Florida Senate - 2017 SB 1242
By Senator Brandes
24-00869A-17 20171242__
1 A bill to be entitled
2 An act relating to insurer solvency; amending s.
3 624.4085, F.S.; defining and redefining terms;
4 providing exceptions from certain risk-based capital
5 formulas for health organizations and for certain
6 property and casualty insurers; providing an
7 exception, until a specified date, from certain
8 requirements for certain health organizations;
9 providing construction; revising the conditions that
10 define a company action level event; amending s.
11 631.271, F.S.; adding claims for medical treatment by
12 certain providers under certain circumstances to a
13 list prioritizing the distribution of claims from an
14 insurer’s estate; amending s. 631.717, F.S.; requiring
15 a notice and certain bills relating to certain costs
16 of activities by the association to be given to member
17 insurers, the Department of Financial Services, and
18 the Office of Insurance Regulation within a specified
19 timeframe; amending s. 631.718, F.S.; providing an
20 exception to a certain class of assessments against
21 member insurers; specifying requirements for such
22 class of assessments by the association’s board of
23 directors for the payment of claims under long-term
24 care insurance policies or contracts of an impaired or
25 insolvent insurer; providing construction and
26 applicability; amending s. 641.201, F.S.; providing
27 applicability to health maintenance organizations of
28 certain provisions relating to insurers; creating s.
29 641.222, F.S.; prohibiting an officer or director of a
30 certain insolvent insurer or health maintenance
31 organization from thereafter serving in certain
32 capacities except under certain circumstances;
33 providing a directive to the Division of Law Revision
34 and Information; providing effective dates.
35
36 Be It Enacted by the Legislature of the State of Florida:
37
38 Section 1. Effective July 1, 2017, present paragraph (g) of
39 subsection (1), subsection (2), and paragraph (a) of subsection
40 (3) of section 624.4085, Florida Statutes, are amended, present
41 paragraphs (g) through (q) of subsection (1) of that section are
42 redesignated as paragraphs (h) through (r), respectively, and a
43 new paragraph (g) is added to subsection (1) of that section, to
44 read:
45 624.4085 Risk-based capital requirements for insurers.—
46 (1) As used in this section, the term:
47 (g) “Health organization” means a health maintenance
48 organization or a prepaid limited health service organization
49 authorized only in this state which reports using the health
50 annual statement instructions.
51 (h)(g) “Life and health insurer” means an insurer
52 authorized or eligible under the Florida Insurance Code to
53 underwrite life or health insurance. The term also includes:
54 1. A property and casualty insurer that writes accident and
55 health insurance only.
56 2. Effective January 1, 2015, the term also includes a
57 health maintenance organization that is authorized in this state
58 and one or more other states, jurisdictions, or countries and a
59 prepaid limited health service organization that is authorized
60 in this state and one or more other states, jurisdictions, or
61 countries.
62
63 As used in this paragraph, the term “health maintenance
64 organization” has the same meaning as in s. 641.19, and the term
65 “prepaid limited health service organization” has the same
66 meaning as in s. 636.003.
67 (2)(a) Each domestic insurer that is subject to this
68 section shall, on or before March 1 of each year, prepare and
69 file with the National Association of Insurance Commissioners a
70 report of its risk-based capital levels as of the end of the
71 calendar year just ended, in a form and containing the
72 information required in the risk-based capital instructions. In
73 addition, each domestic insurer shall file a printed copy of its
74 risk-based capital report:
75 1. With the office on or before March 1 of each year.
76 2. With the insurance department in any other state in
77 which the insurer is authorized to do business, if that
78 department has notified the insurer of its request in writing,
79 in which case the insurer shall file its risk-based capital
80 report not later than the later of:
81 a. Fifteen days after the receipt of notice to file its
82 risk-based capital report with that state; or
83 b. March 1.
