lines 78-91); therefore, the restatement of the requirement to file it in the new subsection (c) may be redundant.
- It is important to maintain the confidentiality of the Actuarial Opinion Summary. If the Actuarial Opinion and Summary Confidentiality portion of the bill is not passed, this Section should be deleted.
Holding Company Act (Lines 108 – 633)
The OIR is seeking the adoption of certain portions of the NAIC Model Holding Company Act and Model Holding Company Regulation that would provide the agency with additional authority to look more closely at all of the members of a holding company system. However, it must be contemplated whether there are other provisions of the Model Act that should be considered for adoption in Florida as well.
For instance, for purposes of acquisitions of controlling stock, Florida law currently requires a filing with the OIR in situations where the acquisition will be of 5 percent or more of the outstanding voting securities of a domestic stock insurer (See Line 115). Current law does allow for the filing of a disclaimer of affiliation and control if the acquisition is less than 10 percent, but the OIR can disallow such disclaimer.
Florida is the only state with 5 percent as its threshold. The NAIC Model Act presumes control at 10 percent and an acquisition of 10 percent or more as the trigger for making an acquisition filing with an insurance regulator. Should Florida also adopt this standard? Doing so would require changing the 5 percent to 10 percent on the following lines of the bill: 115, 421, 432, 469 and 47, and deleting Lines 140 – 155.
Also, the Model Act contains a more simple and straightforward section on extraordinary dividends. Should be that be considered for application to Florida insurers?
Another significant difference between current Florida law and the Model Act is the confidentiality of holding company registration statements. Currently, Florida law does not protect holding company registration statement filings as confidential, but the Model Act does. The Enterprise Risk Confidentiality portion of the OIR’s proposed bill would give confidentiality protection only to Enterprise Risk filings made pursuant to the proposed legislation. Should this confidentiality bill be expanded to provide confidentiality to all holding company registration statements filed in Florida?
The first sentence of §628.461(12)(b)(Line 489) is not new and should not be underlined as new text. Further the purpose of subparagraph (12) is to provide definitions. The new language added to subparagraph (12)(b) beginning with “Any controlling person . . .” (Line 492) is requiring action of controlling persons seeking to divest their controlling interest. This requirement should be made elsewhere and not within the definition of “controlling person.”
On Line 498, the OIR’s proposed bill states:
“The office shall determine those instances in which the party or parties seeking to divest or to acquire a controlling interest in an insurer will be required to file for and obtain approval of the transaction.”
Section 628.461 already establishes the requirement for an acquisition filing. The requirement to file notice of a divesture is new, but whether or not an insurer should be required to file for and obtain approval of the OIR should not be at the OIR’s “discretion.” Rather, the requirement should be based on parameters established by statute, so that action of the OIR is not arbitrary, thus allowing stockholders and those who might consider investing in a Florida domestic insurer to know what the rules are beforehand.
Enterprise Risk Filing (Line 540 – 587)
- Confidentiality of Enterprise Risk Filing is critical. Without it, investment in Florida domestic stock insurers will likely be severely restricted. If the Enterprise Risk portion of the proposed confidentiality bill is not passed, this Section should be deleted.
- See comments above regarding expansion to all holding company registration filings.
- In Line 540, “Ultimate Controlling Person” should be defined in statute.
Supervisory Colleges (Line 590 – 633)
Consideration should be made of limitations on this section in its application to holding company systems that include insurers located in multiple jurisdictions. If all of the insurers in a holding company system are Florida domestics, it must be pondered why Florida would need to participate in a supervisory college?
Reminder: Any FPCA member comments should be submitted to Claude Mueller (email@example.com) no later than the close of business on January 3, 2013 in order to facilitate their timely transmittal to Senator Richter.