Florida Senate - 2016 SB 1422 By Senator Simmons 10-00981A-16 20161422__ 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 providing disclosure and preparation requirements; 13 specifying privilege requirements and prohibitions for 14 certain filings and related documents; authorizing the 15 Office of Insurance Regulation to retain third-party 16 consultants for certain purposes; authorizing the 17 Financial Services Commission to adopt rules; amending 18 s. 628.803, F.S.; revising provisions relating to 19 penalties to conform to the act; providing a 20 contingent effective date. 21 22 Be It Enacted by the Legislature of the State of Florida: 23 24 Section 1. Section 628.8015, Florida Statutes, is created 25 to read: 26 628.8015 Own-risk and solvency assessment; corporate 27 governance annual disclosure.— 28 (1) DEFINITIONS.—As used in this section, the term: 29 (a) “Corporate governance annual disclosure” means a report 30 filed by an insurer or insurance group in accordance with this 31 section. 32 (b) “Insurance group” means insurers and affiliates 33 included within an insurance holding company system. 34 (c) “Insurer” has the same meaning as in s. 624.03. 35 However, the term does not include agencies, authorities, 36 instrumentalities, possessions, or territories of the United 37 States, the Commonwealth of Puerto Rico, or the District of 38 Columbia; or agencies, authorities, instrumentalities, or 39 political subdivisions of a state. 40 (d) “Own-risk and solvency assessment” or “ORSA” means an 41 internal assessment, appropriate to the nature, scale, and 42 complexity of an insurer or insurance group, conducted by that 43 insurer or insurance group, of the material and relevant risks 44 associated with the business plan of an insurer or insurance 45 group and the sufficiency of capital resources to support those 46 risks. 47 (e) “ORSA guidance manual” means the own-risk and solvency 48 assessment guidance manual developed and adopted by the National 49 Association of Insurance Commissioners. 50 (f) “ORSA summary report” means a high-level ORSA summary 51 of an insurer or insurance group, consisting of a single report 52 or combination of reports. 53 (g) “Senior management” means any corporate officer 54 responsible for reporting information to the board of directors 55 at regular intervals or providing information to shareholders or 56 regulators and includes, but is not limited to, the chief 57 executive officer, chief financial officer, chief operations 58 officer, chief risk officer, chief procurement officer, chief 59 legal officer, chief information officer, chief technology 60 officer, chief revenue officer, chief visionary officer, or any 61 other executive performing one or more of these functions. 62 (2) OWN-RISK AND SOLVENCY ASSESSMENT.— 63 (a) Risk management framework.—An insurer shall maintain a 64 risk management framework to assist in identifying, assessing, 65 monitoring, managing, and reporting its material and relevant 66 risks. An insurer may satisfy this requirement by being a member 67 of an insurance group with a risk management framework 68 applicable to the operations of the insurer. 69 (b) ORSA requirement.—Subject to paragraph (c), an insurer, 70 or the insurance group of which the insurer is a member, shall 71 regularly conduct an ORSA consistent with and comparable to the 72 process in the ORSA guidance manual. The ORSA must be conducted 73 at least annually and whenever there have been significant 74 changes to the risk profile of the insurer or the insurance 75 group of which the insurer is a member. 76 (c) ORSA summary report.— 77 1.a. A domestic insurer or insurer member of an insurance 78 group of which the office is the lead state, as determined by 79 the procedures in the most recent National Association of 80 Insurance Commissioners Financial Analysis Handbook, shall: 81 (I) Submit an ORSA summary report to the office once every 82 calendar year. 83 (II) Notify the office of its proposed annual submission 84 date by December 1, 2016. The initial ORSA summary report must 85 be submitted by December 31, 2017. 86 b. An insurer not required to submit an ORSA summary report 87 pursuant to sub-subparagraph a. shall: 88 (I) Submit an ORSA summary report at the request of the 89 office, but not more than once per calendar year. 90 (II) Notify the office of the proposed submission date 91 within 30 days after the request of the office. 