Florida Senate - 2016 PROPOSED COMMITTEE SUBSTITUTE Bill No. CS for SB 1422 Ì364684HÎ364684 576-03421-16 Proposed Committee Substitute by the Committee on Appropriations (Appropriations Subcommittee on General Government) 1 A bill to be entitled 2 An act relating to insurer regulatory reporting; 3 creating s. 628.8015, F.S.; defining terms; requiring 4 an insurer to maintain a risk management framework; 5 requiring certain insurers and insurance groups to 6 conduct an own-risk and solvency assessment; providing 7 requirements for the preparation and submission of an 8 own-risk and solvency assessment summary report; 9 providing exemptions and waivers; requiring certain 10 insurers and members of an insurance group to prepare 11 and submit a corporate governance annual disclosure; 12 requiring the initial corporate governance annual 13 disclosure to be submitted to the Office of Insurance 14 Regulation by a specified date; authorizing the office 15 to require an insurer or insurance group to provide a 16 corporate governance annual disclosure before such 17 date under certain circumstances; specifying 18 requirements for preparing and annually filing the 19 corporate governance annual disclosure; specifying 20 privilege requirements and prohibitions for certain 21 filings and related documents; authorizing the Office 22 of Insurance Regulation to retain third-party 23 consultants for certain purposes; authorizing the 24 Financial Services Commission to adopt rules; amending 25 s. 628.803, F.S.; revising provisions relating to 26 penalties to conform to the act; providing for 27 contingent repeal of the act; providing a contingent 28 effective date. 29 30 Be It Enacted by the Legislature of the State of Florida: 31 32 Section 1. Section 628.8015, Florida Statutes, is created 33 to read: 34 628.8015 Own-risk and solvency assessment; corporate 35 governance annual disclosure.— 36 (1) DEFINITIONS.—As used in this section, the term: 37 (a) “Corporate governance annual disclosure” means a report 38 filed by an insurer or insurance group in accordance with this 39 section. 40 (b) “Insurance group” means insurers and affiliates 41 included within an insurance holding company system. 42 (c) “Insurer” has the same meaning as in s. 624.03. 43 However, the term does not include agencies, authorities, 44 instrumentalities, possessions, or territories of the United 45 States, the Commonwealth of Puerto Rico, or the District of 46 Columbia; or agencies, authorities, instrumentalities, or 47 political subdivisions of a state. 48 (d) “Own-risk and solvency assessment” or “ORSA” means an 49 internal assessment, appropriate to the nature, scale, and 50 complexity of an insurer or insurance group, conducted by that 51 insurer or insurance group, of the material and relevant risks 52 associated with the business plan of an insurer or insurance 53 group and the sufficiency of capital resources to support those 54 risks. 55 (e) “ORSA guidance manual” means the own-risk and solvency 56 assessment guidance manual developed and adopted by the National 57 Association of Insurance Commissioners. 58 (f) “ORSA summary report” means a high-level ORSA summary 59 of an insurer or insurance group, consisting of a single report 60 or combination of reports. 61 (g) “Senior management” means any corporate officer 62 responsible for reporting information to the board of directors 63 at regular intervals or providing information to shareholders or 64 regulators and includes, but is not limited to, the chief 65 executive officer, chief financial officer, chief operations 66 officer, chief risk officer, chief procurement officer, chief 67 legal officer, chief information officer, chief technology 68 officer, chief revenue officer, chief visionary officer, or any 69 other executive performing one or more of these functions. 70 (2) OWN-RISK AND SOLVENCY ASSESSMENT.— 71 (a) Risk management framework.—An insurer shall maintain a 72 risk management framework to assist in identifying, assessing, 73 monitoring, managing, and reporting its material and relevant 74 risks. An insurer may satisfy this requirement by being a member 75 of an insurance group with a risk management framework 76 applicable to the operations of the insurer. 77 (b) ORSA requirement.—Subject to paragraph (c), an insurer, 78 or the insurance group of which the insurer is a member, shall 79 regularly conduct an ORSA consistent with and comparable to the 80 process in the ORSA guidance manual. The ORSA must be conducted 81 at least annually and whenever there have been significant 82 changes to the risk profile of the insurer or the insurance 83 group of which the insurer is a member. 84 (c) ORSA summary report.— 85 1.a. A domestic insurer or insurer member of an insurance 86 group of which the office is the lead state, as determined by 87 the procedures in the most recent National Association of 88 Insurance Commissioners Financial Analysis Handbook, shall: 89 (I) Submit an ORSA summary report to the office once every 90 calendar year. 91 (II) Notify the office of its proposed annual submission 92 date by December 1, 2016. The initial ORSA summary report must 93 be submitted by December 31, 2017. 