624.4085 Risk-based capital requirements for insurers.—
(1) As used in this section, the term:
(a) “Adjusted risk-based capital report” means a risk-based capital report that has been adjusted by the office in accordance with this section.
(b) “Authorized control level risk-based capital” means the number determined under the risk-based capital formula in the risk-based capital instructions.
(c) “Company action level risk-based capital” means the product of 2.0 and an insurer’s authorized control level risk-based capital.
(d) “Corrective order” means an order issued by the office specifying corrective actions that the office has determined are required.
(e) “Domestic insurer” means any insurer domiciled in this state.
(f) “Foreign insurer” means any insurer that is authorized or eligible to do business in this state but that is not domiciled in this state.
(g) “Life and health insurer” means an insurer authorized or eligible under the Florida Insurance Code to underwrite life or health insurance. The term includes a property and casualty insurer that writes accident and health insurance only. Effective January 1, 2015, the term also includes a health maintenance organization that is authorized in this state and one or more other states, jurisdictions, or countries and a prepaid limited health service organization that is authorized in this state and one or more other states, jurisdictions, or countries.
(h) “Mandatory control level risk-based capital” means the product of 0.70 and the authorized control level risk-based capital.
(i) “Negative trend” means, with respect to a life and health insurer, a negative trend over a period of time, as determined in accordance with the trend test calculation included in the risk-based capital instructions.
(j) “Property and casualty insurer” means any insurer licensed under the Florida Insurance Code, but does not include a single-line mortgage guaranty insurer, financial guaranty insurer, or title insurer or a life and health insurer.
(k) “Regulatory action level risk-based capital” means the product of 1.5 and an insurer’s authorized control level risk-based capital.
(l) “Revised risk-based capital plan” means the revision of the risk-based capital plan which is prepared by an insurer after the office rejects the original plan.
(m) “Risk-based capital instructions” means the instructions for preparing a risk-based capital report as adopted by the National Association of Insurance Commissioners.
(n) “Risk-based capital level” means an insurer’s company action level risk-based capital, regulatory action level risk-based capital, authorized control level risk-based capital, or mandatory control level risk-based capital.
(o) “Risk-based capital plan” means a comprehensive financial plan specified in paragraph (4)(b).
(p) “Risk-based capital report” means the report required in subsection (2).
(q) “Total adjusted capital” means the sum of:
1. An insurer’s statutory capital and surplus; and
2. Any other item required by the risk-based capital instructions.
(2)(a) Each domestic insurer that is subject to this section shall, on or before March 1 of each year, prepare and file with the National Association of Insurance Commissioners a report of its risk-based capital levels as of the end of the calendar year just ended, in a form and containing the information required in the risk-based capital instructions. In addition, each domestic insurer shall file a printed copy of its risk-based capital report:
1. With the office on or before March 1 of each year.
2. With the insurance department in any other state in which the insurer is authorized to do business, if that department has notified the insurer of its request in writing, in which case the insurer shall file its risk-based capital report not later than the later of:
a. Fifteen days after the receipt of notice to file its risk-based capital report with that state; or
b. March 1.
(b) The comparison of an insurer’s total adjusted capital to any of its risk-based capital levels is a regulatory tool that may indicate the need for possible corrective action with respect to the insurer, and may not be used as a means to rank insurers generally. Therefore, except as otherwise required under this section, the making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or television station, or in any other way, an advertisement, announcement, or statement containing an assertion, representation, or statement with regard to the risk-based capital levels of any insurer, or of any component derived in the calculation, by any insurer, agent, broker, or other person engaged in any manner in the insurance business would be misleading and is therefore prohibited; however, if any materially false statement with respect to the comparison regarding an insurer’s total adjusted capital to its risk-based capital levels (or any of them) or an inappropriate comparison of any other amount to the insurer’s risk-based capital levels is published in any written publication and the insurer is able to demonstrate to the office with substantial proof the falsity or inappropriateness of the statement, the insurer may publish in a written publication an announcement the sole purpose of which is to rebut the materially false statement.