92 2. An insurer may comply with sub-subparagraph 1.a. or sub 93 subparagraph 1.b. by providing the most recent and substantially 94 similar ORSA summary report submitted by the insurer, or another 95 member of an insurance group of which the insurer is a member, 96 to the chief insurance regulatory official of another state or 97 the supervisor or regulator of a foreign jurisdiction. For 98 purposes of this subparagraph, a “substantially similar” ORSA 99 summary report is one that contains information comparable to 100 the information described in the ORSA guidance manual as 101 determined by the commissioner of the office. If the report is 102 in a language other than English, it must be accompanied by an 103 English translation. 104 3. The chief risk officer or chief executive officer of the 105 insurer or insurance group responsible for overseeing the 106 enterprise risk management process must sign the ORSA summary 107 report attesting that, to the best of his or her knowledge and 108 belief, the insurer or insurance group applied the enterprise 109 risk management process described in the ORSA summary report and 110 provided a copy of the report to the board of directors or the 111 appropriate board committee. 112 4. The ORSA summary report must be prepared in accordance 113 with the ORSA guidance manual. Documentation and supporting 114 information must be maintained by the insurer and made available 115 upon examination pursuant to s. 624.316 or upon the request of 116 the office. 117 5. The ORSA summary report must include a brief description 118 of material changes and updates since the prior year report. 119 (d) Exemption.— 120 1. An insurer is exempt from the requirements of this 121 subsection if: 122 a. The insurer has annual direct written and unaffiliated 123 assumed premium, including international direct and assumed 124 premium, but excluding premiums reinsured with the Federal Crop 125 Insurance Corporation and the National Flood Insurance Program, 126 of less than $500 million; or 127 b. The insurer is a member of an insurance group and the 128 insurance group has annual direct written and unaffiliated 129 assumed premium, including international direct and assumed 130 premium, but excluding premiums reinsured with the Federal Crop 131 Insurance Corporation and the National Flood Insurance Program, 132 of less than $1 billion. 133 2. If an insurer is: 134 a. Exempt under sub-subparagraph 1.a., but the insurance 135 group of which the insurer is a member is not exempt under sub 136 subparagraph 1.b., the ORSA summary report must include every 137 insurer within the insurance group. The insurer may satisfy this 138 requirement by submitting more than one ORSA summary report for 139 any combination of insurers if any combination of reports 140 includes every insurer within the insurance group. 141 b. Not exempt under sub-subparagraph 1.a., but the 142 insurance group of which it is a member is exempt under sub 143 subparagraph 1.b., the insurer must submit to the office the 144 ORSA summary report applicable only to that insurer. 145 3. The office may require an exempt insurer to maintain a 146 risk management framework, conduct an ORSA, and file an ORSA 147 summary report: 148 a. Based on unique circumstances, including, but not 149 limited to, the type and volume of business written, ownership 150 and organizational structure, federal agency requests, and 151 international supervisor requests; 152 b. If the insurer has risk-based capital for a company 153 action level event pursuant to s. 624.4085(3), meets one or more 154 of the standards of an insurer deemed to be in hazardous 155 financial condition as defined in rules adopted by the 156 commission pursuant to s. 624.81(11), or exhibits qualities of 157 an insurer in hazardous financial condition as determined by the 158 office; or 159 c. If the office determines it is in the best interest of 160 the state. 161 4. If an exempt insurer becomes disqualified for an 162 exemption because of changes in premium as reported on the most 163 recent annual statement of the insurer or annual statements of 164 the insurers within the insurance group of which the insurer is 165 a member, the insurer must comply with the requirements of this 166 section effective 1 year after the year in which the insurer 167 exceeded the premium thresholds. 168 (e) Waiver.—An insurer that does not qualify for an 169 exemption under paragraph (d) may request a waiver from the 170 office based upon unique circumstances. If the insurer is part 171 of an insurance group with insurers domiciled in more than one 172 state, the office must coordinate with the lead state and with 173 the other domiciliary regulators in deciding whether to grant a 174 waiver. In deciding whether to grant a waiver, the office may 175 consider: 176 1. The type and volume of business written by the insurer. 177 2. The ownership and organizational structure of the 178 insurer. 179 3. Any other factor the office considers relevant to the 180 insurer or insurance group of which the insurer is a member. 