HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 695 Property Insurer Reimbursements
SPONSOR(S): Stevenson
TIED BILLS: IDEN./SIM. BILLS: SB 1058
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Insurance & Banking Subcommittee 15 Y, 0 N Fortenberry Luczynski
2) Appropriations Committee 24 Y, 0 N Lee Pridgeon
3) Commerce Committee 22 Y, 0 N Fortenberry Hamon
SUMMARY ANALYSIS
The Florida Hurricane Catastrophe Fund (FHCF) is a tax-exempt trust fund created by the Legislature in 1993
as a form of reinsurance for residential property catastrophic hurricane losses. As a condition of transacting
insurance business in the state, residential property insurers are required to enter contracts with the State
Board of Administration (SBA) to purchase reimbursement coverage (reinsurance) on their residential property
exposure.
As part of its regulation, the Office of Insurance Regulation (OIR) monitors the solvency of insurers to protect
policyholders against the risk that insurers will not be able to meet their financial responsibilities. If an insurer is
in an unsound financial condition, OIR may refer that insurer to the Department of Financial Services for the
filing of a delinquency proceeding in circuit court, which may result in the liquidation of the insurer. If Citizens
Property Insurance Corporation (Citizens) assumes policies from such liquidated insurer, Citizens may obtain
coverage from the FHCF for these policies under its reimbursement contract with the SBA or by accepting an
assignment of the liquidated insurer’s reimbursement contract with the SBA. However, current law does not
address the transfer of FHCF coverage to Citizens if it assumes policies from an authorized insurer that is in an
unsound financial condition, but is not the subject of a delinquency proceeding, or the transfer of FHCF
coverage if an authorized private insurer assumes policies from an unsound insurer.
The bill defines “unsound insurer” as an insurer that OIR has determined to be in unsound condition as defined
in s. 624.80(2), F.S., or an insurer that has been placed into receivership under ch. 631, F.S. The bill allows
any authorized insurer to receive the transfer of FHCF coverage along with policies that it assumes from an
unsound insurer, subject to an agreement with the SBA. The bill extends to authorized insurers the
requirements that exist when Citizens assumes policies from unsound insurers and wishes to obtain coverage
from the FHCF for those policies and establishes additional requirements for both authorized insurers and
Citizens. The bill replaces the statutory phrase “placed in liquidation” with the defined term “unsound insurer”
so that FHCF coverage can be transferred to Citizens or an authorized insurer with policies that Citizens or
such authorized insurer assumes from an unsound insurer or a liquidated insurer.
The bill establishes that if a covered event has occurred before the effective date of the transfer of the policies
to the authorized insurer or Citizens, the authorized insurer or Citizens may only obtain coverage from the
FHCF subject to an assignment of the remaining term of the unsound insurer’s FHCF contract.
The bill has no impact on state or local government revenues or expenditures and no direct economic impact
on the private sector.
The bill has an effective date of July 1, 2022.
This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives .
STORAGE NAME: h0695e.COM
DATE: 2/10/2022
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Florida Hurricane Catastrophe Fund
The Florida Hurricane Catastrophe Fund (FHCF) is a tax-exempt trust fund created by the Legislature
in 1993 as a form of reinsurance for residential property catastrophic hurricane losses. 1 The purpose of
the FHCF is to protect and advance the state’s interest in maintaining insurance capacity in Florida by
providing reimbursements to insurers for a portion of their catastrophic losses. 2 The FHCF provides
insurers a source of reinsurance that is stable and generally less expensive than private reinsurance.
