Reminder: Deadline to File for 2008 Limited Apportionment Status is March 31

REMINDER:  The deadline to file for 2008 limited apportionment status is March 31, 2008.  To view a Notice from Citizens Property Insurance Corporation and Limited Apportionment Status Filing Petition, click here. 

 

Overview of Limited Apportionment Status

 

By Erin T. Siska, Associate
Colodny Fass

 

A limited apportionment company is defined by Citizens’ enabling statute, Section 627.351(6), Florida Statutes, and Citizens’ Plan of Operation, as an insurer that has a surplus as to policyholders of $25 million or less and that writes 25% or more of its total countrywide property insurance premium in Florida.

An insurer that meets the above criteria and desires limited apportionment company status must petition the Office of Insurance Regulation (“Office”) within the first 90 days of each calendar year. An insurer’s status as a limited apportionment company lasts for a period of one year and has to be renewed on an annual basis.

While the definition of a limited apportionment company has not changed recently, there have been recent legislative changes affecting the benefits of qualifying as a limited apportionment company. In addition, while there are fewer advantages than there have been in the past, limited apportionment companies still enjoy some statutorily authorized privileges that other insurers do not.

 

What Are the Benefits of Florida’s Limited Apportionment Status?

The State of Florida has made a lower layer of low-cost reinsurance from the Florida Hurricane Catastrophe Fund (“Cat Fund”) available to insurance companies that have qualified as limited apportionment companies.

Limited apportionment companies also benefit from greater flexibility with respect to the payment of Regular Assessments levied on all Florida assessable insurers by Citizens Property Insurance Corporation (“Citizens”).

Insurers who intend to apply for limited apportionment status must do so within the first 90 days of each year. Those who have previously obtained limited apportionment status are subject to a review of their status at the end of each year and must apply on an annual basis to maintain that status.

Following is a review of Florida’s laws relating to limited apportionment companies.

 

The Pros:

Florida Hurricane Catastrophe Fund Coverage

One advantage of limited apportionment company status was the availability of an additional $10 million of coverage from the Cat Fund at a level significantly below the normal Cat Fund rate. The premium charged for this additional coverage was 50% of the additional coverage provided, or $5 million. See § 215.555(4)(b)(4), FLA. STAT. (2007). The $10 million coverage amount was an additional layer of reinsurance coverage above the insurer’s Cat Fund retention. The coverage applied to two hurricanes, was offered only for the 2007 contract year and expires as of May 31, 2008. The Legislature will need to consider whether to extend this additional drop down coverage for the 2008-2009 Cat Fund contract year.

As a result of the legislative changes enacted pursuant to Florida House Bill 1A (“HB 1A”), not all limited apportionment companies may have been able to obtain the additional $10 million from the Cat Fund. Only those limited apportionment companies that participated in 2006, began writing property insurance in 2007 or companies that were approved to participate in the Capital Build-Up Incentive Program were eligible.

Additionally, the Reimbursement Contract previously used by the Cat Fund provided that limited apportionment companies would, with certain exceptions, receive reimbursements before other entities. However, the Reimbursement Contract utilized for the 2007-2008 contract year has eliminated the preferential treatment previously afforded to limited apportionment companies. 

Monthly Payments and Recoupment of Regular Assessments

Section 627.351(6)(c)(14), Florida Statutes, authorizes limited apportionment companies to pay their share of Citizens’ Regular Assessments on a monthly basis as the assessments are collected by the limited apportionment companies from their insureds.

However, the Regular Assessment must be paid in full within 12 months after being levied by Citizens. Insurance companies that do not qualify as limited apportionment companies are required, pursuant to Citizens’ Plan of Operations, to pay the total amount of any Regular Assessment within thirty days from the date the notice of assessment is received.

The recoupment of Citizens Regular Assessments by limited apportionment companies is set forth in further detail in Section 627.3512, Florida Statutes. This statute requires insurers to recoup such assessments by “applying a separate assessment factor on policies of the same line or type as were considered by the residual markets in determining the assessment liability of the insurer . . .” See FLA. STAT. ANN. § 627.3512(1) (2007).

