Florida Senate President Convenes Insurers, Regulators To Seek Managing General Agent-Related Issue Consensus

At the behest of Florida Senate President Jeff Atwater, Senate staff convened a meeting on April 8, 2010 between regulators and insurance industry representatives to discuss proposed legislation that would regulate managing general agents.  Staff members explained that the Senate President was interested in incorporating “meaningful reforms” to current law that would remedy issues recently reported in the media regarding financial transactions between affiliated insurers.

On several occasions during the meeting, the Senate President’s staff clarified that, even if insurance industry representatives and insurance regulators agreed to a proposal, Senator Atwater might yet be unsatisfied and ultimately choose to proceed otherwise.  It was noted that a previous suggestion of commissioning a study on the issue did not meet with the Senate President’s favor.

The majority of the discussion focused on recent draft legislation, a copy of which is attached.

Ultimately, regulators agreed that they would be comfortable with a legislative proposal that amends section 624.4085, Florida Statutes (relating to risk-based capital requirements for insurers) to state that “the Florida Office of Insurance Regulation (“OIR”) shall request when (it) deems it appropriate” a report that includes the following information if an insurer reaches a newly defined action level called a “Surplus Action Level:” 

For residential property insurers that conduct any business with affiliates, (the “Surplus Action Level Report”) shall include a columnar worksheet, which shall include all affiliates who have contracted with, done business with, or otherwise received remuneration from the insurer and separately for each affiliate shall list the following financial information from the immediately preceding calendar year:

• Total assets and liabilities;
• Surplus or shareholders equity;
• Net income after taxes or distributions made solely for satisfying tax liabilities;
• Total amounts receivable from parents, subsidiaries and affiliates;
• Total amounts payable to parent, subsidiaries and affiliates;
• Dividends paid to shareholders of common stock;
• Debt service (principle and interest) paid on debt incurred to capitalize or recapitalize insurance companies or fund other insurance related activities; and
• Payments made for other contractual obligations to support insurance related activities.

The draft proposal also stated that the Surplus Action Level Report also would contain a recertification of reserves for the insurer prepared by an actuary; however, regulators were receptive to changing this to state that the OIR may also request a recertification of reserves for the insurer if the OIR deems that action appropriate once a company reached the Surplus Action Level.

These requirements would be triggered when an insurer’s loss of surplus on any quarterly or annual financial report exceeds 15 percent, or if that cumulative loss for the calendar year exceeds 15 percent of the most recent filed quarterly or annual report. 

These Surplus Action Level Reports would be afforded the same protections currently offered to other reports issued under the aforementioned risk-based capital statute.  This particular section would be narrowed to apply only to residential property insurers.

Additionally, regulators attending today’s meeting were receptive to changing the aforementioned requirement that currently states “all affiliates who have contracted with, done business with or otherwise received remuneration…” to a narrower definition that would only apply to affiliates with Florida transactions.

Further, regulators were receptive to changing aforementioned Surplus Action Level Report requirement for the recertification of reserves to state that “the OIR shall request (this information) when the OIR deems it appropriate.”

Other effects of this legislation would be to codify administrative Rule 69O-143.047 into a new, separate section of Florida law.

The proposed legislation also would amend section 626.7452 relating to the examination authority over managing general agents by deleting a provision of law stating that a managing general agent that solely represents a single domestic insurer would be exempt from OIR examination authority.

Additional details of the meeting will be provided during the Florida Property and Casualty Association conference call scheduled for today, April 9 at 10:30 a.m.

A copy of Rule 69O-143.047 is attached for review.