The FHCF is administered by the State Board of Administration (SBA) and reimburses property
insurers for a selected percentage of hurricane losses to residential property when those losses exceed
the insurer’s retention (deductible).3 The FHCF reimburses participating insurers for losses under
covered policies, subject to limitations.4 A covered policy is defined as “any insurance policy covering
residential property” in Florida, including, but not limited to the following types of policies:
homeowner
mobile home owner
farm owner
condominium association
condominium unit owner
tenant
apartment building policy
any other policy covering a residential structure or its contents. 5
Covered policies may be issued by any authorized insurer,6 a commercial self-insurance fund holding a
certificate of authority issued by the Office of Insurance Regulation (OIR), the Citizens Property
Insurance Corporation (Citizens), and any joint underwriting association or similar legal entity.7
As a condition of transacting insurance business in the state, residential property insurers are required
to enter contracts with the SBA to purchase reimbursement coverage (reinsurance) on their residential
property exposure.8 Pursuant its contract with the SBA, each insurer must pay an actuarially-indicated
annual premium for the reimbursement.9 The actuarial basis for the premium includes an analysis of
hurricane loss projection models found acceptable by the Florida Commission on Hurricane Loss
Projection Methodology, which is also part of the SBA.
Insurer Financial Condition
1 See s. 215.555, F.S.
2 See id.
3 Id. Retention is defined as the amount of losses below which an insurer is not entitled to reimbursement from the FHCF.
It is calculated for each insurer based upon that insurer’s proportionate share of overall premiums charged by the FHCF.
See s. 215.555(2)(e), F.S.
4 S. 215.555(2)(d), F.S.
5 S. 215.555(2)(c), F.S.
6 Authorized insurers are those insurers that have obtained a certificate of authority from OIR to transact insurance
business in Florida. S. 624.09(1), F.S.
7 S. 215.555(2)(c), F.S.
8 S. 215.555(4), F.S.
9 S. 215.555(5)(a), F.S.
STORAGE NAME: h0695e.COM PAGE: 2
DATE: 2/10/2022
As part of its regulation, OIR monitors the solvency of insurers to protect policyholders against the risk
that insurers will not be able to meet their financial responsibilities. OIR considers an insurer to be in an
unsound financial condition if:
the insurer’s required surplus, capital, or capital stock is impaired to an extent prohibited by law;
the insurer continues to write new business when it has not maintained the required surplus or
capital;
the insurer attempted to dissolve or liquidate without making provisions for liabilities arising from
insurance policies that it issued; or
the insurer meets one or more of the grounds in s. 631.051, F.S., for appointment of the
Department of Financial Services (DFS) as receiver. 10
Federal law specifies that insurers cannot file for bankruptcy. 11 Instead, insolvent insurers are either
rehabilitated or liquidated by the state. In Florida, the Division of Rehabilitation and Liquidation of DFS
is responsible for rehabilitating or liquidating insurance companies. 12
Chapter 631, F.S., relating to insurers insolvency and guaranty payments, governs the receivership
process. This process involves the initiation of a delinquency proceeding in circuit court and the
placement of in insurer under the control of DFS as the receiver. 13 Depending on the insurer’s
circumstances, the delinquency proceeding may result in an order of rehabilitation or liquidation. 14
Assumption of Residential Property Insurance Policies by Citizens
Citizens is a state-created, not-for-profit, tax-exempt government entity that is an integral part of the
state, whose public purpose is to provide property insurance to those unable to find affordable
coverage in the private market from an authorized insurer.15 Unlike private insurers, Citizens is not
required to hold a certificate of authority from OIR.16
A significant portion of Citizens’ total policy count consists of residential property insurance policies.
These policies include homeowners, mobile homeowners, dwelling fire, tenants, condominium unit
owners, and some other similar policies. Pursuant to its enabling statute, s. 627.351(6), F.S., Citizens
must enter into a reimbursement contract with the SBA for coverage from the FHCF for its residential
property insurance policies.17 While private carriers may select from various coverage levels available
from the FHCF, Citizens is statutorily required to purchase the highest available level of coverage from
the FHCF.18
Currently, if an insurer is placed in liquidation under ch. 631, F.S., and Citizens assumes policies from
such liquidated insurer, Citizens may obtain coverage from the FHCF for these policies under its
reimbursement contract with the SBA or by accepting an assignment of the liquidated insurer’s
reimbursement contract with the SBA.19 The assignment of the contract must be provided for in the
liquidation order or otherwise determined by the court as part of the delinquency proceedings involving
10 S. 624.80(2), F.S.
11 The Bankruptcy Code expressly provides that “a domestic insurance company” may not be the subject of federal
bankruptcy proceeding. 11 U.S.C. 109(b)(2). The exclusion of insurers from the federal bankruptcy process is consistent
with federal policy generally allowing states to regulate insurance. See 15 U.S.C. ss. 1011-1012.
