Florida Regulations 69O-138.031: Financial Requirements for Assessable Mutual Insurers
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(1) Purpose and Scope. This rule sets forth office policy and legal interpretation concerning applicants for licensure as an assessable mutual insurer and licensed assessable mutual insurers operating under Part II of Florida Statutes Chapter 628
(2) Definitions.
(a) “”Office”” means the Office of Insurance Regulation.
(b) “”Applicant”” and “”application”” refer to the application of an entity applying for a certificate of authority as an assessable mutual insurer.
(3) Specification of Maximum Contingent Liability in Articles of Incorporation; Procedures.
(a) As required by the reference in Florida Statutes § 628.6011(1), to “”part I”” of chapter 628, F.S., the articles of incorporation of an entity applying for a certificate of authority as an assessable mutual shall specify the maximum contingent assessment liability of its members, in accordance with Section 628.081(3)(e), F.S.
(b) The office will review the maximum contingent liability specified in the articles of incorporation. The office shall reject an application for a certificate of authority if the office finds that the maximum contingent liability so specified is inadequate, pursuant to the procedures established in this rule.
(c) It is office policy that the maximum contingent liability of members shall generally be set at a factor of ten times annual premium, pursuant to Section 628.081(3)(e), F.S., unless the applicant or mutual insurer demonstrates that special conditions or provisions exist or have been made which justify a lower maximum contingent liability. Any such conditions or provisions which an insurer contends justifies a lower maximum contingent liability shall relate to the financial strength of the assessable mutual insurer. The office will consider any factors presented as justification which relate to the entity’s financial strength. The office will consider the factors in subparagraphs (3)(c)1. and 2., below, if included by the applicant as part of its demonstration and will base its determination on whether those factors, together with any other special conditions or provisions presented by the entity which relate to its financial strength provide the same degree of financial strength as setting the maximum contingent liability at ten times annual premium.
1. Extra contributed capital above the minimum required capital; or
2. A reinsurance program with admitted or approved reinsurers, of unusual strength and scope. For purposes of this subparagraph, “”unusual strength and scope”” means a reinsurance program consisting of aggregate excess of loss reinsurance, equivalent to that required under Florida Statutes § 624.469, and is the minimum program which the office will consider to merit any decrease in the maximum contingent liability.
(d) In particular cases there may exist other factors, which factors may offset the positive effect of the conditions or provisions specified in this subsection, so that no decrease in maximum contingent liability is merited notwithstanding the existence of the special conditions or provisions. These other factors are necessarily so fact-specific to particular situations that they cannot be enumerated here.
(4) Modification of Reinsurance Program After Issuance of a Certificate of Authority. Once a certificate of authority has been issued to an assessable mutual insurer, wherein the assessable mutual insurer was authorized by the office to use a maximum contingent liability less than ten times annual premium in reliance in whole or in part on its description to the office of its proposed reinsurance program, as provided for in paragraph (3)(c), above, that assessable mutual insurer shall not modify its reinsurance program in such a way as to decrease or lessen the reinsurance levels or protection as same was described to the office in the application for certificate of authority, without the written approval of the office. Insurers who are in doubt as to whether a proposed change to their reinsurance program would be viewed by the office as decreasing or lessening the reinsurance levels or protection, shall seek written guidance from the office.
(5) Subsequent Increase to Maximum Contingent Liability.
(a) Subsequent to receiving a certificate of authority, the office shall require the maximum contingent liability of a assessable mutual insurer to be changed, on a prospective basis, if the office determines that the financial condition of the assessable mutual insurer has changed to such an extent that such an increase is required for the protection of claimants and insureds.
(b) In determining whether such an increase is required, the office shall consider:
1. Any change in the assessable mutual insurer’s reinsurance program.
2. Adverse operating results.
3. Any similar deterioration of financial position which endangers the insurer’s policyholders, its overall financial condition, or its solvency.
(c) The increased maximum contingent liability shall apply only to policies entered into or renewed, and deficits arising, after the higher liability takes effect.
(6) Meaning of Maximum Contingent Liability.
(a) The specification of a maximum contingent liability does not mean that the amount so specified is the maximum amount a member may be assessed and required to pay in any one year, if the assessment is due to deficits arising in multiple years. An assessable mutual insurer may in the same assessment levy assessment for deficits arising in multiple years, and the maximum contingent liability limit is applied separately to each year in which a deficit occurred.
Example. An assessable mutual insurer incurs operating deficits in 1993, 1994, and 1995. Assume that at all times relevant the maximum contingent liability was three times annual premium paid. Also assume for the sake of the example that the deficit in each year was equal to three times premium paid that year. The assessable mutual insurer may levy, and a member may be liable to pay, an assessment in 1995, which assessment may be three times premiums paid in 1993 plus three times premium paid in 1994 plus three times annual premiums paid in 1995.
(b) A member may be assessed for a deficit arising in a particular year only to the extent of premiums paid by that member in that year.
Example. An assessable mutual insurer incurs operating deficits in 1994 and 1995. Assume that at all times relevant the maximum contingent liability was three times annual premium paid. Also assume for the sake of the example that the deficit arising in 1994 would take an assessment of 1.5 times annual premiums paid in that year; and that the deficit arising in 1995 would take an assessment of five times annual premium paid in 1995. The assessable mutual insurer may levy an assessment in 1995 of 1.5 times premiums paid in 1994 plus three times premium paid in 1995.
(7) Liability of Members After Terminating Membership. A member remains liable for assessment for deficits arising while that member was a member even after that member terminates membership.
