STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 91-2220

)

) USHER INSURANCE COMPANY, LTD., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to written Notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Daniel Manry, held a formal hearing in the above-styled case on August 20, 1991, in Tallahassee, Florida.

APPEARANCES

FOR PETITIONER: Elizabeth J. Gregovits, Esquire

Department of Insurance Division of Legal Services

412 Larson Building

Tallahassee, Florida 32399-0300

FOR RESPONDENT: Eugene E. Stearns, Esquire

Curtis H. Sitterson, Esquire Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.

150 West Flagler Street Miami, Florida 33130

STATEMENT OF THE ISSUES

The ultimate issue for determination in this proceeding is whether Petitioner should withdraw Respondent's approval as an Eligible Surplus Lines Insurer in Florida for the reasons stated in the Order To Show Cause.

PRELIMINARY STATEMENT

Petitioner filed an Order To Show Cause against Respondent on March 13, 1991. Respondent requested a formal hearing by letter dated April 2, 1991.

The matter was referred to the Division of Administrative Hearings for assignment of a hearing officer on April 8, 1991, and assigned to the undersigned on April 11, 1991. The formal hearing was scheduled for August 20, 1991, pursuant to a Notice of Hearing issued on April 23, 1991.

At the formal hearing, Petitioner presented the testimony of two witnesses and submitted four exhibits for admission in evidence. Petitioner's Exhibits 1-

4 were admitted in evidence without objection. Respondent called no witnesses and submitted no exhibits for admission in evidence.

A transcript of the formal hearing was filed with the undersigned on August 29, 1991. Proposed findings of fact and conclusions of law were timely filed by both parties on September 30, 1991. The parties' proposed findings of fact are addressed in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. Respondent is an alien insurer subject to the provisions of Section 626.918, Florida Statutes. Respondent is organized under the laws of Antigua and Barbuda, B.W.I. Respondent's port of entry is in Florida.

   
   

2. Respondent is an unauthorized insurer in the state. An unauthorized insurer is not issued a certificate of authority or license to sell insurance in the state. An unauthorized insurer is made eligible to conduct business in the state pursuant to the Unauthorized Insurer Process Law in Sections 626.904 through 626.912, Florida Statutes.

   
   

3. Respondent is eligible to sell surplus lines insurance pursuant to Sections 626.913 through 626.937, Florida Statutes. There are approximately 215 surplus lines insurers in the state. They do not participate in the Florida Guaranty Fund. /1

   
   

4. Surplus lines insurers are not eligible to sell life insurance, basic workers' compensation, or primary automobile liability insurance. Surplus lines insurers are eligible to write only those risks that a licensed carrier in Florida will not write.

   
   

5. Respondent derives 100 percent of its business from the sale of insurance in Florida. Respondent's annual premium volume in 1990 was approximately $11.2 million. Of the total premiums received in 1990, approximately $7 million was attributable to physical damage premiums for private passenger automobiles and approximately $4.2 million was attributable to other liability insurance.

   
   

6. Respondent filed an annual report for the fiscal year ending December 31, 1990, and quarterly reports for the quarters ending September 30, 1990, and March 31, 1991. Admitted assets on all three reports was comprised primarily of cash and common stock. The reported value of common stock exceeded 10 percent of the reported value of admitted assets in each report.

   
   

7. The reported value of admitted assets in the annual report was

   $13,457,506. Cash and common stock were valued in the respective amounts of

   $3,490,701 and $8,385,365. The reported value of common stock was approximately

   62 percent of the reported value of admitted assets.

   
   

8. The reported value of admitted assets in the quarterly report ending September 30, 1990, was $10,450,539. /2 Cash and common stock were valued in the quarterly report for September 30, 1990, in the respective amounts of

   $1,365,129 and $5,811,711. The reported value of common stock was approximately

   55.6 percent of the reported value of admitted assets.

9. The reported value of admitted assets in the quarterly report ending March 31, 1991, was $10,022,106. 3/ Cash and common stock were valued in the quarterly report for March 31, 1991, in the respective amounts of $3,635,626 and

   $4,676,645. The reported value of common stock was approximately 46.6 percent of the reported value of admitted assets.

   
   

10. The date of acquisition, cost, or market value of the common stock cannot be determined from the reports filed with Petitioner or from the other evidence presented during this proceeding. Petitioner would normally use the Securities Valuation Office as an indicator of the proper value of common stock listed in the financial reports. Respondent was requested to submit the particular stock for valuation and failed to do so. 4/

    
    

11. Respondent reported the value stock of subsidiaries and related corporations to be $403,000. The projected ratio of written premiums to surplus as to policyholders was 8.33 percent, or approximately 4.3 percent over the statutory limit imposed on authorized insurers. 5/ The actual ratios for the year, however, were in compliance with statutory limits. Respondent increased its capital by approximately $2.5 million dollars. The infusion of capital in that approximate amount brought Respondent into statutory compliance with respect to both subsidiary stock and net written premium ratios.