12 Typically, insurers are put into liquidation when the company is insolvent, but put into rehabilitation for various other
reasons, including an unsound financial condition. The goal of rehabilitation is to return the insurer to a sound financial
condition. The goal of liquidation, however, is to dissolve the insurer. See s. 631.051, F.S., for the grounds for
rehabilitation and s. 631.061, F.S., for the grounds for liquidation.
13 S. 631.031, F.S.
14 See ss. 631.101 and 631.111, F.S.
15 S. 627.351(6)(a)1., F.S.
16 Citizens, Management Discussion and Analysis for 2017,
https://www.citizensfla.com/documents/20702/6867558/20180411+04E+MDA+2017.pdf/4584208b -1d87-4add-9a11-
55e818fe0046?t=1523029712990 (last visited Jan. 10, 2021).
17 Id.
18 Id.
19 State Board of Administration, Agency Analysis of 2022 Senate Bill 1058, p. 1 (Jan. 6, 2022). 2022 Senate Bill 1058 is
identical to this bill. See also s. 215.555(5)(e), F.S.
STORAGE NAME: h0695e.COM PAGE: 3
DATE: 2/10/2022
the liquidated insurer.20 The law does not address the transfer of FHCF coverage to Citizens if it
assumes policies from an authorized insurer that is in an unsound financial condition (unsound insurer),
but is not the subject of a delinquency proceeding.
Assumption of Residential Property Insurance Policies by Authorized Insurers
Under certain circumstances, OIR may approve the assumption of policies by an authorized insurer
(assuming insurer) from an unsound insurer or an insurer placed in receivership. However, current law
does not provide for the assignment to the assuming insurer of the FHCF coverage that the unsound
insurer or the insurer placed in receivership has on its policies.
Effect of the Bill
The bill defines “unsound insurer” as an insurer that OIR has determined to be in unsound condition as
defined in s. 624.80(2), F.S., or an insurer that has been placed into receivership under ch. 631, F.S.
The bill allows any authorized insurer to receive the transfer of FHCF coverage along with policies that
it assumes from an unsound insurer, subject to an agreement with the SBA. The bill extends to
authorized insurers the requirements that exist when Citizens assumes policies from unsound insurers
and wishes to obtain coverage from the FHCF for those policies, and also establishes additional
requirements for both authorized insurers and Citizens.
The bill replaces the statutory phrase “placed in liquidation” with the defined term “unsound insurer” so
that FHCF coverage can be transferred to Citizens or an authorized insurer with policies that Citizens
or such authorized insurer assumes from an unsound insurer or a liquidated insurer.
The bill establishes that if a covered event has occurred before the effective date of the transfer of the
policies to the authorized insurer or Citizens, the authorized insurer or Citizens may only obtain
coverage from the FHCF subject to an assignment of the remaining term of the unsound insurer’s
FHCF contract.
The bill removes language regarding assignments that becomes obsolete if assignment is no longer
limited to policies from insurers that have been placed in liquidation under ch. 631, F.S. Finally, the bill
provides that the new language regarding assignment of policies from an unsound insurer does not
limit the FHCF’s right to receive premium due under the contract between an unsound insurer and the
FHCF.
B. SECTION DIRECTORY:
Section 1. Amends s. 215.555, F.S., relating to Florida Hurricane Catastrophe Fund.
Section 2. Provides an effective date of July 1, 2022.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
None.
2. Expenditures:
None.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
20 S. 215.555(5)(e), F.S.
STORAGE NAME: h0695e.COM PAGE: 4
DATE: 2/10/2022
1. Revenues:
None.
2. Expenditures:
None.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
None.
D. FISCAL COMMENTS:
None.
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not applicable. The bill does not appear to affect county or municipal governments.
2. Other:
None.
B. RULE-MAKING AUTHORITY:
The bill neither authorizes nor requires administrative rulemaking.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES
STORAGE NAME: h0695e.COM PAGE: 5
DATE: 2/10/2022
Statutes affected: H 695 Filed: 215.555