94 b. An insurer not required to submit an ORSA summary report 95 pursuant to sub-subparagraph a. shall: 96 (I) Submit an ORSA summary report at the request of the 97 office, but not more than once per calendar year. 98 (II) Notify the office of the proposed submission date 99 within 30 days after the request of the office. 100 2. An insurer may comply with sub-subparagraph 1.a. or sub 101 subparagraph 1.b. by providing the most recent and substantially 102 similar ORSA summary report submitted by the insurer, or another 103 member of an insurance group of which the insurer is a member, 104 to the chief insurance regulatory official of another state or 105 the supervisor or regulator of a foreign jurisdiction. For 106 purposes of this subparagraph, a “substantially similar” ORSA 107 summary report is one that contains information comparable to 108 the information described in the ORSA guidance manual as 109 determined by the commissioner of the office. If the report is 110 in a language other than English, it must be accompanied by an 111 English translation. 112 3. The chief risk officer or chief executive officer of the 113 insurer or insurance group responsible for overseeing the 114 enterprise risk management process must sign the ORSA summary 115 report attesting that, to the best of his or her knowledge and 116 belief, the insurer or insurance group applied the enterprise 117 risk management process described in the ORSA summary report and 118 provided a copy of the report to the board of directors or the 119 appropriate board committee. 120 4. The ORSA summary report must be prepared in accordance 121 with the ORSA guidance manual. Documentation and supporting 122 information must be maintained by the insurer and made available 123 upon examination pursuant to s. 624.316 or upon the request of 124 the office. 125 5. The ORSA summary report must include a brief description 126 of material changes and updates since the prior year report. 127 6. The office’s review of the ORSA summary report must be 128 conducted, and any additional requests for information must be 129 made, using procedures similar to those used in the analysis and 130 examination of multistate or global insurers and insurance 131 groups. 132 (d) Exemption.— 133 1. An insurer is exempt from the requirements of this 134 subsection if: 135 a. The insurer has annual direct written and unaffiliated 136 assumed premium, including international direct and assumed 137 premium, but excluding premiums reinsured with the Federal Crop 138 Insurance Corporation and the National Flood Insurance Program, 139 of less than $500 million; or 140 b. The insurer is a member of an insurance group and the 141 insurance group has annual direct written and unaffiliated 142 assumed premium, including international direct and assumed 143 premium, but excluding premiums reinsured with the Federal Crop 144 Insurance Corporation and the National Flood Insurance Program, 145 of less than $1 billion. 146 2. If an insurer is: 147 a. Exempt under sub-subparagraph 1.a., but the insurance 148 group of which the insurer is a member is not exempt under sub 149 subparagraph 1.b., the ORSA summary report must include every 150 insurer within the insurance group. The insurer may satisfy this 151 requirement by submitting more than one ORSA summary report for 152 any combination of insurers if any combination of reports 153 includes every insurer within the insurance group. 154 b. Not exempt under sub-subparagraph 1.a., but the 155 insurance group of which it is a member is exempt under sub 156 subparagraph 1.b., the insurer must submit to the office the 157 ORSA summary report applicable only to that insurer. 158 3. The office may require an exempt insurer to maintain a 159 risk management framework, conduct an ORSA, and file an ORSA 160 summary report: 161 a. Based on unique circumstances, including, but not 162 limited to, the type and volume of business written, ownership 163 and organizational structure, federal agency requests, and 164 international supervisor requests; 165 b. If the insurer has risk-based capital for a company 166 action level event pursuant to s. 624.4085(3), meets one or more 167 of the standards of an insurer deemed to be in hazardous 168 financial condition as defined in rules adopted by the 169 commission pursuant to s. 624.81(11), or exhibits qualities of 170 an insurer in hazardous financial condition as determined by the 171 office; or 172 c. If the office determines it is in the best interest of 173 the state. 174 4. If an exempt insurer becomes disqualified for an 175 exemption because of changes in premium as reported on the most 176 recent annual statement of the insurer or annual statements of 177 the insurers within the insurance group of which the insurer is 178 a member, the insurer must comply with the requirements of this 179 section effective 1 year after the year in which the insurer 180 exceeded the premium thresholds. 181 (e) Waiver.—An insurer that does not qualify for an 182 exemption under paragraph (d) may request a waiver from the 183 office based upon unique circumstances. If the insurer is part 184 of an insurance group with insurers domiciled in more than one 185 state, the office must coordinate with the lead state and with 186 the other domiciliary regulators in deciding whether to grant a 187 waiver. In deciding whether to grant a waiver, the office may 188 consider: 189 1. The type and volume of business written by the insurer. 