(c) The office shall use the risk-based capital instructions, risk-based capital reports, adjusted risk-based capital reports, risk-based capital plans, and revised risk-based capital plans solely for monitoring the solvency of insurers and assessing the need for corrective action with respect to insurers. The office may not use that information for ratemaking, as evidence in any rate proceeding, or for calculating or deriving any elements of an appropriate premium level or rate of return for any line of insurance which an insurer or an affiliate of such insurer is authorized to write.
(d) A life and health insurer’s risk-based capital is determined in accordance with the formula set forth in the risk-based capital instructions. The formula takes into account and may adjust for the covariance between:
1. The risk with respect to the insurer’s assets;
2. The risk of adverse insurance experience with respect to the insurer’s liabilities and obligations;
3. The interest rate risk with respect to the insurer’s business; and
4. Any other business or other relevant risk set out in the risk-based capital instructions,
determined in each case by applying the factors in the manner set forth in the risk-based capital instructions. This paragraph does not apply to a health maintenance organization or a prepaid limited health service organization.
(e) A property and casualty insurer’s and, if subject to this section pursuant to paragraph (1)(g), a health maintenance organization’s or a prepaid limited health service organization’s, risk-based capital is determined in accordance with the formula set forth in the risk-based capital instructions. The formula takes into account and may adjust for the covariance between:
1. The asset risk;
2. The credit risk;
3. The underwriting risk; and
4. Any other business or other relevant risk set out in the risk-based capital instructions,
determined in each case by applying the factors in the manner set forth in the risk-based capital instructions.
(f) The Legislature finds that an excess of capital over the amount produced by the risk-based capital requirements and the formulas, schedules, and instructions specified in this section is a desirable goal with respect to the business of insurance. Accordingly, insurers should seek to maintain capital above the risk-based capital levels required by this section. Additional capital is used and useful in the insurance business and helps to secure an insurer against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained in this section.
(g) If a domestic insurer files a risk-based capital report that the office finds is inaccurate, the office shall adjust the risk-based capital report to correct the inaccuracy and shall notify the insurer of the adjustment. The notice must state the reason for the adjustment. A risk-based capital report that is so adjusted is referred to as the adjusted risk-based capital report. The adjusted risk-based capital report must also be filed by the insurer with the National Association of Insurance Commissioners.
(3)(a) A company action level event includes:
1. The filing of a risk-based capital report by an insurer which indicates that:
a. The insurer’s total adjusted capital is greater than or equal to its regulatory action level risk-based capital but less than its company action level risk-based capital;
b. If a life and health insurer reports using the life and health annual statement instructions, the insurer has total adjusted capital that is greater than or equal to its company action level risk-based capital, but is less than the product of its authorized control level risk-based capital and 3.0, and has a negative trend;
c. Effective January 1, 2015, if a life and health or property and casualty insurer reports using the health annual statement instructions, the insurer or organization has total adjusted capital that is greater than or equal to its company action level risk-based capital, but is less than the product of its authorized control level risk-based capital and 3.0, and triggers the trend test determined in accordance with the trend test calculation included in the Risk-Based Capital Forecasting and Instructions, Health, updated annually by the NAIC; or
d. If a property and casualty insurer reports using the property and casualty annual statement instructions, the insurer has total adjusted capital that is greater than or equal to its company action level risk-based capital, but less than the product of its authorized control level risk-based capital and 3.0, and triggers the trend test determined in accordance with the trend test calculation included in the Risk-Based Capital Forecasting and Instructions, Property/Casualty, updated annually by the NAIC;
2. The notification by the office to the insurer of an adjusted risk-based capital report that indicates an event in subparagraph 1., unless the insurer challenges the adjusted risk-based capital report under subsection (7); or
3. If, under subsection (7), an insurer challenges an adjusted risk-based capital report that indicates an event in subparagraph 1., the notification by the office to the insurer that the office has, after a hearing, rejected the insurer’s challenge.
(b) If a company action level event occurs, the insurer shall prepare and submit to the office a risk-based capital plan, which must:
1. Identify the conditions that contribute to the company action level event;
2. Contain proposals of corrective actions that the insurer intends to take and that are reasonably expected to result in the elimination of the company action level event;
3. Provide projections of the insurer’s financial results in the current year and at least the 4 succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory operating income, net income, capital, and surplus. The projections for both new and renewal business may include separate projections for each major line of business and, if separate projections are provided, must separately identify each significant income, expense, and benefit component;
4. Identify the key assumptions affecting the insurer’s projections and the sensitivity of the projections to the assumptions; and
5. Identify the quality of, and problems associated with, the insurer’s business, including, but not limited to, its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business, and any use of reinsurance.