84 (b) The comparison of an insurer’s total adjusted capital
85 to any of its risk-based capital levels is a regulatory tool
86 that may indicate the need for possible corrective action with
87 respect to the insurer, and may not be used as a means to rank
88 insurers generally. Therefore, except as otherwise required
89 under this section, the making, publishing, disseminating,
90 circulating, or placing before the public, or causing, directly
91 or indirectly, to be made, published, disseminated, circulated,
92 or placed before the public, in a newspaper, magazine, or other
93 publication, or in the form of a notice, circular, pamphlet,
94 letter, or poster, or over any radio or television station, or
95 in any other way, an advertisement, announcement, or statement
96 containing an assertion, representation, or statement with
97 regard to the risk-based capital levels of any insurer, or of
98 any component derived in the calculation, by any insurer, agent,
99 broker, or other person engaged in any manner in the insurance
100 business would be misleading and is therefore prohibited;
101 however, if any materially false statement with respect to the
102 comparison regarding an insurer’s total adjusted capital to its
103 risk-based capital levels (or any of them) or an inappropriate
104 comparison of any other amount to the insurer’s risk-based
105 capital levels is published in any written publication and the
106 insurer is able to demonstrate to the office with substantial
107 proof the falsity or inappropriateness of the statement, the
108 insurer may publish in a written publication an announcement the
109 sole purpose of which is to rebut the materially false
110 statement.
111 (c) The office shall use the risk-based capital
112 instructions, risk-based capital reports, adjusted risk-based
113 capital reports, risk-based capital plans, and revised risk
114 based capital plans solely for monitoring the solvency of
115 insurers and assessing the need for corrective action with
116 respect to insurers. The office may not use that information for
117 ratemaking, as evidence in any rate proceeding, or for
118 calculating or deriving any elements of an appropriate premium
119 level or rate of return for any line of insurance which an
120 insurer or an affiliate of such insurer is authorized to write.
121 (d) The risk-based capital level for a life and health
122 insurer, except for a health organization, insurer’s risk-based
123 capital is determined in accordance with the formula set forth
124 in the risk-based capital instructions. The formula takes into
125 account and may adjust for the covariance between:
126 1. The risk with respect to the insurer’s assets;
127 2. The risk of adverse insurance experience with respect to
128 the insurer’s liabilities and obligations;
129 3. The interest rate risk with respect to the insurer’s
130 business; and
131 4. Any other business or other relevant risk set out in the
132 risk-based capital instructions,
133
134 determined in each case by applying the factors in the manner
135 set forth in the risk-based capital instructions.
136 (e) The A property and casualty insurer’s risk-based
137 capital of a property and casualty insurer, except a property
138 and casualty insurer that writes accident and health insurance
139 only, or of a health organization, is determined in accordance
140 with the formula set forth in the risk-based capital
141 instructions. The formula takes into account and may adjust for
142 the covariance between:
143 1. The asset risk;
144 2. The credit risk;
145 3. The underwriting risk; and
146 4. Any other business or other relevant risk set out in the
147 risk-based capital instructions,
148
149 determined in each case by applying the factors in the manner
150 set forth in the risk-based capital instructions.
151 (f) The Legislature finds that an excess of capital over
152 the amount produced by the risk-based capital requirements and
153 the formulas, schedules, and instructions specified in this
154 section is a desirable goal with respect to the business of
155 insurance. Accordingly, insurers should seek to maintain capital
156 above the risk-based capital levels required by this section.
157 Additional capital is used and useful in the insurance business
158 and helps to secure an insurer against various risks inherent
159 in, or affecting, the business of insurance and not accounted
160 for or only partially measured by the risk-based capital
161 requirements contained in this section.
162 (g) If a domestic insurer files a risk-based capital report
163 that the office finds is inaccurate, the office shall adjust the
164 risk-based capital report to correct the inaccuracy and shall
165 notify the insurer of the adjustment. The notice must state the
166 reason for the adjustment. A risk-based capital report that is
167 so adjusted is referred to as the adjusted risk-based capital
168 report. The adjusted risk-based capital report must also be
169 filed by the insurer with the National Association of Insurance
170 Commissioners.
171
172 Until January 1, 2020, a health organization holding a
173 certificate of authority in this state before the effective date
174 of this act but that is not authorized in any other state,
175 jurisdiction, or country is not required to comply with this
176 subsection. A health organization that has agreed to comply with
177 this section by execution of an agreement with the office
178 remains subject to the terms of that agreement.
