Florida Senate - 2016 CS for SB 1422 By the Committee on Banking and Insurance; and Senator Simmons 597-02617-16 20161422c1 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 6. The office’s review of the ORSA summary report must be 120 conducted, and any additional requests for information must be 121 made, using procedures similar to those used in the analysis and 122 examination of multistate or global insurers and insurance 123 groups. 124 (d) Exemption.— 125 1. An insurer is exempt from the requirements of this 126 subsection if: 127 a. The insurer has annual direct written and unaffiliated 128 assumed premium, including international direct and assumed 129 premium, but excluding premiums reinsured with the Federal Crop 130 Insurance Corporation and the National Flood Insurance Program, 131 of less than $500 million; or 132 b. The insurer is a member of an insurance group and the 133 insurance group has annual direct written and unaffiliated 134 assumed premium, including international direct and assumed 135 premium, but excluding premiums reinsured with the Federal Crop 136 Insurance Corporation and the National Flood Insurance Program, 137 of less than $1 billion. 138 2. If an insurer is: 139 a. Exempt under sub-subparagraph 1.a., but the insurance 140 group of which the insurer is a member is not exempt under sub 141 subparagraph 1.b., the ORSA summary report must include every 142 insurer within the insurance group. The insurer may satisfy this 143 requirement by submitting more than one ORSA summary report for 144 any combination of insurers if any combination of reports 145 includes every insurer within the insurance group. 146 b. Not exempt under sub-subparagraph 1.a., but the 147 insurance group of which it is a member is exempt under sub 148 subparagraph 1.b., the insurer must submit to the office the 149 ORSA summary report applicable only to that insurer. 150 3. The office may require an exempt insurer to maintain a 151 risk management framework, conduct an ORSA, and file an ORSA 152 summary report: 153 a. Based on unique circumstances, including, but not 154 limited to, the type and volume of business written, ownership 155 and organizational structure, federal agency requests, and 156 international supervisor requests; 157 b. If the insurer has risk-based capital for a company 158 action level event pursuant to s. 624.4085(3), meets one or more 159 of the standards of an insurer deemed to be in hazardous 160 financial condition as defined in rules adopted by the 161 commission pursuant to s. 624.81(11), or exhibits qualities of 162 an insurer in hazardous financial condition as determined by the 163 office; or 164 c. If the office determines it is in the best interest of 165 the state. 166 4. If an exempt insurer becomes disqualified for an 167 exemption because of changes in premium as reported on the most 168 recent annual statement of the insurer or annual statements of 169 the insurers within the insurance group of which the insurer is 170 a member, the insurer must comply with the requirements of this 171 section effective 1 year after the year in which the insurer 172 exceeded the premium thresholds. 173 (e) Waiver.—An insurer that does not qualify for an 174 exemption under paragraph (d) may request a waiver from the 175 office based upon unique circumstances. If the insurer is part 176 of an insurance group with insurers domiciled in more than one 177 state, the office must coordinate with the lead state and with 178 the other domiciliary regulators in deciding whether to grant a 179 waiver. In deciding whether to grant a waiver, the office may 180 consider: 181 1. The type and volume of business written by the insurer. 182 2. The ownership and organizational structure of the 183 insurer. 184 3. Any other factor the office considers relevant to the 185 insurer or insurance group of which the insurer is a member. 186 187 A waiver granted pursuant to this paragraph is valid until 188 withdrawn by the office. 189 (3) CORPORATE GOVERNANCE ANNUAL DISCLOSURE.— 190 (a) Scope.—This section does not prescribe or impose 191 corporate governance standards and internal procedures beyond 192 those required under applicable state corporate law or limit the 193 authority of the office, or the rights or obligations of third 194 parties, under s. 624.316. 195 (b) Disclosure requirement.— 196 1.a. An insurer, or insurer member of an insurance group, 197 of which the office is the lead state regulator, as determined 198 by the procedures in the most recent National Association of 199 Insurance Commissioners Financial Analysis Handbook, shall 200 submit a corporate governance annual disclosure to the office by 201 June 1 of each calendar year. The initial corporate governance 202 annual disclosure must be submitted by December 31, 2017. 203 b. An insurer or insurance group not required to submit a 204 corporate governance annual disclosure under sub-subparagraph 205 1.a. shall do so at the request of the office, but not more than 206 once per calendar year. The insurer shall notify the office of 207 the proposed submission date within 30 days after the request of 208 the office. 209 2. The chief executive officer or corporate secretary of 210 the insurer or the insurance group must sign the corporate 211 governance annual disclosure attesting that, to the best of his 212 or her knowledge and belief, the insurer has implemented the 213 corporate governance practices and provided a copy of the 214 disclosure to the board of directors or the appropriate board 215 committee. 216 3.a. Depending on the structure of its system of corporate 217 governance, the insurer or insurance group may provide corporate 218 governance information at one of the following levels: 219 (I) The ultimate controlling parent level; 220 (II) An intermediate holding company level; or 221 (III) The individual legal entity level. 222 b. The insurer or insurance group may make the corporate 223 governance annual disclosure at: 224 (I) The level used to determine the risk appetite of the 225 insurer or insurance group; 226 (II) The level at which the earnings, capital, liquidity, 227 operations, and reputation of the insurer are collectively 228 overseen and the supervision of those factors is coordinated and 229 exercised; or 230 (III) The level at which legal liability for failure of 231 general corporate governance duties would be placed. 