(c) The risk-based capital plan must be submitted:
1. Within 45 days after the company action level event; or
2. If the insurer challenges an adjusted risk-based capital report under subsection (7), within 45 days after notification to the insurer that the office has, after a hearing, rejected the insurer’s challenge.
(d) Within 60 days after the submission by an insurer of a risk-based capital plan to the office, the office shall notify the insurer whether the risk-based capital plan must be implemented or is, in the judgment of the office, unsatisfactory. If the office determines that the risk-based capital plan is unsatisfactory, the notification to the insurer must set forth the reasons for the determination and may set forth proposed revisions. Upon notification from the office, the insurer shall prepare a revised risk-based capital plan, which may incorporate by reference any revisions proposed by the office, and shall submit the revised risk-based capital plan to the office:
1. Within 45 days after the notification from the office; or
2. If the insurer challenges the notification from the office under subsection (7), within 45 days after a notification to the insurer that the office has, after a hearing, rejected the insurer’s challenge.
(e) If the office notifies an insurer that the insurer’s risk-based capital plan or revised risk-based capital plan is unsatisfactory, the office may, at its discretion and subject to the insurer’s right to a hearing under subsection (7), specify in the notification that the notification is a regulatory action level event.
(f) Each domestic insurer that files a risk-based capital plan or a revised risk-based capital plan with the office shall file a copy of the risk-based capital plan or the revised risk-based capital plan with the insurance department in any other state in which the insurer is authorized to do business if:
1. That state has a risk-based capital law that is substantially similar to paragraph (8)(a); and
2. The insurance department of that state has notified the insurer of its request for the filing in writing, in which case the insurer shall file a copy of the risk-based capital plan or the revised risk-based capital plan in that state no later than the later of:
a. Fifteen days after the receipt of notice to file a copy of its risk-based capital plan or revised risk-based capital plan with the state; or
b. The date on which the risk-based capital plan or the revised risk-based capital plan is filed under paragraph (c) or paragraph (d).
(4)(a) A regulatory action level event includes:
1. The filing of a risk-based capital report by the insurer which indicates that the insurer’s total adjusted capital is greater than or equal to its authorized control level risk-based capital but is less than its regulatory action level risk-based capital;
2. The notification by the office to the insurer of an adjusted risk-based capital report that indicates the event described in subparagraph 1., unless the insurer challenges the adjusted risk-based capital report under subsection (7);
3. If, under subsection (7), the insurer challenges an adjusted risk-based capital report that indicates the event described in subparagraph 1., the notification by the office to the insurer that the office has, after a hearing, rejected the insurer’s challenge;
4. The failure of the insurer to file a risk-based capital report by the filing date, unless the insurer provides an explanation for such failure which is satisfactory to the office and cures the failure within 10 days after the filing date;
5. The failure of the insurer to submit a risk-based capital plan to the office within the time period set forth in paragraph (3)(c);
6. Notification by the office to the insurer that:
a. The risk-based capital plan or the revised risk-based capital plan submitted by the insurer is, in the judgment of the office, unsatisfactory; and
b. This notification constitutes a regulatory action level event with respect to the insurer, unless the insurer challenges the determination under subsection (7);
7. If, under subsection (7), the insurer challenges a determination by the office under subparagraph 6., the notification by the office to the insurer that the office has, after a hearing, rejected the challenge;
8. Notification by the office to the insurer that the insurer has failed to adhere to its risk-based capital plan or revised risk-based capital plan, but only if this failure has a substantial adverse effect on the ability of the insurer to eliminate the company action level event in accordance with its risk-based capital plan or revised risk-based capital plan and the office has so stated in the notification, unless the insurer challenges the determination under subsection (7); or
9. If, under subsection (7), the insurer challenges a determination by the office under subparagraph 8., the notification by the office to the insurer that the office has, after a hearing, rejected the challenge.