181 182 A waiver granted pursuant to this paragraph is valid until 183 withdrawn by the office. 184 (f) Preparation of the ORSA summary report.— 185 1. The ORSA summary report must be prepared consistent with 186 the ORSA guidance manual, subject to the requirements of 187 paragraph (b). Documentation and supporting information must be 188 maintained and made available upon examination pursuant to s. 189 624.316 or upon the request of the office. 190 2. Office review of the ORSA summary report must be 191 conducted, and any additional requests for information must be 192 made, using procedures similar to those used in the analysis and 193 examination of multistate or global insurers and insurance 194 groups. 195 (3) CORPORATE GOVERNANCE ANNUAL DISCLOSURE.— 196 (a) Scope.—This section does not prescribe or impose 197 corporate governance standards and internal procedures beyond 198 those required under applicable state corporate law or limit the 199 authority of the office, or the rights or obligations of third 200 parties, under s. 624.316. 201 (b) Disclosure requirement.— 202 1.a. An insurer, or insurer member of an insurance group, 203 of which the office is the lead state regulator, as determined 204 by the procedures in the most recent National Association of 205 Insurance Commissioners Financial Analysis Handbook, shall 206 submit a corporate governance annual disclosure to the office by 207 June 1 of each calendar year. The initial corporate governance 208 annual disclosure must be submitted by December 31, 2017. 209 b. An insurer or insurance group not required to submit a 210 corporate governance annual disclosure under sub-subparagraph 211 1.a. shall do so at the request of the office, but not more than 212 once per calendar year. The insurer shall notify the office of 213 the proposed submission date within 30 days after the request of 214 the office. 215 2. The chief executive officer or corporate secretary of 216 the insurer or the insurance group must sign the corporate 217 governance annual disclosure attesting that, to the best of his 218 or her knowledge and belief, the insurer has implemented the 219 corporate governance practices and provided a copy of the 220 disclosure to the board of directors or the appropriate board 221 committee. 222 3.a. Depending on the structure of its system of corporate 223 governance, the insurer or insurance group may provide corporate 224 governance information at one of the following levels: 225 (I) The ultimate controlling parent level; 226 (II) An intermediate holding company level; or 227 (III) The individual legal entity level. 228 b. The insurer or insurance group may make the corporate 229 governance annual disclosure at: 230 (I) The level used to determine the risk appetite of the 231 insurer or insurance group; 232 (II) The level at which the earnings, capital, liquidity, 233 operations, and reputation of the insurer are collectively 234 overseen and the supervision of those factors is coordinated and 235 exercised; or 236 (III) The level at which legal liability for failure of 237 general corporate governance duties would be placed. 238 239 An insurer or insurance group must indicate the level of 240 reporting used and explain any subsequent changes in the 241 reporting level. 242 4. The review of the corporate governance annual disclosure 243 and any additional requests for information shall be made 244 through the lead state as determined by the procedures in the 245 most recent National Association of Insurance Commissioners 246 Financial Analysis Handbook. 247 5. An insurer or insurance group may comply with this 248 paragraph by cross-referencing other existing relevant and 249 applicable documents, including, but not limited to, the ORSA 250 summary report, Holding Company Form B or F filings, Securities 251 and Exchange Commission proxy statements, or foreign regulatory 252 reporting requirements, if the documents contain information 253 substantially similar to the information described in paragraph 254 (c). The insurer or insurance group shall clearly identify and 255 reference the specific location of the relevant and applicable 256 information within the corporate governance annual disclosure 257 and attach the referenced document if it has not already been 258 filed with, or made available to, the office. 259 6. Each year following the initial filing of the corporate 260 governance annual disclosure, the insurer or insurance group 261 shall file an amended version of the previously filed corporate 262 governance annual disclosure indicating changes that have been 263 made. If changes have not been made in the previously filed 264 disclosure, the insurer or insurance group should so indicate. 