Florida Senate - 2016 CS for CS for SB 1422 By the Committees on Appropriations; and Banking and Insurance; and Senator Simmons 576-04232-16 20161422c2 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 to retain third-party consultants for certain 23 purposes; authorizing the Financial Services 24 Commission to adopt rules; amending s. 628.803, F.S.; 25 revising provisions relating to penalties to conform 26 to the act; providing for contingent repeal of the 27 act; providing a contingent effective date. 28 29 Be It Enacted by the Legislature of the State of Florida: 30 31 Section 1. Section 628.8015, Florida Statutes, is created 32 to read: 33 628.8015 Own-risk and solvency assessment; corporate 34 governance annual disclosure.— 35 (1) DEFINITIONS.—As used in this section, the term: 36 (a) “Corporate governance annual disclosure” means a report 37 filed by an insurer or insurance group in accordance with this 38 section. 39 (b) “Insurance group” means insurers and affiliates 40 included within an insurance holding company system. 41 (c) “Insurer” has the same meaning as in s. 624.03. 42 However, the term does not include agencies, authorities, 43 instrumentalities, possessions, or territories of the United 44 States, the Commonwealth of Puerto Rico, or the District of 45 Columbia; or agencies, authorities, instrumentalities, or 46 political subdivisions of a state. 47 (d) “Own-risk and solvency assessment” or “ORSA” means an 48 internal assessment, appropriate to the nature, scale, and 49 complexity of an insurer or insurance group, conducted by that 50 insurer or insurance group, of the material and relevant risks 51 associated with the business plan of an insurer or insurance 52 group and the sufficiency of capital resources to support those 53 risks. 54 (e) “ORSA guidance manual” means the own-risk and solvency 55 assessment guidance manual developed and adopted by the National 56 Association of Insurance Commissioners. 57 (f) “ORSA summary report” means a high-level ORSA summary 58 of an insurer or insurance group, consisting of a single report 59 or combination of reports. 60 (g) “Senior management” means any corporate officer 61 responsible for reporting information to the board of directors 62 at regular intervals or providing information to shareholders or 63 regulators and includes, but is not limited to, the chief 64 executive officer, chief financial officer, chief operations 65 officer, chief risk officer, chief procurement officer, chief 66 legal officer, chief information officer, chief technology 67 officer, chief revenue officer, chief visionary officer, or any 68 other executive performing one or more of these functions. 69 (2) OWN-RISK AND SOLVENCY ASSESSMENT.— 70 (a) Risk management framework.—An insurer shall maintain a 71 risk management framework to assist in identifying, assessing, 72 monitoring, managing, and reporting its material and relevant 73 risks. An insurer may satisfy this requirement by being a member 74 of an insurance group with a risk management framework 75 applicable to the operations of the insurer. 76 (b) ORSA requirement.—Subject to paragraph (c), an insurer, 77 or the insurance group of which the insurer is a member, shall 78 regularly conduct an ORSA consistent with and comparable to the 79 process in the ORSA guidance manual. The ORSA must be conducted 80 at least annually and whenever there have been significant 81 changes to the risk profile of the insurer or the insurance 82 group of which the insurer is a member. 83 (c) ORSA summary report.— 84 1.a. A domestic insurer or insurer member of an insurance 85 group of which the office is the lead state, as determined by 86 the procedures in the most recent National Association of 87 Insurance Commissioners Financial Analysis Handbook, shall: 88 (I) Submit an ORSA summary report to the office once every 89 calendar year. 90 (II) Notify the office of its proposed annual submission 91 date by December 1, 2016. The initial ORSA summary report must 92 be submitted by December 31, 2017. 93 b. An insurer not required to submit an ORSA summary report 94 pursuant to sub-subparagraph a. shall: 95 (I) Submit an ORSA summary report at the request of the 96 office, but not more than once per calendar year. 97 (II) Notify the office of the proposed submission date 98 within 30 days after the request of the office. 99 2. An insurer may comply with sub-subparagraph 1.a. or sub 100 subparagraph 1.b. by providing the most recent and substantially 101 similar ORSA summary report submitted by the insurer, or another 102 member of an insurance group of which the insurer is a member, 103 to the chief insurance regulatory official of another state or 104 the supervisor or regulator of a foreign jurisdiction. For 105 purposes of this subparagraph, a “substantially similar” ORSA 106 summary report is one that contains information comparable to 107 the information described in the ORSA guidance manual as 108 determined by the commissioner of the office. If the report is 109 in a language other than English, it must be accompanied by an 110 English translation. 