Fla. Legislators Revamp P-C Market

By Michael H. Adams, Florida Correspondent

NU Online News Service, March 28, 10:35 a.m. EST,Tallahassee, Fla.?Florida Insurance Commissioner TomGallagher has successfully won legislative approval for a dramaticoverhaul of the state sponsored pools providing property insuranceto the residual market.

The plan Mr. Gallagher supported will merge the state's tworesidual property markets into a new tax-exempt insurer. Lawmakers,however, failed in the closing hours of their session last week toresolve the future regulation of banking and insurance as calledfor under a voter approved constitutional amendment.

Mr. Gallagher has pushed two years to secure passage of his planto merge the Florida Residential Property and Casualty JointUnderwriting Association and the Florida Windstorm UnderwritingAssociation into a new Citizens Property Insurance Company. As ofJanuary 31, the two residual markets combined equaled roughly512,000 policies in force representing $118 billion in liabilitiesand a probable maximum loss for a 100-year storm of $6 billion.

For much of the legislative session, Mr. Gallagher's planlanguished as lawmakers showed little enthusiasm for the complexscheme. That changed, however, when U.S. Northern District ofFlorida Chief Judge Roger Vinson recently ruled that the FRPCJUA isan "integral part of the state" and should be exempt from federaltaxation.

FRPCJUA Executive Director Jay Newman said the ruling willresult in the association receiving a tax refund of $172 millionplus interest.

The money will nearly double the association's current surplus,greatly enhancing its claims paying ability. Additionally, theruling could potentially ease the assessment burden on all Floridapolicyholders.

"When the big storm comes, the FRPJCUA can issue tax-exemptdebt," said Mr. Newman. "That means there is the choice of smallerassessments or paying off the debt faster."

Because of the circuit court's decision, Mr. Gallagher was ableto obtain a private letter ruling from the Internal Revenue Servicestating that his CPIC plan would be tax-exempt.

As spelled out in CS/SB 1418, by Senator Rudy Garcia, R-Miami, anew seven-member board, that will serve at the pleasure of theinsurance commissioner, will replace the FWUA's 15-member board andthe FRPCJUA's 13-member board.

CPIC will operate three accounts that will include personallines, commercial lines and so-called high-risk or wind-onlypolicies. The wind-only risk accounts will feature quota sharepolicies, whereby insurers and CPIC each would be responsible for aportion of the losses.

Significantly, the plans would cap CPIC rate increases forwind-only policies at 10 percent between July 2002 and July 2003,thus negating the remaining rate hikes scheduled by the FWUA.

Surplus line carriers' premiums will be considered in residualmarket assessment calculations for the first time. The legislationalso includes agent protection measures that allow residual marketpolicyholders to decline offers of coverage from privatecarriers.

Mr. Gallagher praised the Legislature for passing the CPIC bill,which by all accounts will be the most radical change in the marketsince the current structure was formed following Hurricane Andrewin 1992.

The commissioner attributed the legislation's success in part tothe IRS private letter ruling, which could translate into savingsof $80 million per year. "We were confident we would get theletter, but its better to have had it in hand," he said.

Rade Musulin, Florida Farm Bureau vice president, said CPIC'stax-exempt status is an important development in the ongoingstruggle to create claims paying ability. He cautioned, however,that much work remains to iron out all the details before themerger takes effect July 1. "I'm glad it passed," he said. "Thecommissioner worked hard for the tax-exempt and that's good for allFloridians."

In other news, lawmakers failed to resolve the future regulationof banking and insurance. A 1998 constitutional amendment reducesthe state's cabinet and merges the State Comptroller's Office withthat of the Treasurer/Insurance Commissioner.

Lawmakers almost agreed to a plan to merge the offices into anew position designated the Chief Financial Officer. Additionally,the plan would have created a Department of Financial Services andtwo new commissioners to oversee a division of insurance anddivision of financial services. Appointed by the governor andconfirmed by the remaining cabinet members, the commissioners wouldhave had final agency action.

The plan was on track to pass, but failed when House and Senatelawmakers failed to agree on an unrelated matter before the sessionadjourned last Friday. Florida Governor Jeb Bush is expected tocall a special session in April or May on the issue, which must beresolved before the November general election.