Analysis of Pending Managing General Agents Amendments
Apr 8, 2010
The 2010 Florida Legislature is currently considering legislation that -if passed- might well eradicate capital from Florida’s insurance marketplace and further harm an already ravaged industry. Specifically, the proposals provide for an expansion of regulatory control over Managing General Agents (“MGAs”) and other insurer affiliates.
On April 1, 2010, Senator Mike Fasano filed Amendment 707330 to SB 2176, a bill relating to commercial insurance rates. The Amendment would expand the regulatory provisions of subsections 638.371(1) and (3), Fla. Stat. -governing “dividends to stockholders”- to include dividend regulation for all affiliated companies of domestic stock insurers. An “affiliated company” is defined in the proposal as any affiliated company within the holding company system that has a contractual relation to any other financial arrangement, whereby a portion of the premium from the insurer is paid to the affiliate.
In addition, Amendment 707330 would expand section 628.801, Fla. Stat. -which governs “insurance holding companies, registration; regulation”- to require domestic and commercially domiciled insurers that are members of a holding company, to annually file financial statements, including financial information for all affiliated companies. The Amendment defines “affiliate” as a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the person specified.
Finally, the Amendment would require insurers to provide the Florida Office of Insurance Regulation (“OIR”) 60 days prior written notice of all proposed contractual transactions between an insurer and the insurer’s holding company -regardless of whether the transaction concerned the entering into, the amending, or the termination of a contract- so long as the contractual transaction related to one the following types of matters: (1) purchases, exchanges, loans, or extensions of credit guarantees, or investments; (2) loans or extensions of credit to any person who is not an affiliate; (3) reinsurance agreements or modifications thereto; (4) all management agreements, service contracts, and cost sharing arrangements; or, (5) any transactions that the OIR determines may adversely affect the interests of the insurer’s policyholders. Under the proposal, the OIR would have 30 days following receipt of notice to approve or disapprove the contractual transaction. Although the Amendment was withdrawn on April 7, 2010, we anticipate the filing of a similar amendment and will continue to monitor the issue accordingly.
On April 6, 2009, Senator Carey Baker filed Amendment 702972 to CS/SB 2044, relating to property insurance. The Amendment 702972 concerns section 624.4085, Fla. Stat., governing “risk-based capital requirements for insurers,” and would add subsection 624.4085(3)(b)(2), requiring residential property insurers -who conduct business with “affiliates”- to include in-depth financial information for all such affiliates. The financials for all affiliates would have to include, as provided in the Amendment, information relating to: (1) total assets; (2) liabilities; (3) surplus or shareholders equity; (4) net income; (5) total amounts receivable from parents, subsidiaries, and affiliates; (6) total amounts payable from parents, subsidiaries, and affiliates; (7) dividends paid to shareholders of common stock; (8) debt service; and, (9) payments for other contractual obligations to support insurance-related activities.
Amendment 702972 would also amend section 626.7452, governing “managing general agents; examination authority,” by removing the exception that a managing general agent may not be examined as if it were an insurer where the MGA solely represents a single domestic insurer.
Moreover, the Amendment would amend section 628.801, Fla. Stat. -“regulating insurance holding companies; registration”- and would prohibit insurers from making any payment to an MGA outside of the contractual terms, unless 30 days notice is given to the OIR in advance of any such payment and the OIR does not otherwise object.
Finally, the Amendment would specifically prohibit insurers from engaging, contracting, or paying any third-party to perform material duties required by an affiliate under the contractual terms unless 30 days notice is given to the OIR in advance of any such engagement, execution, or payment and the OIR does not otherwise object. Notably, however, the insurer may contract with third-parties for purposes of supplementing the MGA during a catastrophic event, so long as notice is provided to the OIR within 30 days following the engagement.
Should you have any questions or comments, please contact Colodny Fass.
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