111 3. The chief risk officer or chief executive officer of the 112 insurer or insurance group responsible for overseeing the 113 enterprise risk management process must sign the ORSA summary 114 report attesting that, to the best of his or her knowledge and 115 belief, the insurer or insurance group applied the enterprise 116 risk management process described in the ORSA summary report and 117 provided a copy of the report to the board of directors or the 118 appropriate board committee. 119 4. The ORSA summary report must be prepared in accordance 120 with the ORSA guidance manual. Documentation and supporting 121 information must be maintained by the insurer and made available 122 upon examination pursuant to s. 624.316 or upon the request of 123 the office. 124 5. The ORSA summary report must include a brief description 125 of material changes and updates since the prior year report. 126 6. The office’s review of the ORSA summary report must be 127 conducted, and any additional requests for information must be 128 made, using procedures similar to those used in the analysis and 129 examination of multistate or global insurers and insurance 130 groups. 131 (d) Exemption.— 132 1. An insurer is exempt from the requirements of this 133 subsection if: 134 a. The insurer has annual direct written and unaffiliated 135 assumed premium, including international direct and assumed 136 premium, but excluding premiums reinsured with the Federal Crop 137 Insurance Corporation and the National Flood Insurance Program, 138 of less than $500 million; or 139 b. The insurer is a member of an insurance group and the 140 insurance group has annual direct written and unaffiliated 141 assumed premium, including international direct and assumed 142 premium, but excluding premiums reinsured with the Federal Crop 143 Insurance Corporation and the National Flood Insurance Program, 144 of less than $1 billion. 145 2. If an insurer is: 146 a. Exempt under sub-subparagraph 1.a., but the insurance 147 group of which the insurer is a member is not exempt under sub 148 subparagraph 1.b., the ORSA summary report must include every 149 insurer within the insurance group. The insurer may satisfy this 150 requirement by submitting more than one ORSA summary report for 151 any combination of insurers if any combination of reports 152 includes every insurer within the insurance group. 153 b. Not exempt under sub-subparagraph 1.a., but the 154 insurance group of which it is a member is exempt under sub 155 subparagraph 1.b., the insurer must submit to the office the 156 ORSA summary report applicable only to that insurer. 157 3. The office may require an exempt insurer to maintain a 158 risk management framework, conduct an ORSA, and file an ORSA 159 summary report: 160 a. Based on unique circumstances, including, but not 161 limited to, the type and volume of business written, ownership 162 and organizational structure, federal agency requests, and 163 international supervisor requests; 164 b. If the insurer has risk-based capital for a company 165 action level event pursuant to s. 624.4085(3), meets one or more 166 of the standards of an insurer deemed to be in hazardous 167 financial condition as defined in rules adopted by the 168 commission pursuant to s. 624.81(11), or exhibits qualities of 169 an insurer in hazardous financial condition as determined by the 170 office; or 171 c. If the office determines it is in the best interest of 172 the state. 173 4. If an exempt insurer becomes disqualified for an 174 exemption because of changes in premium as reported on the most 175 recent annual statement of the insurer or annual statements of 176 the insurers within the insurance group of which the insurer is 177 a member, the insurer must comply with the requirements of this 178 section effective 1 year after the year in which the insurer 179 exceeded the premium thresholds. 180 (e) Waiver.—An insurer that does not qualify for an 181 exemption under paragraph (d) may request a waiver from the 182 office based upon unique circumstances. If the insurer is part 183 of an insurance group with insurers domiciled in more than one 184 state, the office must coordinate with the lead state and with 185 the other domiciliary regulators in deciding whether to grant a 186 waiver. In deciding whether to grant a waiver, the office may 187 consider: 188 1. The type and volume of business written by the insurer. 189 2. The ownership and organizational structure of the 190 insurer. 191 3. Any other factor the office considers relevant to the 192 insurer or insurance group of which the insurer is a member. 193 194 A waiver granted pursuant to this paragraph is valid until 195 withdrawn by the office. 196 (3) CORPORATE GOVERNANCE ANNUAL DISCLOSURE.— 197 (a) Scope.—This section does not prescribe or impose 198 corporate governance standards and internal procedures beyond 199 those required under applicable state corporate law or limit the 200 authority of the office, or the rights or obligations of third 201 parties, under s. 624.316. 