URGENT: FPCA Member Input Needed Immediately on MGA Regulation Amendment
Mar 26, 2010
Note: The MGA regulation pending in the Florida Legislature is an urgent issue that will be discussed in both today’s FPCA Auto and Homeowners’ Division meetings. Please review the material below and be prepared to provide comments.
Although an amendment relating to the regulation of managing general agencies (“MGAs”) failed yesterday during a committee hearing, the Florida Office of Insurance Regulation (“OIR”) is advocating legislation that would include affiliated companies and their financial information under OIR oversight.
Specifically, the OIR is attempting to assert regulatory control over the dividends paid to investors from MGAs. Although the aforementioned amendment was prepared and offered in committee this week, it is anticipated that the OIR and/or the Office of Florida Governor Charlie Crist will continue to lobby for the proposal and urge its inclusion in a broader legislative package.
Given the above and its related time sensitivity, input on this proposal is needed immediately from Florida Property and Casualty Association (“FPCA”) members.
FPCA member assistance is needed to develop responses to the arguments below. As you review the talking points below, please concurrently consider what alternative proposal could be acceptable on these issues (e.g. limiting OIR’s authority to review dividends paid by MGAs in circumstances where an insurer is losing money).
An additional white paper draft of talking points also has been prepared, on which FPCA member comments are also needed. This secondary document is attached for review.
All comments and feedback should be forwarded immediately to Katie Webb (kwebb@cftlaw.com) at Colodny Fass.
Questions and/or arguments that the OIR and the Governor’s Office are using to support the MGA regulation proposal (responses in italics) are:
- Understanding that MGAs allow companies to turn around a quicker profit to investors, why is it that stock companies can still start up, operate and be successful?
- The MGA regulation proposal does not say that a company cannot use an MGA, but rather only that MGA dividends should be reviewed by the OIR, which should have the ability to stop dividends from being paid by the MGA if the insurer is losing money.
- (This mitigates any arguments the FPCA may want to pose on the advantages of using an MGA. The response will simply be that an MGA can be used – the OIR just wants to regulate it.)
- (Why shouldn’t OIR be able to regulate MGAs?)
- (What if the amendment is limited to only allow the OIR to regulate dividends if an insurer is not profitable? )
- (If the FPCA argues that regulation will interfere with the existing business structure and relationships that currently exist, the concept of “grandfathering in” existing companies is proposed. This would only apply to new companies.)
- (The argument that OIR is currently capable of reviewing and approving these agreements now actually works against insurers. The question then becomes: If existing law is simply being codified, then why are we fighting it?)
Potential FPCA responses:
- The MGA regulation proposal is a major departure from existing law and its impact on the market. A study should first be done.
- Regulating MGAs will likely scare off current and future investors, because of the political risk associated with increased regulation.
- Regulating MGAs could interfere with existing business relationships and structures.
- Public companies may be especially impaired by additional regulation.
- Imposing additional regulation could encourage current companies issue existing funds as dividends before passage of such a proposal into law.
- Dividend distributions from insurance company profits are not allowed for the first five years of operation by the OIR. Attracting new investors to a high-risk investment such as the Florida property market for a return on investment after five years is a difficult proposition.
- If MGA regulation legislation is passed, excess MGA fees will continue to be upstreamed to the holding company, because there is nothing in the wording of the legislation that would prevent an MGA from issuing dividends to a holding company. The provision refers only to issuing stockholder dividends. Therefore, the holding company will continue to grow, which does nothing to increase the financial condition of the subsidiary insurer, or require the holding company to replenish the insurance company.
- If MGAs are regulated through this proposal, no new capital will enter the Florida insurance marketplace.
- Insofar as a compromise,dividends cannot be distributed to stockholders while the surplus of the insurance company is at, or below the initial capitalization of the insurer.
- Complying with this amendment would create an unfair competitive advantage for foreign insurance companies, their affiliates and non-affiliated MGAs.