179 (3)(a) A company action level event includes:
180 1. The filing of a risk-based capital report by an insurer
181 which indicates that:
182 a. The insurer’s total adjusted capital is greater than or
183 equal to its regulatory action level risk-based capital but less
184 than its company action level risk-based capital;
185 b. If a life and health insurer other than a health
186 organization reports using the life and health annual statement
187 instructions, the insurer has total adjusted capital that is
188 greater than or equal to its company action level risk-based
189 capital, but is less than the product of its authorized control
190 level risk-based capital and 3.0, and has a negative trend;
191 c. Effective January 1, 2015, If a life and health or
192 property and casualty insurer or a health organization reports
193 using the health annual statement instructions, the insurer or
194 organization has total adjusted capital that is greater than or
195 equal to its company action level risk-based capital, but is
196 less than the product of its authorized control level risk-based
197 capital and 3.0, and triggers the trend test determined in
198 accordance with the trend test calculation included in the Risk
199 Based Capital Forecasting and Instructions, Health, updated
200 annually by the NAIC; or
201 d. If a property and casualty insurer reports using the
202 property and casualty annual statement instructions, the insurer
203 has total adjusted capital that is greater than or equal to its
204 company action level risk-based capital, but less than the
205 product of its authorized control level risk-based capital and
206 3.0, and triggers the trend test determined in accordance with
207 the trend test calculation included in the Risk-Based Capital
208 Forecasting and Instructions, Property/Casualty, updated
209 annually by the NAIC;
210 2. The notification by the office to the insurer of an
211 adjusted risk-based capital report that indicates an event in
212 subparagraph 1., unless the insurer challenges the adjusted
213 risk-based capital report under subsection (7); or
214 3. If, under subsection (7), an insurer challenges an
215 adjusted risk-based capital report that indicates an event in
216 subparagraph 1., the notification by the office to the insurer
217 that the office has, after a hearing, rejected the insurer’s
218 challenge.
219 Section 2. Paragraph (b) of subsection (1) of section
220 631.271, Florida Statutes, is amended to read:
221 631.271 Priority of claims.—
222 (1) The priority of distribution of claims from the
223 insurer’s estate shall be in accordance with the order in which
224 each class of claims is set forth in this subsection. Every
225 claim in each class shall be paid in full or adequate funds
226 shall be retained for such payment before the members of the
227 next class may receive any payment. No subclasses may be
228 established within any class. The order of distribution of
229 claims shall be:
230 (b) Class 2.—All claims under policies for losses incurred,
231 including third-party claims, all claims against the insurer for
232 liability for bodily injury or for injury to or destruction of
233 tangible property which claims are not under policies, and all
234 claims of a guaranty association or foreign guaranty
235 association, and all claims for medical treatment by physicians,
236 hospitals, and other medical providers in a liquidation of a
237 health insurer or a health maintenance organization. All claims
238 under life insurance and annuity policies, whether for death
239 proceeds, annuity proceeds, or investment values, shall be
240 treated as loss claims. That portion of any loss,
241 indemnification for which is provided by other benefits or
242 advantages recovered by the claimant, may not be included in
243 this class, other than benefits or advantages recovered or
244 recoverable in discharge of familial obligations of support or
245 by way of succession at death or as proceeds of life insurance,
246 or as gratuities. No payment by an employer to her or his
247 employee may be treated as a gratuity.
248 Section 3. Subsection (6) of section 631.717, Florida
249 Statutes, is amended to read:
250 631.717 Powers and duties of the association.—
251 (6) The association may assist and advise the department,
252 upon its request, concerning rehabilitation, payment of claims,
253 continuance of coverage, or the performance of other contractual
254 obligations of any impaired or insolvent insurer. The
255 association may also assist and advise departments of insurance
256 of other states; other guaranty associations; and conservators,
257 rehabilitators, and receivers appointed or acting in regard to
258 any member insured wherever located, for the purpose of
259 developing plans to coordinate protection of policyholders.
260 Costs of such activities may be charged against the health
261 insurance account, the life insurance account, or the annuity
262 account created by s. 631.715, at the discretion of the board of
263 directors, notwithstanding any other provision of this part.
264 Notice of any assessment of costs, along with detailed and
265 itemized bills justifying the costs, must be given to the member
266 insurers, the department, and the office no later than 60 days
267 before the assessment.
268 Section 4. Subsection (3) of section 631.718, Florida
269 Statutes, is amended to read:
270 631.718 Assessments.—
271 (3)(a) The amount of any Class A assessment shall be
272 determined by the board and may be made on a non-pro rata basis.
