Reminder–Deadline Dec. 31: Citizens’ Voluntary Premium Writing Application and Transfer Procedures

Reminder:  The deadline to Notify Citizens Property Insurance Corporation of Intent to Transfer Credits is December 31, 2007.

Citizens Property Insurance Corporation (“Citizens”) has issued a Memorandum to all Assessable Insurers (“Assessable Insurers”) regarding Voluntary Premium Writing Transfers Procedures.

To view the Memorandum, click here. 

Assessable Insurers are all insurers authorized to write property and casualty lines of business in Florida (excluding workers compensation and medical malpractice) and who are subject to the imposition of assessments by Citizens.

This bulletin addresses certain voluntary premium credits available to certain insurers which may be applicable in the event of a regular assessment by Citizens.  Please make note of the following deadlines:

• December 31, 2007: Deadline to Notify Citizens of Intent to Transfer Credits
• February 15, 2008: Deadline to Apply for Voluntary Premium Credits for 2007

Pursuant to the Citizens’ Voluntary Premium Credit Program, Assessable Insurers can earn up to 100 percent credit against assessment for the premium written in eligible areas. 

The application process for Voluntary Credits involves analyzing the eligibility of the policies issued or taken out of Citizens by an Assessable Insurer and compliance with the basic guidelines discussed below.

Significantly, any insurer wishing to take advantage of Citizens’ Voluntary Premium Credit Program must apply before knowing whether an assessment will occur at all, and if an assessment is made, the size of that assessment.  In addition, Voluntary Credits are only available to offset a company’s liability in the event of a regular assessment.  They cannot be applied against an emergency assessment.

A. Voluntary Premium Credits

Voluntary Premium Credits are available to Assessable Insurers that voluntarily issue or assume from Citizens insurance policies with windstorm components for properties located in particular “high-risk areas.”

According to Citizens’ Voluntary Premium Manual, Assessable Insurers writing “wind only” coverage in any of these high-risk areas are eligible to receive 100 percent voluntary premium credit based on policy premium.  These “high-risk areas” comprise 29 of Florida’s 67 counties, including Monroe, Miami-Dade, Broward and Palm Beach counties. 

For example, if an insurer’s policies are wind-only and cover risks in the eligible areas, the insurer will be entitled to 100 percent credit against the regular assessment based upon the volume of premium written in those high-risk areas.

For a complete listing of the high-risk counties, click here. 

Other policy types with windstorm components, such as Homeowners, Farmowners and Commercial Multi-Peril, entitle the issuing insurer to a smaller percentage of its premium as credit against the assessment.  Thus, an insurer could receive 100 percent of its premium as credit for eligible wind-only policies, but anywhere from 30 to 90 pecent of its premium as credit for its eligible multi-peril policies.

Unlike some other credits available to Assessable Insurers, Voluntary Credits must be calculated on an individual company basis.  Voluntary Credits are not available to companies that have been granted Limited Apportionment Status, nor are they available under the Personal or Commercial Lines Accounts of Citizens.  Finally, as discussed above, Voluntary Credits may only be applied against a regular assessment.

B. Application Procedure
 
Voluntary Premium Writing Reports (“Reports”) must be submitted on a quarterly or annual basis. The annual submission deadline is February 15 of the participation year (“PY”), which is the year for which the credits are sought.  Thus, an insurer seeking credit for its 2007 premium must apply for Voluntary Credits by February 15, 2008, before the company’s participation ratio is promulgated.  This credit applies to PY 2008 and any assessment based on a 2008 deficit.  Essentially, the insurer must apply for credits before knowing whether those credits will even be needed.

Each assessable insurer’s participation ratio for 2008, a factor which will determine its liability in the event of a PY 2008 assessment, will be calculated based on the premium it writes in 2007, subject to credits applicable to the specific insurer.  An Assessable Insurer will only be able to claim credits for its 2007 premiums if it complies in a timely manner with the February 15, 2008 deadline.

To view the applicable Citizens deadlines, click here.

With respect to their substance, the Reports must provide information concerning location of the risk, premium amounts, limits of liability, lines of business, and applicable Florida Insurance Guaranty Association, Florida Hurricane Catastrophe Fund, Emergency Management Preparedness and Assistance Trust Fund, Fire College Trust Fund
premiums/fees and must be submitted electronically to Citizens’ Jacksonville, Florida office via CD/DVD, electronic mail or secured server upload along with a Transmittal and Certification Letter signed by an authorized representative of the insurer. 

In the likely event that Citizens requests additional information to verify the Reports, such information must be furnished by March 15.  The voluntary premium for which credit is sought must be premium writings that have been reported and recorded on Statutory Page 14 of the Assessable Insurer’s Annual Statement.

Finally, the Reports submitted to Citizens in application for Voluntary Credits must comply with the process set forth in the Voluntary Premium Manual.  Errors in formatting or abbreviation can lead to the denial of credits, and since Assessable Insurers may resubmit their Reports only once, care must be taken so that the applicant receives full credit for the eligible policies it issues.

To view a copy of Citizens’ Voluntary Premium Manual, click here.

C.  Credit transfers

As indicated in aforementioned November 9, 2007 Memorandum and Transfer Notice issued by Citizens, an individual Assessable Insurer may transfer excess voluntary premium credits to other individual companies without restriction, after application of sufficient credits toward the Assessable Insurer’s deficit balance.  Such transfer is undertaken by executing a standard form and submitting the form prior to the start of the participation year in which the credits may apply.  For example, an Assessable Insurer seeking to transfer credits which it has earned based on its 2007 writings must submit its transfer application by December 31, 2007. 

In the transfer application, the company seeking to transfer credit must indicate the names of the desired transferees and whether the credit transfer will be “Permanent” or “Term” (on a yearly basis).  An Assessable Insurer may apply to transfer credits to any other insurer with which it has a contractual agreement. 

Typically, smaller companies will not have excess credits for transfer.  Excess credits are typically earned by large-scale insurers that issue a variety of policy types.  These insurers are able to satisfy their assessment liability without applying all of their Voluntary Credits and can opt to sell the excess credits for profit.  Insurers who are not sure whether they will have any excess credits to transfer should submit a transfer credit application by the end of this calendar year in order to preserve their right to transfer.

Excess credits may also be useful to holding company systems that have two or more insurers writing in Florida, where one insurer is voluntarily writing a large amount of policies in the high-risk areas and another is not. The excess credits can be transferred from one “sister” company to another to reduce assessment liability for the holding company system overall.

The voluntary credits for writings of a Limited Apportionment Company are non-assignable and may not be transferred to another company. Limited Apportionment Companies cannot participate in the Voluntary Premium Credit program, nor can they transfer any earned Voluntary Credits.  If an Assessable Insurer applies for Voluntary Credits but subsequently is granted Limited Apportionment Company status, the application for Voluntary Credits is considered void, as is any application made by the insurer to transfer Voluntary Credits.

In formulating the foregoing analysis, we have evaluated general issues concerning Voluntary Credits. The information provided is not intended to constitute specific legal or regulatory advice and all insurers should carefully evaluate the issues involved and seek advice as necessary.

Should you have any questions or concerns, please do not hesitate to contact this office.