Rule 69O-138.001 is amended to adopt the 2022 and 2023 National Association of Insurance Commissioners Financial Condition Examiners Handbooks. The current rule adopted the 2019 and 2020 versions of these handbooks. Rules ....

 

DEPARTMENT OF FINANCIAL SERVICES

OIR – Insurance Regulation

RULE NOS.:RULE TITLES:

69O-138.001NAIC Financial Condition Examiners Handbook Adopted

69O-138.003Market Conduct Exam Methodology

69O-138.004Risk-Based Selection Methodology for Scheduling Financial Examinations

PURPOSE AND EFFECT: Rule 69O-138.001 is amended to adopt the 2022 and 2023 National Association of Insurance Commissioners Financial Condition Examiners Handbooks. The current rule adopted the 2019 and 2020 versions of these handbooks. Rules 69O-138.004 “Risk-Based Selection Methodology for Scheduling Financial Examinations” and 69O-138.003 “Market Conduct Exam Methodology” are being created to enact the provisions of Sections 4 and 5 of Chapter 2023-172, L.O.F.

SUMMARY: Section 624.316, Florida Statutes, requires the Office to examine insurer’s financial condition according to accounting procedures designed to fulfill the requirements of generally accepted insurance accounting principles and practices, and allows the Office to adopt the NAIC Financial Condition Examiners Handbook to facilitate these exams. By adopting the newest version of the handbook, this rule ensures that the procedures used by the Office to examine insurers are the current generally accepted accounting practices.

Rules 69O-138.004 “Risk-Based Selection Methodology for Scheduling Financial Examinations” and 69O-138.003 “Market Conduct Exam Methodology” are being created to enact the provisions of Sections 4 and 5 of Chapter 2023-172, L.O.F.

Section 4 of the chapter law creates Section 624.316(3), F.S., which requires that the Office create by rule “a risk-based selection methodology for scheduling examinations of insurers subject to this section.” Rule 69O-138.004, outlines the selection method for financial examinations.

Section 5 of the chapter law creates Section 624.3161(8), F.S., which requires that the Office create by rule “a selection methodology for scheduling and conducting examinations of insurers and other entities regulated by the office.” Rule 69O-138.003 outlines the selection method for market conduct examinations.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 624.308(1), 624.316, 624.3161 F.S.

LAW IMPLEMENTED: 624.316, 624.3161 F.S.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE SCHEDULED AND ANNOUNCED IN THE FAR.

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Kama Monroe, Assistant General Counsel, [e-mail], [phone].

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69O-138.001 NAIC Financial Condition Examiners Handbook Adopted.

(1)(a) The National Association of Insurance Commissioners Financial Condition Examiners Handbook 2023 2020, is hereby adopted and incorporated by reference.

(b) The National Association of Insurance Commissioners Financial Condition Examiners Handbook 2022 2019, is hereby adopted and incorporated by reference.

(2) through (3) No change.

Rulemaking Authority 624.308(1), 624.316(1)(c) FS. Law Implemented 624.316(1)(c) FS. History–New 3-30-92, Amended 4-9-97, 4-4-99, 11-30-99, 2-11-01, 12-25-01, 8-18-02, 7-27-03, Formerly 4-138.001, Amended 1-6-05, 9-15-05, 1-25-07, 3-16-08, 3-4-09, 1-4-10, 11-2-11, 1-28-13, 9-15-13, 7-28-15, 10-25-16, 7-30-17, 4-11-19, 7-3-22, ____.

 

69O-138.003Market Conduct Exam Methodology

The Office will prioritize scheduling and conducting market conduct examinations of insurers and other entities regulated by the Office based on the following selection methodology.

(1) Priority 1 - Statutorily Required Examinations:

(a) Pharmacy Benefit Managers, pursuant to s. 626.8828, F.S.,

(b) Citizens Property Insurance Corporation, pursuant to s. 627.351(6)(l), F.S., and

(c) Premium Finance Companies, pursuant to s. 627.834, F.S.

(2) Priority 2 - Post-hurricane Required Examinations.

(3) Priority 3 - Identified Market Concerns:

(a) Potentially hazardous business practice identified to be negatively affecting consumers,

(b) Companies for re-examinations, and

(c) Multi-state examinations.

(4) Priority 4 - Non-statutory Examinations:

(a) Complaint data analysis,

(b) Other state actions,

(c) Market Conduct Annual Statement (MCAS) data, and

(d) Any other conditions for examination as deemed warranted by the Office.

Rulemaking Authority 624.308(1), 624.3161 FS. Law Implemented 624.3161 FS. History–New xx-xx-23

 

69O-138.004 Risk-Based Selection Methodology for Scheduling Financial Examinations

(1) This rule established a risk-based selection methodology for scheduling examinations of insurers subject to the provisions of Section 624.316, F.S.

(2) Section 624.316, F.S. permits the Office to examine each insurer holding a certificate of authority for three years or longer as often as may be warranted for the protection of the policyholders and in the public interest, but must, at a minimum, examine:

(a) High-risk insurers at least once every 3 years.

(b) Average- and low-risk insurers at least once every 5 years.

(3) The assessment of whether an insurer is deemed a High-risk insurer will include:

(a) A risk-focused analysis that indicates a decline in the insurer’s financial condition;

(b) Prioritization of property insurers for which the office identifies significant concerns about an insurer’s solvency pursuant to Section 627.7154, F.S.; and

(c) Consideration of the following:

1.The level of capitalization.

2. Unfavorable trends related to profitability or cashflow from operations.

3. National Association of Insurance Commissioners Insurance Regulatory Information System ratio results.

4. Risk-based capital and risk-based capital trend test results.

5. The structure and complexity of the insurer.

6. Changes in the insurer’s officers or board of directors.

7. Changes in the insurer’s business strategy or operations.

8. Findings and recommendations from an examination made pursuant to this section or Section 624.3161, F.S.

9. Current or pending regulatory actions by the office or the department.

10. Other regulatory agency or rating agency information or reports.

11. The impact of an insurer’s insolvency on policyholders of the insurer and the public generally.

12. Any other matters the Office deems necessary for the protection of policyholders.

(4) The National Association of Insurance Commissioners Financial Analysis Handbook, 2023 is hereby adopted and incorporated by reference.

(5) Risk-focused analysis by the Office shall be performed in substantial conformity with the methodology outlined in the Handbook, so long as that methodology is consistent with statutory accounting principles and the Florida Insurance Code.

(6) A copy of the Financial Analysis Handbook may be:

(a) Obtained from the National Association of Insurance Commissioners, at http:/www.naic.org or

(b) Inspected during regular business hours at the Office of Insurance Regulation, Larson Building, 200 E. Gaines St., Tallahassee, Florida 32399-0300.

(7) Scheduling of insurers deemed High-risk will begin with the year-end 2023 financial exam schedule.

Rulemaking Authority 624.308(1), 624.316 FS. Law Implemented 624.316 FS. History–New xx-xx-23

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Kama Monroe, Assistant General Counsel

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: September 18, 2023

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: July 24, 2023