In connection with Florida’s transition of the state-run Citizens Property Insurance Corporation (“Citizens”) back to an insurer of last resort, the Florida House of Representatives recently approved by a 66-48 vote a bill (HB 245 [PDF]) that would allow surplus lines insurers to assume certain policies from Citizens.  Citizens is currently the largest property insurer in Florida and, according to Governor Rick Scott, its rates are artificially low due to statutory limitations.  This could lead to large assessments on both policyholders and insurers in the event of a major catastrophe.  By downsizing the amount of policyholders, it is hoped that Citizens will be more financially stable.

If enacted, policyholders selected by Citizens to be placed with a surplus lines insurer would receive notices and provided with the option to opt out should they want to remain with Citizens.  Surplus lines insurers wishing to assume policies must, in addition to certain filing requirements, meet the following:  (i) be eligible to write surplus lines insurance in Florida; (ii) maintain a surplus of $50 million on a company or pooled basis; (iii) maintain an A.M. Best Financial Strength Rating of A- or better; (iv) be able to cover two 100-year storm losses in a single hurricane season; (v) notify the policyholder before assumption that the policy is not covered by the Florida Insurance Guaranty Association; and (vi) provide similar policy coverage terms as Citizens.

Opponents of the bill have voiced concerns particularly about the lack of protection against insolvency because surplus lines insurers do not participate in the Florida Insurance Guaranty Association.  However, the bill does provide some protection in the form of a special deposit that is required to be made with the Florida Department of Financial Services.  The special deposit would equal the amount of unearned premium net of unearned commissions on the assumed block of business.

The bill will be reviewed next by the Florida Senate.  No timetable has been set for when a floor vote will be taken.