265 (c) Preparation of the corporate governance annual 266 disclosure.— 267 1. The corporate governance annual disclosure must be 268 prepared in a manner consistent with this subsection. 269 Documentation and supporting information must be maintained and 270 made available upon examination pursuant to s. 624.316 or upon 271 the request of the office. 272 2. The corporate governance annual disclosure must be as 273 descriptive as possible and include any attachments or example 274 documents used in the governance process. 275 3. The insurer or insurance group has discretion in 276 determining the appropriate format of the corporate governance 277 annual disclosure in communicating the required information and 278 responding to inquiries, provided that the corporate governance 279 annual disclosure includes material and relevant information 280 sufficient to enable the office to understand the corporate 281 governance structure, policies, and practices used by the 282 insurer or insurance group. 283 4. The corporate governance annual disclosure must describe 284 the: 285 a. Corporate governance framework and structure of the 286 insurer or insurance group. 287 b. Policies and practices of the most senior governing 288 entity and significant committees. 289 c. Policies and practices for directing senior management. 290 d. Processes by which the board, its committees, and senior 291 management ensure an appropriate amount of oversight to the 292 critical risk areas that have an impact on the insurer’s 293 business activities. 294 (4) CONFIDENTIALITY.—The filings and related documents 295 submitted pursuant to subsections (2) and (3) are privileged and 296 not subject to subpoena or discovery directly from the office. 297 However, the department or office may use these filings and 298 related documents in the furtherance of any regulatory or legal 299 action brought against an insurer as part of the official duties 300 of the department or office. A waiver of any applicable claim of 301 privilege in these filings and related documents may not occur 302 because of a disclosure to the office under this section, 303 because of any other provision of the Insurance Code, or because 304 of sharing under s. 624.4212. The office or a person receiving 305 these filings and related documents, while acting under the 306 authority of the office, or with whom such filings and related 307 documents are shared pursuant to s. 624.4212, is not permitted 308 or required to testify in any private civil action concerning 309 any such filings or related documents. 310 (5) USE OF THIRD-PARTY CONSULTANTS.—The office may retain 311 third-party consultants at the expense of the insurer or 312 insurance group for the purpose of assisting it in the 313 performance of its regulatory responsibilities under this 314 section, including, but not limited to, the risk management 315 framework, the ORSA, the ORSA summary report, and the corporate 316 governance annual disclosure. A third-party consultant must 317 agree, in writing, to: 318 (a) Adhere to confidentiality standards and requirements 319 applicable to the office governing the sharing and use of such 320 filings and related documents. 321 (b) Verify to the office, with notice to the insurer, that 322 the consultant is free of any conflict of interest. 323 (c) Monitor compliance with applicable confidentiality and 324 conflict of interest standards pursuant to a system of internal 325 procedures. 326 (6) RULE ADOPTION.—The commission may adopt rules to 327 administer this section. The adoption of such rules is not 328 subject to s. 120.541(3). 329 Section 2. Subsections (1) and (4) of section 628.803, 330 Florida Statutes, are amended to read: 331 628.803 Sanctions.— 332 (1) Any company failing, without just cause, to file any 333 registration statement or certificate of exemption required to 334 be filed pursuant to commission rules relating to this part or 335 to submit an ORSA summary report or a corporate governance 336 annual disclosure required pursuant to s. 628.8015 shall, in 337 addition to other penalties prescribed under the Florida 338 Insurance Code, be subject to pay a penalty of $100 for each 339 day’s delay, not to exceed a total of $10,000. 340 (4) If the office determines that any person violated s. 341 628.461,
ors. 628.801, or s. 628.8015, the violation may serve 342 as an independent basis for disapproving dividends or 343 distributions and for placing the insurer under an order of 344 supervision in accordance with part VI of chapter 624. 345 Section 3. This act shall take effect October 1, 2016, if 346 SB ____ or similar legislation is adopted in the same 347 legislative session or an extension thereof and becomes a law.