These factors must provide for full recoupment from policyholders over a period of one year, unless the limited apportionment company elects to recoup the assessment(s) over a longer period. Id. Each assessment factor expires upon the collection of the full amount allowed to be recouped. Id. Amounts recouped are not subject to premium taxes, fees or commissions. Id.

In addition, the assessment factor cannot be more than three percentage points above the ratio of the deficit assessment to the Florida direct written premium for policies in the lines or types of business as to which the assessment was calculated, as written in the year the deficit assessment was paid. See FLA. STAT. ANN. § 627.3512(2) (2007). If a limited apportionment company elects to defer collection of the full amount of the deficit assessment, the company must carry forward the amount of the deficit and adjust the deficit assessment to be recouped in a subsequent year by such amount. See id.

Further, the limited apportionment company must file with the Office a statement setting forth the amount of the assessment factor and an explanation of how the factor will be applied, at least 15 days prior to the factor being applied to any policies. See FLA. STAT. ANN. § 627.3512(3) (2007). The statement must include documentation of the assessment paid by the limited apportionment company and the arithmetic calculations supporting the assessment factor. See id. The Office must complete its review within 15 days after receipt of the filing and must limit its review to verification of the arithmetic calculations. Id. The limited apportionment company may then use the assessment factor at any time after the expiration of the 15-day period unless the Office has notified the limited apportionment company in writing that the arithmetic calculations are incorrect. Id.

With respect to premium tax, the Florida Administrative Code provides that the gross amount of receipts that are subject to Florida premium tax shall not include amounts sufficient to recoup any assessments that have been paid by an insurer to defray a Citizens assessment, net of any earnings returned to the insurer by Citizens. See FLA. ADMIN. CODE ANN. R. §12-8.001(8)(b). However, this is only true for insurers whose rates have been filed with the Office. Id.

Deferred Payment of Regular Assessments

Limited apportionment companies are entitled to defer all or part of a regular Citizens assessment, but only if the Office determines that such assessment would “result in an impairment of the surplus of a limited apportionment company.” Emergency Assessments levied by Citizens may not be deferred since those assessments are collected directly from the policyholders. See § 627.351(6)(p)14, FLA. STAT. (2007).

 

The Cons:

Liability Protection from Citizens Regular Assessments Eliminated

Formerly, limited apportionment companies were not required to participate in the portion of any Citizens Regular Assessments in the high-risk account that exceeded $50 million after payment of available high-risk account funds in any calendar year. This protection from Citizens Regular Assessments has been eliminated from Florida law, and limited apportionment companies are now liable for their full share of any Regular Assessment levied by Citizens.

 

Voluntary Credits No Longer An Option

The Citizens Voluntary Premium Credit Program now permits insurers that are subject to Citizens’ assessments to obtain credit only for the wind component of policies written in high-risk areas. According to Citizens’ guidelines, limited apportionment companies are not allowed to take voluntary credits or transfer any credits to other insurers.

Accordingly, companies that previously qualified for limited apportionment status must now choose between maintaining their status or taking the voluntary credits. They may not do both. Insurers electing to take the voluntary credits should have applied for such credits for their 2007 premium by February 15, 2008.

 

Conclusion

The value of an insurer’s status as a limited apportionment company has been diminished due to the loss of the statutory insulation from a large part of the Citizens Regular Assessment liability. However, limited apportionment companies have continued to enjoy some advantages, such as additional Cat Fund coverage and the ability to pay Citizens’ Regular Assessments in monthly installments. Electing to proceed as a limited apportionment company may, therefore, provide eligible insurers with some useful benefits, although they must elect to apply for this status before the Legislature convenes again in March. When it does, it may consider whether to continue to make the $10 million drop down layer of Cat Fund coverage available to limited apportionment companies. The legislature could also enact further changes which could affect the benefits of limited apportionment company status.

Its decisions in this regard will no doubt be based upon a number of considerations including the potentially conflicting goals of reducing the overall exposure of the Cat Fund and encouraging the investment of more startup capital into the market.

 

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

 

DISCLAIMER
The materials in this presentation are intended to provide a general overview of the issues contained herein and are not intended nor should they be construed to provide specific legal or regulatory guidance or advice. If you have any questions or issues of a specific nature you should consult with appropriate legal or regulatory counsel to review the specific circumstances involved.

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