190 2. The ownership and organizational structure of the 191 insurer. 192 3. Any other factor the office considers relevant to the 193 insurer or insurance group of which the insurer is a member. 194 195 A waiver granted pursuant to this paragraph is valid until 196 withdrawn by the office. 197 (3) CORPORATE GOVERNANCE ANNUAL DISCLOSURE.— 198 (a) Scope.—This section does not prescribe or impose 199 corporate governance standards and internal procedures beyond 200 those required under applicable state corporate law or limit the 201 authority of the office, or the rights or obligations of third 202 parties, under s. 624.316. 203 (b) Disclosure requirement.— 204 1.a. An insurer, or insurer member of an insurance group, 205 of which the office is the lead state regulator, as determined 206 by the procedures in the most recent National Association of 207 Insurance Commissioners Financial Analysis Handbook, shall 208 submit a corporate governance annual disclosure to the office by 209 June 1 of each calendar year. The initial corporate governance 210 annual disclosure must be submitted by December 31, 2018. 211 b. An insurer or insurance group not required to submit a 212 corporate governance annual disclosure under sub-subparagraph a. 213 shall do so at the request of the office, but not more than once 214 per calendar year. The insurer or insurance group shall notify 215 the office of the proposed submission date within 30 days after 216 the request of the office. 217 c. Before December 31, 2018, the office may require an 218 insurer or insurance group to provide a corporate governance 219 annual disclosure: 220 (I) Based on unique circumstances, including, but not 221 limited to, the type and volume of business written, the 222 ownership and organizational structure, federal agency requests, 223 and international supervisor requests; 224 (II) If the insurer has risk-based capital for a company 225 action level event pursuant to s. 624.4085(3), meets one or more 226 of the standards of an insurer deemed to be in hazardous 227 financial condition as defined in rules adopted pursuant to s. 228 624.81(11), or exhibits qualities of an insurer in hazardous 229 financial condition as determined by the office; 230 (III) If the insurer is the member of an insurer group of 231 which the office acts as the lead state regulator as determined 232 by the procedures in the most recent National Association of 233 Insurance Commissioners Financial Analysis Handbook; or 234 (IV) If the office determines that it is in the best 235 interest of the state. 236 2. The chief executive officer or corporate secretary of 237 the insurer or the insurance group must sign the corporate 238 governance annual disclosure attesting that, to the best of his 239 or her knowledge and belief, the insurer has implemented the 240 corporate governance practices and provided a copy of the 241 disclosure to the board of directors or the appropriate board 242 committee. 243 3.a. Depending on the structure of its system of corporate 244 governance, the insurer or insurance group may provide corporate 245 governance information at one of the following levels: 246 (I) The ultimate controlling parent level; 247 (II) An intermediate holding company level; or 248 (III) The individual legal entity level. 249 b. The insurer or insurance group may make the corporate 250 governance annual disclosure at: 251 (I) The level used to determine the risk appetite of the 252 insurer or insurance group; 253 (II) The level at which the earnings, capital, liquidity, 254 operations, and reputation of the insurer are collectively 255 overseen and the supervision of those factors is coordinated and 256 exercised; or 257 (III) The level at which legal liability for failure of 258 general corporate governance duties would be placed. 259 260 An insurer or insurance group must indicate the level of 261 reporting used and explain any subsequent changes in the 262 reporting level. 263 4. The review of the corporate governance annual disclosure 264 and any additional requests for information shall be made 265 through the lead state as determined by the procedures in the 266 most recent National Association of Insurance Commissioners 267 Financial Analysis Handbook. 268 5. An insurer or insurance group may comply with this 269 paragraph by cross-referencing other existing relevant and 270 applicable documents, including, but not limited to, the ORSA 271 summary report, Holding Company Form B or F filings, Securities 272 and Exchange Commission proxy statements, or foreign regulatory 273 reporting requirements, if the documents contain information 274 substantially similar to the information described in paragraph 275 (c). The insurer or insurance group shall clearly identify and 276 reference the specific location of the relevant and applicable 277 information within the corporate governance annual disclosure 278 and attach the referenced document if it has not already been 279 filed with, or made available to, the office. 