202 (b) Disclosure requirement.— 203 1.a. An insurer, or insurer member of an insurance group, 204 of which the office is the lead state regulator, as determined 205 by the procedures in the most recent National Association of 206 Insurance Commissioners Financial Analysis Handbook, shall 207 submit a corporate governance annual disclosure to the office by 208 June 1 of each calendar year. The initial corporate governance 209 annual disclosure must be submitted by December 31, 2018. 210 b. An insurer or insurance group not required to submit a 211 corporate governance annual disclosure under sub-subparagraph a. 212 shall do so at the request of the office, but not more than once 213 per calendar year. The insurer or insurance group shall notify 214 the office of the proposed submission date within 30 days after 215 the request of the office. 216 c. Before December 31, 2018, the office may require an 217 insurer or insurance group to provide a corporate governance 218 annual disclosure: 219 (I) Based on unique circumstances, including, but not 220 limited to, the type and volume of business written, the 221 ownership and organizational structure, federal agency requests, 222 and international supervisor requests; 223 (II) If the insurer has risk-based capital for a company 224 action level event pursuant to s. 624.4085(3), meets one or more 225 of the standards of an insurer deemed to be in hazardous 226 financial condition as defined in rules adopted pursuant to s. 227 624.81(11), or exhibits qualities of an insurer in hazardous 228 financial condition as determined by the office; 229 (III) If the insurer is the member of an insurer group of 230 which the office acts as the lead state regulator as determined 231 by the procedures in the most recent National Association of 232 Insurance Commissioners Financial Analysis Handbook; or 233 (IV) If the office determines that it is in the best 234 interest of the state. 235 2. The chief executive officer or corporate secretary of 236 the insurer or the insurance group must sign the corporate 237 governance annual disclosure attesting that, to the best of his 238 or her knowledge and belief, the insurer has implemented the 239 corporate governance practices and provided a copy of the 240 disclosure to the board of directors or the appropriate board 241 committee. 242 3.a. Depending on the structure of its system of corporate 243 governance, the insurer or insurance group may provide corporate 244 governance information at one of the following levels: 245 (I) The ultimate controlling parent level; 246 (II) An intermediate holding company level; or 247 (III) The individual legal entity level. 248 b. The insurer or insurance group may make the corporate 249 governance annual disclosure at: 250 (I) The level used to determine the risk appetite of the 251 insurer or insurance group; 252 (II) The level at which the earnings, capital, liquidity, 253 operations, and reputation of the insurer are collectively 254 overseen and the supervision of those factors is coordinated and 255 exercised; or 256 (III) The level at which legal liability for failure of 257 general corporate governance duties would be placed. 258 259 An insurer or insurance group must indicate the level of 260 reporting used and explain any subsequent changes in the 261 reporting level. 262 4. The review of the corporate governance annual disclosure 263 and any additional requests for information shall be made 264 through the lead state as determined by the procedures in the 265 most recent National Association of Insurance Commissioners 266 Financial Analysis Handbook. 267 5. An insurer or insurance group may comply with this 268 paragraph by cross-referencing other existing relevant and 269 applicable documents, including, but not limited to, the ORSA 270 summary report, Holding Company Form B or F filings, Securities 271 and Exchange Commission proxy statements, or foreign regulatory 272 reporting requirements, if the documents contain information 273 substantially similar to the information described in paragraph 274 (c). The insurer or insurance group shall clearly identify and 275 reference the specific location of the relevant and applicable 276 information within the corporate governance annual disclosure 277 and attach the referenced document if it has not already been 278 filed with, or made available to, the office. 279 6. Each year following the initial filing of the corporate 280 governance annual disclosure, the insurer or insurance group 281 shall file an amended version of the previously filed corporate 282 governance annual disclosure indicating changes that have been 283 made. If changes have not been made in the previously filed 284 disclosure, the insurer or insurance group should so indicate. 285 (c) Preparation of the corporate governance annual 286 disclosure.— 287 1. The corporate governance annual disclosure must be 288 prepared in a manner consistent with this subsection. 