Current through Reg. 50, No. 187; September 24, 2024
(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 Chapter 628, F.S.
(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 Section
628.6011(1),
F.S., 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 Section
624.469, F.S., 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.
New 10-21-93, Formerly
4-138.031.
