Section 634.406, Florida Statutes 2003
634.406 Financial requirements.--
(1) An association licensed under this part shall maintain a funded, unearned premium reserve account, consisting of unencumbered assets, equal to a minimum of 25 percent of the gross written premiums received on all warranty contracts in force, wherever written. Such assets shall be held as prescribed under ss. 625.301-625.340. For contracts in excess of 2 years which are offered by associations having net assets of less than $500,000 and for which premiums are collected in advance for coverage in a subsequent year, 100 percent of the premiums for such subsequent years shall be placed in the funded, unearned premium reserve account.
(2) An association utilizing an unearned premium reserve shall deposit with the department a reserve deposit equal to 10 percent of the gross written premium received on all warranty contracts in force. Such reserve deposit shall be of a type eligible for deposit by insurers under s. 625.52. Request for release of all or part of the reserve deposit may be made quarterly and only after the office has received and approved the association's current financial statements, as well as a statement sworn to by two officers of the association verifying such release will not reduce the reserve deposit to less than 10 percent of the gross written premium. The reserve deposit required under this part shall be included in calculating the reserve required by subsection (1). The deposit required in s. 634.405(1)(b) shall be included in calculating the reserve requirements of this section.
(3) An association will not be required to establish an unearned premium reserve if it has purchased contractual liability insurance which demonstrates to the satisfaction of the office that 100 percent of its claim exposure is covered by such policy. The contractual liability insurance shall be obtained from an insurer that holds a certificate of authority to do business within the state. For the purposes of this subsection, the contractual liability policy shall contain the following provisions:
(a) In the event that the service warranty association does not fulfill its obligation under contracts issued in this state for any reason, including insolvency, bankruptcy, or dissolution, the contractual liability insurer will pay losses and unearned premium refunds under such plans directly to the person making a claim under the contract.
(b) The insurer issuing the contractual liability policy shall assume full responsibility for the administration of claims in the event of the inability of the association to do so.
(c) The policy may not be canceled or not renewed by either the insurer or the association unless 60 days' written notice thereof has been given to the office by the insurer before the date of such cancellation or nonrenewal.
(d) The contractual liability insurance policy shall insure all service warranty contracts which were issued while the policy was in effect whether or not the premium has been remitted to the insurer.
(e) In the event the issuer of the contractual liability policy is fulfilling the service warranty covered by policy and in the event the service warranty holder cancels the service warranty, it is the responsibility of the contractual liability policy issuer to effectuate a full refund of unearned premium to the consumer. This refund shall be subject to the cancellation fee provisions of s. 634.414(3). The salesperson or agent shall refund to the contractual liability policy issuer the unearned pro rata commission.
(f) An association may not utilize both the unearned premium reserve and contractual liability insurance simultaneously. However, an association shall be allowed to have contractual liability coverage on service warranties previously sold and sell new service warranties covered by the unearned premium reserve, and the converse of this shall also be allowed. An association must be able to distinguish how each individual service warranty is covered.
(4) No warrantor may allow its gross written premiums in force to exceed a 7-to-1 ratio to net assets; however, a company may exceed this requirement if the company:
(a) Holds licenses issued pursuant to the provisions of part I and this part, and
(b) Maintains net assets of at least $2.5 million, and
(c) Utilizes contractual liability insurance which reimburses the service warranty association for 100 percent of its paid claims, and
(d) The insurer issuing the contractual liability insurance policy maintains a policyholder surplus of at least $100 million and is rated "A" or higher by A.M. Best Company.
(5) No warranty seller may allow its gross written premiums in force to exceed a 7-to-1 ratio to net assets.
(6) An association which holds a license under this part and which does not hold any other license under this chapter may allow its premiums to exceed the ratio to net assets limitations of this section if the association meets all of the following:
(a) Maintains net assets of at least $750,000.
(b) Utilizes a contractual liability insurance policy approved by the office which reimburses the service warranty association for 100 percent of its claims liability.
(c) The insurer issuing the contractual liability insurance policy:
1. Maintains a policyholder surplus of at least $100 million.
2. Is rated "A" or higher by A.M. Best Company or an equivalent rating by another national rating service acceptable to the office.
3. Is in no way affiliated with the warranty association.
4. In conjunction with the warranty association's filing of the quarterly and annual reports, provides, on a form prescribed by the commission, a statement certifying the gross written premiums in force reported by the warranty association and a statement that all of the warranty association's gross written premium in force is covered under the contractual liability policy, whether or not it has been reported.
(7) A contractual liability policy must insure 100 percent of an association's claims exposure under all of the association's service warranty contracts, wherever written, unless all of the following are satisfied:
(a) The contractual liability policy contains a clause that specifically names the service warranty contract holders as sole beneficiaries of the contractual liability policy and claims are paid directly to the person making a claim under the contract;
(b) The contractual liability policy meets all other requirements of this part, including subsection (3) of this section, which are not inconsistent with this subsection;
(c) The association has been in existence for at least 5 years or the association is a wholly owned subsidiary of a corporation that has been in existence and has been licensed as a service warranty association in the state for at least 5 years, and:
1. Is listed and traded on a recognized stock exchange; is listed in NASDAQ (National Association of Security Dealers Automated Quotation system) and publicly traded in the over-the-counter securities market; is required to file either of Forms 10-K, 100, or 20-G with the United States Securities and Exchange Commission; or has American Depository Receipts listed on a recognized stock exchange and publicly traded or is the wholly owned subsidiary of a corporation that is listed and traded on a recognized stock exchange; is listed in NASDAQ (National Association of Security Dealers Automated Quotation system) and publicly traded in the over-the-counter securities market; is required to file Form 10-K, Form 100, or Form 20-G with the United States Securities and Exchange Commission; or has American Depository Receipts listed on a recognized stock exchange and is publicly traded;
2. Maintains outstanding debt obligations, if any, rated in the top four rating categories by a recognized rating service;
3. Has and maintains at all times a minimum net worth of not less than $10 million as evidenced by audited financial statements prepared by an independent certified public accountant in accordance with generally accepted accounting principles and submitted to the office annually; and
4. Is authorized to do business in this state; and
(d) The insurer issuing the contractual liability policy:
1. Maintains and has maintained for the preceding 5 years, policyholder surplus of at least $100 million and is rated "A" or higher by A.M. Best Company or has an equivalent rating by another rating company acceptable to the office;
2. Holds a certificate of authority to do business in this state and is approved to write this type of coverage; and
3. Acknowledges to the office quarterly that it insures all of the association's claims exposure under contracts delivered in this state.
If all the preceding conditions are satisfied, then the scope of coverage under a contractual liability policy shall not be required to exceed an association's claims exposure under service warranty contracts delivered in this state.
History.--s. 5, ch. 78-255; s. 3, ch. 81-148; s. 2, ch. 81-318; s. 3, ch. 83-265; ss. 4, 36, 37, 38, ch. 83-322; s. 50, ch. 91-106; ss. 17, 20, ch. 93-195; s. 6, ch. 95-245; s. 6, ch. 97-74; s. 475, ch. 97-102; s. 5, ch. 99-293; s. 5, ch. 2002-86; s. 1491, ch. 2003-261.