289 Documentation and supporting information must be maintained and 290 made available upon examination pursuant to s. 624.316 or upon 291 the request of the office. 292 2. The corporate governance annual disclosure must be as 293 descriptive as possible and include any attachments or example 294 documents used in the governance process. 295 3. The insurer or insurance group has discretion in 296 determining the appropriate format of the corporate governance 297 annual disclosure in communicating the required information and 298 responding to inquiries, provided that the corporate governance 299 annual disclosure includes material and relevant information 300 sufficient to enable the office to understand the corporate 301 governance structure, policies, and practices used by the 302 insurer or insurance group. 303 4. The corporate governance annual disclosure must describe 304 the: 305 a. Corporate governance framework and structure of the 306 insurer or insurance group. 307 b. Policies and practices of the most senior governing 308 entity and significant committees. 309 c. Policies and practices for directing senior management. 310 d. Processes by which the board, its committees, and senior 311 management ensure an appropriate amount of oversight to the 312 critical risk areas that have an impact on the insurer’s 313 business activities. 314 (4) CONFIDENTIALITY.—The filings and related documents 315 submitted pursuant to subsections (2) and (3) are privileged 316 such that they may not be produced in response to a subpoena or 317 other discovery directed to the office, and any such filings and 318 related documents, if obtained from the office, are not 319 admissible in evidence in any private civil action. However, the 320 department or office may use these filings and related documents 321 in the furtherance of any regulatory or legal action brought 322 against an insurer as part of the official duties of the 323 department or office. A waiver of any applicable claim of 324 privilege in these filings and related documents may not occur 325 because of a disclosure to the office under this section, 326 because of any other provision of the Insurance Code, or because 327 of sharing under s. 624.4212. The office or a person receiving 328 these filings and related documents, while acting under the 329 authority of the office, or with whom such filings and related 330 documents are shared pursuant to s. 624.4212, is not permitted 331 or required to testify in any private civil action concerning 332 any such filings or related documents. 333 (5) USE OF THIRD-PARTY CONSULTANTS.—The office may retain 334 third-party consultants at the expense of the insurer or 335 insurance group for the purpose of assisting it in the 336 performance of its regulatory responsibilities under this 337 section, including, but not limited to, the risk management 338 framework, the ORSA, the ORSA summary report, and the corporate 339 governance annual disclosure. A third-party consultant must 340 agree, in writing, to: 341 (a) Adhere to confidentiality standards and requirements 342 applicable to the office governing the sharing and use of such 343 filings and related documents. 344 (b) Verify to the office, with notice to the insurer, that 345 the consultant is free of any conflict of interest. 346 (c) Monitor compliance with applicable confidentiality and 347 conflict of interest standards pursuant to a system of internal 348 procedures. 349 (6) RULE ADOPTION.—The commission may adopt rules to 350 administer this section. 351 Section 2. Subsections (1) and (4) of section 628.803, 352 Florida Statutes, are amended to read: 353 628.803 Sanctions.— 354 (1) Any company failing, without just cause, to file any 355 registration statement or certificate of exemption required to 356 be filed pursuant to commission rules relating to this part or 357 to submit an ORSA summary report or a corporate governance 358 annual disclosure required pursuant to s. 628.8015 shall, in 359 addition to other penalties prescribed under the Florida 360 Insurance Code, be subject to pay a penalty of $100 for each 361 day’s delay, not to exceed a total of $10,000. 362 (4) If the office determines that any person violated s. 363 628.461,
ors. 628.801, or s. 628.8015, the violation may serve 364 as an independent basis for disapproving dividends or 365 distributions and for placing the insurer under an order of 366 supervision in accordance with part VI of chapter 624. 367 Section 3. Section 628.8015, Florida Statutes, and the 368 amendments made by this act to s. 628.803, Florida Statutes, are 369 repealed on October 2, 2021, unless, before that date, the 370 Legislature saves from repeal through reenactment the amendments 371 to s. 624.4212, Florida Statutes, made by SB 1416 or similar 372 legislation. 373 Section 4. This act shall take effect October 1, 2016, if 374 SB 1416 or similar legislation is adopted in the same 375 legislative session or an extension thereof and becomes a law.