Rulemaking Authority 624.308(1), 628.535 FS. Law Implemented 624.307(1), 624.469, 624.472, 628.081(3)(e), 628.6011, 628.6012, 628.6016 FS. History-New 10-21-93, Formerly 4-138.031.
(2) Definitions.
(a) “”Office”” means the Office of Insurance Regulation.
(b) “”Applicant”” and “”application”” refer to the application of an entity applying for a certificate of authority as an assessable mutual insurer.
(3) Specification of Maximum Contingent Liability in Articles of Incorporation; Procedures.
(a) As required by the reference in Florida Statutes § 628.6011(1), to “”part I”” of chapter 628, F.S., the articles of incorporation of an entity applying for a certificate of authority as an assessable mutual shall specify the maximum contingent assessment liability of its members, in accordance with Section 628.081(3)(e), F.S.
(b) The office will review the maximum contingent liability specified in the articles of incorporation. The office shall reject an application for a certificate of authority if the office finds that the maximum contingent liability so specified is inadequate, pursuant to the procedures established in this rule.
(c) It is office policy that the maximum contingent liability of members shall generally be set at a factor of ten times annual premium, pursuant to Section 628.081(3)(e), F.S., unless the applicant or mutual insurer demonstrates that special conditions or provisions exist or have been made which justify a lower maximum contingent liability. Any such conditions or provisions which an insurer contends justifies a lower maximum contingent liability shall relate to the financial strength of the assessable mutual insurer. The office will consider any factors presented as justification which relate to the entity’s financial strength. The office will consider the factors in subparagraphs (3)(c)1. and 2., below, if included by the applicant as part of its demonstration and will base its determination on whether those factors, together with any other special conditions or provisions presented by the entity which relate to its financial strength provide the same degree of financial strength as setting the maximum contingent liability at ten times annual premium.
1. Extra contributed capital above the minimum required capital; or
2. A reinsurance program with admitted or approved reinsurers, of unusual strength and scope. For purposes of this subparagraph, “”unusual strength and scope”” means a reinsurance program consisting of aggregate excess of loss reinsurance, equivalent to that required under Florida Statutes § 624.469, and is the minimum program which the office will consider to merit any decrease in the maximum contingent liability.
(d) In particular cases there may exist other factors, which factors may offset the positive effect of the conditions or provisions specified in this subsection, so that no decrease in maximum contingent liability is merited notwithstanding the existence of the special conditions or provisions. These other factors are necessarily so fact-specific to particular situations that they cannot be enumerated here.
(4) Modification of Reinsurance Program After Issuance of a Certificate of Authority. Once a certificate of authority has been issued to an assessable mutual insurer, wherein the assessable mutual insurer was authorized by the office to use a maximum contingent liability less than ten times annual premium in reliance in whole or in part on its description to the office of its proposed reinsurance program, as provided for in paragraph (3)(c), above, that assessable mutual insurer shall not modify its reinsurance program in such a way as to decrease or lessen the reinsurance levels or protection as same was described to the office in the application for certificate of authority, without the written approval of the office. Insurers who are in doubt as to whether a proposed change to their reinsurance program would be viewed by the office as decreasing or lessening the reinsurance levels or protection, shall seek written guidance from the office.
(5) Subsequent Increase to Maximum Contingent Liability.
(a) Subsequent to receiving a certificate of authority, the office shall require the maximum contingent liability of a assessable mutual insurer to be changed, on a prospective basis, if the office determines that the financial condition of the assessable mutual insurer has changed to such an extent that such an increase is required for the protection of claimants and insureds.
(b) In determining whether such an increase is required, the office shall consider:
1. Any change in the assessable mutual insurer’s reinsurance program.
2. Adverse operating results.
3. Any similar deterioration of financial position which endangers the insurer’s policyholders, its overall financial condition, or its solvency.
(c) The increased maximum contingent liability shall apply only to policies entered into or renewed, and deficits arising, after the higher liability takes effect.
(6) Meaning of Maximum Contingent Liability.
(a) The specification of a maximum contingent liability does not mean that the amount so specified is the maximum amount a member may be assessed and required to pay in any one year, if the assessment is due to deficits arising in multiple years. An assessable mutual insurer may in the same assessment levy assessment for deficits arising in multiple years, and the maximum contingent liability limit is applied separately to each year in which a deficit occurred.
Example. An assessable mutual insurer incurs operating deficits in 1993, 1994, and 1995. Assume that at all times relevant the maximum contingent liability was three times annual premium paid. Also assume for the sake of the example that the deficit in each year was equal to three times premium paid that year. The assessable mutual insurer may levy, and a member may be liable to pay, an assessment in 1995, which assessment may be three times premiums paid in 1993 plus three times premium paid in 1994 plus three times annual premiums paid in 1995.
(b) A member may be assessed for a deficit arising in a particular year only to the extent of premiums paid by that member in that year.
Example. An assessable mutual insurer incurs operating deficits in 1994 and 1995. Assume that at all times relevant the maximum contingent liability was three times annual premium paid. Also assume for the sake of the example that the deficit arising in 1994 would take an assessment of 1.5 times annual premiums paid in that year; and that the deficit arising in 1995 would take an assessment of five times annual premium paid in 1995. The assessable mutual insurer may levy an assessment in 1995 of 1.5 times premiums paid in 1994 plus three times premium paid in 1995.
(7) Liability of Members After Terminating Membership. A member remains liable for assessment for deficits arising while that member was a member even after that member terminates membership.
Rulemaking Authority 624.308(1), 628.535 FS. Law Implemented 624.307(1), 624.469, 624.472, 628.081(3)(e), 628.6011, 628.6012, 628.6016 FS. History-New 10-21-93, Formerly 4-138.031.