(b) If a regulatory action level event occurs, the office shall:
1. Require the insurer to prepare and submit a risk-based capital plan or, if applicable, a revised risk-based capital plan;
2. Perform an examination pursuant to s. 624.316 or an analysis, as the office considers necessary, of the assets, liabilities, and operations of the insurer, including a review of the risk-based capital plan or the revised risk-based capital plan; and
3. After the examination or analysis, issue a corrective order specifying such corrective actions as the office determines are required.
(c) In determining corrective actions, the office shall consider any factor relevant to the insurer based upon the office’s examination or analysis of the assets, liabilities, and operations of the insurer, including, but not limited to, the results of any sensitivity tests undertaken as provided in the risk-based capital instructions. The risk-based capital plan or the revised risk-based capital plan must be submitted:
1. Within 45 days after the occurrence of the regulatory action level event;
2. If the insurer challenges an adjusted risk-based capital report under subsection (7), within 45 days after the notification to the insurer that the office has, after a hearing, rejected the insurer’s challenge; or
3. If the insurer challenges a revised risk-based capital plan under subsection (7), within 45 days after the notification to the insurer that the office has, after a hearing, rejected the insurer’s challenge.
(d) The office may retain actuaries, investment experts, and other consultants to review an insurer’s risk-based capital plan or revised risk-based capital plan, examine or analyze the assets, liabilities, and operations of an insurer, and formulate the corrective order with respect to the insurer. The fees, costs, and expenses relating to consultants must be borne by the affected insurer or by any other party as directed by the office.
(5)(a) An authorized control level event includes:
1. The filing of a risk-based capital report by the insurer which indicates that the insurer’s total adjusted capital is greater than or equal to its mandatory control level risk-based capital but is less than its authorized control level risk-based capital;
2. The notification by the office to the insurer of an adjusted risk-based capital report that indicates the event in subparagraph 1., unless the insurer challenges the adjusted risk-based capital report under subsection (7);
3. If, under subsection (7), the insurer challenges an adjusted risk-based capital report that indicates the event in subparagraph 1., notification by the office to the insurer that the office has, after a hearing, rejected the insurer’s challenge;
4. The failure of the insurer to respond, in a manner satisfactory to the office, to a corrective order, unless the insurer challenges the corrective order under subsection (7); or
5. If the insurer challenges a corrective order under subsection (7) and the office has, after a hearing, rejected the challenge or modified the corrective order, the failure of the insurer to respond, in a manner satisfactory to the office, to the corrective order after rejection or modification by the office.
(b) If an authorized control level event occurs, the office shall:
1. Take any action required under subsection (4) regarding the insurer with respect to which a regulatory action level event has occurred; or
2. If the office considers it to be in the best interests of the policyholders and creditors of the insurer and of the public, take any action as necessary to cause the insurer to be placed under regulatory control under chapter 631. An authorized control level event is sufficient ground for the department to be appointed as receiver as provided in chapter 631.
(6)(a) A mandatory control level event includes:
1. The filing of a risk-based capital report that indicates that the insurer’s total adjusted capital is less than its mandatory control level risk-based capital;
2. Notification by the office to the insurer of an adjusted risk-based capital report that indicates the event in subparagraph 1., unless the insurer challenges the adjusted risk-based capital report under subsection (7); or
3. If, under subsection (7), the insurer challenges an adjusted risk-based capital report that indicates the event in subparagraph 1., notification by the office to the insurer that the office has, after a hearing, rejected the insurer’s challenge.
(b) If a mandatory control level event occurs:
1. With respect to a life and health insurer, the office shall, after due consideration of s. 624.408, and effective January 1, 2015, ss. 636.045 and 641.225, take any action necessary to place the insurer under regulatory control, including any remedy available under chapter 631. A mandatory control level event is sufficient ground for the department to be appointed as receiver as provided in chapter 631. The office may forego taking action for up to 90 days after the mandatory control level event if the office finds there is a reasonable expectation that the event may be eliminated within the 90-day period.