273 The assessment may not be credited against future insolvency
274 assessments and may not exceed $250 per member insurer in any
275 one calendar year.
276 (b) The amount of any Class B assessment shall be allocated
277 for assessment purposes among the accounts pursuant to an
278 allocation formula, which may be based on the premiums or
279 reserves of the impaired or insolvent insurer.
280 (c) Class B assessments against member insurers for each
281 account, except for long-term care insurance claims, must be
282 based upon the premiums received on business in this state by
283 each assessed member insurer on policies or contracts covered by
284 each account for the 3 most recent calendar years for which
285 information is available preceding the year of the assessment in
286 proportion to premiums received on business in this state for
287 those calendar years by all assessed member insurers. If the
288 most recent 3 years of premium information is not available for
289 each member insurer, the board of directors may use the premium
290 information that is reasonably available.
291 (d) Class B assessments made by the board of directors
292 pursuant to paragraph (2)(b) for the payment of claims under
293 long-term care insurance policies of an impaired or insolvent
294 insurer must be levied first against life and health member
295 insurers that received premiums for long-term care insurance in
296 this state in any of the 20 calendar years preceding the
297 assessment and must be in proportion to the total of all long
298 term care premiums received on business in this state by all
299 assessed member insurers for those calendar years. If the board
300 of directors finds that the assessment of member insurers that
301 have written long-term care insurance is insufficient for the
302 payment of claims, the association must assess all health
303 insurers and life insurers in an amount sufficient to pay all
304 long-term care claims as they come due. Such assessment must be
305 based upon the total of life and health insurance premiums
306 written in this state for the 3 calendar years preceding the
307 assessment and may not be considered borrowing between accounts.
308 (e)(d) Assessments for funds to meet the requirements of
309 the association with respect to an impaired or insolvent insurer
310 may not be made until necessary to implement the purposes of
311 this part.
312 (f)(e) Classification of assessments under subsection (2)
313 and computation of assessments under this subsection must be
314 made with a reasonable degree of accuracy, recognizing that
315 exact determinations are not always possible.
316
317 This subsection applies to all assessments issued on or after
318 the effective date of this act, regardless of the date of
319 liquidation.
320 Section 5. Section 641.201, Florida Statutes, is amended to
321 read:
322 641.201 Applicability of other laws.—
323 (1) Except as provided in this part, health maintenance
324 organizations are shall be governed by the provisions of this
325 part and part III of this chapter and are shall be exempt from
326 all other provisions of the Florida Insurance Code except those
327 provisions of the Florida Insurance Code that are explicitly
328 made applicable to health maintenance organizations.
329 (2) Health maintenance organizations are considered
330 insurers for the purposes of:
331 (a) Sections 624.4073 and 628.231.
332 (b) Section 624.4095, except that:
333 1. The ratio of actual or projected annual gross written
334 premiums to current or projected surplus as to policyholders for
335 a health maintenance organization holding a certificate of
336 authority before the effective date of this act may not exceed
337 30 to 1 beginning July 1, 2020, until June 30, 2024; 20 to 1
338 beginning July 1, 2024, until June 30, 2028; and 10 to 1
339 beginning July 1, 2028.
340 2. In calculating the premium-to-surplus ratio of a health
341 maintenance organization pursuant to s. 624.4095(1), actual or
342 projected risk revenue must be added to actual or projected
343 written premiums.
344 (3) Health maintenance organizations are subject to the
345 applicable provisions of s. 624.4085.
346 Section 6. Section 641.222, Florida Statutes, is created to
347 read:
348 641.222 Officers and directors of insolvent insurers.—A
349 person who was an officer or director of an insurer or health
350 maintenance organization doing business in this state and who
351 served in that capacity within the 2-year period before the date
352 the insurer or health maintenance organization became insolvent,
353 for any insolvency that occurs on or after July 1, 2017, may not
354 thereafter serve as an officer or director of a health
355 maintenance organization authorized in this state unless the
356 officer or director demonstrates that his or her personal
357 actions or omissions were not a significant contributing cause
358 to the insolvency.
359 Section 7. The Division of Law Revision and Information is
360 directed to replace the phrase “the effective date of this act”
361 wherever it occurs in this act with the date this act becomes a
362 law.
363 Section 8. Except as otherwise expressly provided in this
364 act, this act shall take effect upon becoming a law.