232 233 An insurer or insurance group must indicate the level of 234 reporting used and explain any subsequent changes in the 235 reporting level. 236 4. The review of the corporate governance annual disclosure 237 and any additional requests for information shall be made 238 through the lead state as determined by the procedures in the 239 most recent National Association of Insurance Commissioners 240 Financial Analysis Handbook. 241 5. An insurer or insurance group may comply with this 242 paragraph by cross-referencing other existing relevant and 243 applicable documents, including, but not limited to, the ORSA 244 summary report, Holding Company Form B or F filings, Securities 245 and Exchange Commission proxy statements, or foreign regulatory 246 reporting requirements, if the documents contain information 247 substantially similar to the information described in paragraph 248 (c). The insurer or insurance group shall clearly identify and 249 reference the specific location of the relevant and applicable 250 information within the corporate governance annual disclosure 251 and attach the referenced document if it has not already been 252 filed with, or made available to, the office. 253 6. Each year following the initial filing of the corporate 254 governance annual disclosure, the insurer or insurance group 255 shall file an amended version of the previously filed corporate 256 governance annual disclosure indicating changes that have been 257 made. If changes have not been made in the previously filed 258 disclosure, the insurer or insurance group should so indicate. 259 (c) Preparation of the corporate governance annual 260 disclosure.— 261 1. The corporate governance annual disclosure must be 262 prepared in a manner consistent with this subsection. 263 Documentation and supporting information must be maintained and 264 made available upon examination pursuant to s. 624.316 or upon 265 the request of the office. 266 2. The corporate governance annual disclosure must be as 267 descriptive as possible and include any attachments or example 268 documents used in the governance process. 269 3. The insurer or insurance group has discretion in 270 determining the appropriate format of the corporate governance 271 annual disclosure in communicating the required information and 272 responding to inquiries, provided that the corporate governance 273 annual disclosure includes material and relevant information 274 sufficient to enable the office to understand the corporate 275 governance structure, policies, and practices used by the 276 insurer or insurance group. 277 4. The corporate governance annual disclosure must describe 278 the: 279 a. Corporate governance framework and structure of the 280 insurer or insurance group. 281 b. Policies and practices of the most senior governing 282 entity and significant committees. 283 c. Policies and practices for directing senior management. 284 d. Processes by which the board, its committees, and senior 285 management ensure an appropriate amount of oversight to the 286 critical risk areas that have an impact on the insurer’s 287 business activities. 288 (4) CONFIDENTIALITY.—The filings and related documents 289 submitted pursuant to subsections (2) and (3) are privileged and 290 not subject to subpoena or discovery directly from the office. 291 However, the department or office may use these filings and 292 related documents in the furtherance of any regulatory or legal 293 action brought against an insurer as part of the official duties 294 of the department or office. A waiver of any applicable claim of 295 privilege in these filings and related documents may not occur 296 because of a disclosure to the office under this section, 297 because of any other provision of the Insurance Code, or because 298 of sharing under s. 624.4212. The office or a person receiving 299 these filings and related documents, while acting under the 300 authority of the office, or with whom such filings and related 301 documents are shared pursuant to s. 624.4212, is not permitted 302 or required to testify in any private civil action concerning 303 any such filings or related documents. 304 (5) USE OF THIRD-PARTY CONSULTANTS.—The office may retain 305 third-party consultants at the expense of the insurer or 306 insurance group for the purpose of assisting it in the 307 performance of its regulatory responsibilities under this 308 section, including, but not limited to, the risk management 309 framework, the ORSA, the ORSA summary report, and the corporate 310 governance annual disclosure. A third-party consultant must 311 agree, in writing, to: 312 (a) Adhere to confidentiality standards and requirements 313 applicable to the office governing the sharing and use of such 314 filings and related documents. 315 (b) Verify to the office, with notice to the insurer, that 316 the consultant is free of any conflict of interest. 317 (c) Monitor compliance with applicable confidentiality and 318 conflict of interest standards pursuant to a system of internal 319 procedures. 320 (6) RULE ADOPTION.—The commission may adopt rules to 321 administer this section. 322 Section 2. Subsections (1) and (4) of section 628.803, 323 Florida Statutes, are amended to read: 324 628.803 Sanctions.— 325 (1) Any company failing, without just cause, to file any 326 registration statement or certificate of exemption required to 327 be filed pursuant to commission rules relating to this part or 328 to submit an ORSA summary report or a corporate governance 329 annual disclosure required pursuant to s. 628.8015 shall, in 330 addition to other penalties prescribed under the Florida 331 Insurance Code, be subject to pay a penalty of $100 for each 332 day’s delay, not to exceed a total of $10,000. 333 (4) If the office determines that any person violated s. 334 628.461,
ors. 628.801, or s. 628.8015, the violation may serve 335 as an independent basis for disapproving dividends or 336 distributions and for placing the insurer under an order of 337 supervision in accordance with part VI of chapter 624. 338 Section 3. This act shall take effect October 1, 2016, if 339 SB 1416 or similar legislation is adopted in the same 340 legislative session or an extension thereof and becomes a law.