TEST 3: Summary of the Insure Louisiana Incentive Program
Aug 30, 2007
Among the legislation which passed during the recently conducted 2007 Louisiana Legislative Session was House Bill 678, which established the Insure Louisiana Incentive Program (“Incentive Program”).
This Incentive Program, which becomes effective on December 1, 2005, is structured as a grant program, pursuant to which eligible Louisiana property insurers can earn dollar-for-dollar matching state grant money, as opposed to a loan, provided that they meet certain writing ratios and other requirements.
In order to be eligible for a grant, property insurers must maintain the following minimum solvency requirements:
â€¢ Capital and surplus in an amount not less than $25 million;
â€¢ A.M. Best rating of B+ or better or an equivalent rating;
â€¢ Risk-based capital ratio of 500 percent;
â€¢ Premium to surplus ratio of 2 to 1 but in no event greater than 4 to 1;
â€¢ Sufficient reinsurance for the amount of business to be written;
â€¢ Grantee cannot insure more than 10 percent of its surplus in any one risk;
â€¢ Demonstrated ability to comply with the matching capital requirements ofÂ Â§ 12321, Louisiana Statutes;
â€¢ Satisfactory prior experience; and
â€¢ An existing Louisiana Certificate of Authority for the line or lines of insurance which the insurer applicant will write pursuant to the Incentive Program or documentation that an application for such licensure has been filed with the Company Licensing Division of the Louisiana Department of Insurance (â€œDepartmentâ€).
The Incentive Program is structured as one or possibly two rounds of funding, with the deadlines to be determined. In the first round of funding, the Commissioner of Insurance must allocate individual grants of not less than $2 million, or greater than $10 million.Â The Commissioner of Insurance has wide discretion in the awarding of grants but must allocate at least 20% of the total amount appropriate to domestic insurers unless there are insufficient domestic insurer applicants. If there are funds remaining, the Commissioner must issue a second invitation for grant applications and must again allocate individual grants of not less than $2 million or greater than $10 million. Insurers who received a grant in the first round may apply for and receive an additional grant in the second round provided that the total amount awarded any insurer does not exceed $10 million. Additionally, the total amount of grants awarded must not exceed 20% of an insurerâ€™s capital and surplus as reported to the Department. If funds remain in the Incentive Program after the second round of grants, those funds must be returned to the state general fund.
The Incentive Program is administered by the Louisiana Commissioner of Insurance. Grant applications are submitted to the Departmentâ€™s Office of Financial Solvency and the award of grants is at the Commissionerâ€™s or his advisory committeeâ€™s discretion, subject to the review and approval of the Joint Legislative Committee on the Budget.
Grantees must write new property insurance in Louisiana with net written premiums of at least a ratio of $2 of premium for each $1 of the total of newly allocated insurer capital and the grant from the Incentive Program. The new insurance written by the grantee shall be residential, commercial, mono-line, or package property insurance policies and must include coverage for wind and hail with limits equal to the limits provided for other perils insured under such policies.Â
Grantees must also, in the first 24 months after receipt of the grant, write at least 50 percent of net written premiums for properties in a parish included in the federal Gulf Opportunity Zone Act of 2005.Â In addition, in each year after receipt of the grant, the grantee shall write at least 25 percent of net written premium for property formerly insured by the Louisiana Citizens Property Insurance Corporation.Â At least 50 percent of such policyholders insured by Citizens Property Insurance Corporation shall be located in the parishes included in the federal Gulf Opportunity Zone Act of 2005.Â Applicants must also maintain the premium ratio associated with the Incentive Program for at least five years from the implementation of the grant.
With respect to capital, an insurer who has received a grant is entitled to earn the grant at the rate of 20 percent per year for each year in which the insurer maintains the net written premiums in compliance with the requirements of Louisiana law, so that the insurer can earn the entire grant in five years.Â The earning period will begin after the first 24 months of the Incentive Program, unless the grantee has met the Incentive Programâ€™s writing requirements prior to the end of the 24-month period.Â The Commissioner may sometimes extend the term period for one year for grantees that are not in full compliance during any given year, but who show promise of future compliance.
The following example assumes a $2 million grant and the proposed Rule requirements:
The applicant is awarded a $2 million grant.Â Within 10 days of the award, the applicant must match the grant with newly allocated capital funds of at least $2 million (or above the $25 million minimum) and provide written certification of compliance to the Department.Â In the first grant year and each grant year thereafter, the grantee must write property insurance in Louisiana with net written premiums of at least $8 million.Â By the end of the second year, the grantee shall write at least $4 million of the net written premiums for policyholders whose insured property is located in Louisiana in a parish included in the federal Gulf Opportunity Zone of 2005. At least $2 million of the $4 million of net written premiums shall be written for policyholders whose property was formerly insured by Louisiana Citizens Property Insurance Corporation.Â At least $1 million of that premium must be from former Citizens policyholders whose insured properties are located in Louisiana in a parish included in the federal Gulf Opportunity Zone of 2005. This requirement must be met in each year of the grant and demonstrated on the granteeâ€™s annual reports.Â This net written premium must be maintained over a five year period from the implementation of the grant unless an extension has been granted by the Commissioner.
The above information is intended to be a summary of the Incentive Program.Â It is neither intended to provide specific analysis nor should it be relied upon in making business decisions that are specific in nature.Â Please also note that this Incentive Program is subject to further revisions, public notice and comment.Â Should you have any questions or concerns regarding this information, please feel free to contact our office.