2. With respect to a property and casualty insurer, the office shall, after due consideration of s. 624.408, take any action necessary to place the insurer under regulatory control, including any remedy available under chapter 631, or, in the case of an insurer that is not writing new business, may allow the insurer to continue to operate under the supervision of the office. In either case, the mandatory control level event is sufficient ground for the department to be appointed as receiver as provided in chapter 631. The office may forego taking action for up to 90 days after the mandatory control level event if the office finds there is a reasonable expectation that the event may be eliminated within the 90-day period.
(7)(a) An insurer has a right to a hearing before the office upon:
1. Notification to an insurer by the office of an adjusted risk-based capital report;
2. Notification to an insurer by the office that the insurer’s risk-based capital plan or revised risk-based capital plan is unsatisfactory, and that the notification constitutes a regulatory action level event with respect to such insurer;
3. Notification to any insurer by the office that the insurer has failed to adhere to its risk-based capital plan or revised risk-based capital plan and that the failure has a substantial adverse effect on the ability of the insurer to eliminate the company action level event in accordance with its risk-based capital plan or its revised risk-based capital plan; or
4. Notification to an insurer by the office of a corrective order with respect to the insurer.
(b) At such hearing the insurer may challenge any determination or action by the office. The insurer shall notify the office of its request for a hearing within 5 days after receipt of the notification by the office under this subsection. Upon receipt of the request for a hearing, the office shall set a date for the hearing, which date must be no fewer than 10 nor more than 30 days after the date the office receives the insurer’s request. The hearing must be conducted as provided in s. 624.324, with the right to appellate review under s. 120.68.
(8)(a) Any foreign insurer shall, upon the written request of the office, submit to the office a risk-based capital report, as of the end of the calendar year just ended, no later than the later of:
1. The date a risk-based capital report is required to be filed by a domestic insurer under this section; or
2. Fifteen days after the request is received by the foreign insurer.
(b) Any foreign insurer shall, upon the written request of the office, promptly submit to the office a copy of any risk-based capital plan that is filed with the insurance department of another state.
(c) The office may require a foreign insurer to file a risk-based capital plan if:
1. A company action level event, regulatory action level event, or authorized control level event occurs with respect to any foreign insurer as determined under the risk-based capital law of the state of domicile of the insurer, or, if there is no risk-based capital law in that state, under this section.
2. The insurance department of the state of domicile of the foreign insurer fails to require the foreign insurer to file a risk-based capital plan in the manner specified under the risk-based capital law of that state, or, if there is no risk-based capital law in that state, under subsection (3).
The failure of the foreign insurer to file a risk-based capital plan with the office when required under this paragraph is a ground for the office to take any action under s. 624.418 which it determines is necessary.
(d) If a mandatory control level event occurs with respect to any foreign insurer and a domiciliary receiver has not been appointed with respect to the foreign insurer under the rehabilitation and liquidation law of the state of domicile of the foreign insurer, the office may apply to the Circuit Court of Leon County and such event constitutes grounds for the department to be appointed as receiver as provided in chapter 631 with respect to the liquidation of property of foreign insurers found in this state. The occurrence of a mandatory control level event is a ground for such application.
(9) There shall be no liability on the part of, and no cause of action shall arise against, the commission, department, or office, or their employees or agents, for any action taken by them in the performance of their powers and duties under this section.
(10) The office shall transmit any notice that may result in regulatory action by registered mail, certified mail, or any other method of transmission. Notice is effective when the insurer receives it.
(11) This section is supplemental to the other laws of this state and does not preclude or limit any power or duty of the department or office under those laws or under the rules adopted under those laws.
(12) This section does not apply to a domestic property and casualty insurer that meets all of the following conditions:
(a) Writes direct business only in this state;
(b) Writes direct annual premiums of $2 million or less; and
(c) Assumes no reinsurance in excess of 5 percent of direct premiums written.
(13) The commission may adopt rules to administer this section, including, but not limited to, those regarding risk-based capital reports, adjusted risk-based capital reports, risk-based capital plans, corrective orders and procedures to be followed in the event of a triggering of a company action level event, a regulatory action level event, an authorized control level event, or a mandatory control level event.
History.—s. 3, ch. 97-292; s. 785, ch. 2003-261; s. 4, ch. 2014-101; s. 8, ch. 2019-108.