280 6. Each year following the initial filing of the corporate 281 governance annual disclosure, the insurer or insurance group 282 shall file an amended version of the previously filed corporate 283 governance annual disclosure indicating changes that have been 284 made. If changes have not been made in the previously filed 285 disclosure, the insurer or insurance group should so indicate. 286 (c) Preparation of the corporate governance annual 287 disclosure.— 288 1. The corporate governance annual disclosure must be 289 prepared in a manner consistent with this subsection. 290 Documentation and supporting information must be maintained and 291 made available upon examination pursuant to s. 624.316 or upon 292 the request of the office. 293 2. The corporate governance annual disclosure must be as 294 descriptive as possible and include any attachments or example 295 documents used in the governance process. 296 3. The insurer or insurance group has discretion in 297 determining the appropriate format of the corporate governance 298 annual disclosure in communicating the required information and 299 responding to inquiries, provided that the corporate governance 300 annual disclosure includes material and relevant information 301 sufficient to enable the office to understand the corporate 302 governance structure, policies, and practices used by the 303 insurer or insurance group. 304 4. The corporate governance annual disclosure must describe 305 the: 306 a. Corporate governance framework and structure of the 307 insurer or insurance group. 308 b. Policies and practices of the most senior governing 309 entity and significant committees. 310 c. Policies and practices for directing senior management. 311 d. Processes by which the board, its committees, and senior 312 management ensure an appropriate amount of oversight to the 313 critical risk areas that have an impact on the insurer’s 314 business activities. 315 (4) CONFIDENTIALITY.—The filings and related documents 316 submitted pursuant to subsections (2) and (3) are privileged and 317 not subject to subpoena or discovery directly from the office. 318 However, the department or office may use these filings and 319 related documents in the furtherance of any regulatory or legal 320 action brought against an insurer as part of the official duties 321 of the department or office. A waiver of any applicable claim of 322 privilege in these filings and related documents may not occur 323 because of a disclosure to the office under this section, 324 because of any other provision of the Insurance Code, or because 325 of sharing under s. 624.4212. The office or a person receiving 326 these filings and related documents, while acting under the 327 authority of the office, or with whom such filings and related 328 documents are shared pursuant to s. 624.4212, is not permitted 329 or required to testify in any private civil action concerning 330 any such filings or related documents. 331 (5) USE OF THIRD-PARTY CONSULTANTS.—The office may retain 332 third-party consultants at the expense of the insurer or 333 insurance group for the purpose of assisting it in the 334 performance of its regulatory responsibilities under this 335 section, including, but not limited to, the risk management 336 framework, the ORSA, the ORSA summary report, and the corporate 337 governance annual disclosure. A third-party consultant must 338 agree, in writing, to: 339 (a) Adhere to confidentiality standards and requirements 340 applicable to the office governing the sharing and use of such 341 filings and related documents. 342 (b) Verify to the office, with notice to the insurer, that 343 the consultant is free of any conflict of interest. 344 (c) Monitor compliance with applicable confidentiality and 345 conflict of interest standards pursuant to a system of internal 346 procedures. 347 (6) RULE ADOPTION.—The commission may adopt rules to 348 administer this section. 349 Section 2. Subsections (1) and (4) of section 628.803, 350 Florida Statutes, are amended to read: 351 628.803 Sanctions.— 352 (1) Any company failing, without just cause, to file any 353 registration statement or certificate of exemption required to 354 be filed pursuant to commission rules relating to this part or 355 to submit an ORSA summary report or a corporate governance 356 annual disclosure required pursuant to s. 628.8015 shall, in 357 addition to other penalties prescribed under the Florida 358 Insurance Code, be subject to pay a penalty of $100 for each 359 day’s delay, not to exceed a total of $10,000. 360 (4) If the office determines that any person violated s. 361 628.461,
ors. 628.801, or s. 628.8015, the violation may serve 362 as an independent basis for disapproving dividends or 363 distributions and for placing the insurer under an order of 364 supervision in accordance with part VI of chapter 624. 365 Section 3. Section 628.8015, Florida Statutes, and the 366 amendments made by this act to s. 628.803, Florida Statutes, are 367 repealed on October 2, 2021, unless, before that date, the 368 Legislature saves from repeal through reenactment the amendments 369 to s. 624.4212, Florida Statutes, made by SB 1416 or similar 370 legislation. 371 Section 4. This act shall take effect October 1, 2016, if 372 SB 1416 or similar legislation is adopted in the same 373 legislative session or an extension thereof and becomes a law.