    
    

12. Respondent is required by law to maintain a trust fund for the protection of its policy holders in an amount equal to the capital and surplus required of authorized insurers. Respondent established a trust fund in the amount of $1 million when it was approved as an eligible surplus lines insurer on August 11, 1988. The amount of the trust fund was equal to the capital and surplus required of authorized insurers at that time and satisfied all state requirements. The amount of capital and surplus required of authorized insurers has subsequently been increased to $1.150 million. Respondent was not charged in the Order To Show Cause with failing to maintain its trust fund in an amount of capital and surplus required of authorized insurers and that issue is irrelevant for the purposes of this proceeding. /6

    
    

13. The trust fund must consist of investments of the same general character and quality as are eligible investments for like funds of like domestic insurers. The trust fund maintained by Respondent is not required to be reflected as a line item in the financial statements contained in any of the reports required to be filed by Respondent and is not separately stated. There is no way to determine from the required financial reports what assets are contained in the trust fund or whether the trust fund assets consist entirely of cash, entirely of common stock, or some combination thereof.

    
    

14. Admitted assets include cash on deposit in an amount sufficient to capitalize the trust fund Respondent is required to maintain. Cash on deposit increased $2,125,572 from September 30, 1990, to December 31, 1990, and $144,925 from December 30, 1990, to March 31, 1991. The value of common stock increased

    $2,573,654 from September 30, 1990, to December 30, 1990, and decreased

    $3,708,720 from December 30, 1990, to March 31, 1991.

    
    

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this proceeding. Section 120.57(1), Florida Statutes. The parties were duly noticed for the formal hearing.

16. The burden of proof is on Petitioner in this proceeding. Petitioner must show by a preponderance of the evidence that Respondent committed the acts alleged in the Administrative Complaint and that the penalties requested by Petitioner should be imposed. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

17. Respondent is an insurer for the purposes of this proceeding. An insurer is defined in Section 624.03, Florida Statutes, to include:

    
    

    every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance or of annuity.

    
    

18. Respondent is an alien insurer within the meaning of Section 624.06(3), Florida Statutes. Respondent is not a domestic insurer formed under the laws of this state and is not a foreign insurer formed under the laws of another state, district, territory, or commonwealth of the United States within the meaning of Sections 624.06(1) and (2).

    
    

19. Respondent is an unauthorized insurer eligible to do business in the state pursuant to the Unauthorized Insurers Process Law as set forth in Sections 626.904 through 626.912, Florida Statutes. Respondent is not a commercially domiciled alien insurer within the meaning of Section 624.075, Florida Statutes. The definition of a commercially domiciled insurer contained in Section 624.075 is expressly limited to "Every foreign or alien insurer which is authorized to do business in this state. . . . " (emphasis added) 8/

    
    

20. Section 626.918(2)(d), Florida Statutes, requires an alien insurer to maintain a trust fund in the United States for the protection of its policyholders. The amount of the trust fund must be equal to the capital and surplus required of authorized insurers. Respondent established a trust fund in the amount of $1 million when it was approved as an eligible surplus lines insurer in 1988. The amount of the trust fund was equal to the capital and surplus required of authorized insurers. The amount of capital and surplus required of authorized insurers has subsequently been increased to $1.150 million. Respondent was not charged in the Order To Show Cause with failing to maintain its trust fund in an amount of capital and surplus required of authorized insurers and that issue is irrelevant for the purposes of this proceeding. However, Respondent has increased its admitted assets by more than

    $2 million.

    
    

21. The trust fund required to be maintained by alien insurers must consist of investments that are eligible investments within the meaning of Chapter 625, Part II. Section 626.918(2) (d) requires:

    
    

    Any such . . . trust fund shall be represented by investments consisting of investments of the same general character and quality as are eligible

    investments for like funds of like domestic insurers under Part II of Chapter 625.

    
    

22. The trust fund maintained by Respondent consists of investments that are eligible investments within the meaning of Chapter 625, Part II, Florida Statutes. Petitioner presented no evidence that the trust fund consisted of prohibited investments. The trust fund investments maintained by Respondent are combined with the admitted assets of Respondent and are not separately stated or

    reflected as a line item in the financial statements contained in any of the reports required to be filed by Respondent. There is no requirement that surplus lines insurers provide a separate accounting for trust fund investments. There is no way to determine from the financial reports what investments are included in the trust fund or whether the trust fund assets consist entirely of cash, entirely of common stock, or some combination thereof. Petitioner presented no other evidence of the investments in the trust fund maintained by Respondent. 9/

    
    

23. Respondent argues that in the absence of evidence showing that its trust fund consists of investments that are not eligible investments within the meaning of Section 625.302, Florida Statutes, it has satisfied its statutory requirement with respect to eligible investments. In support of its position, Respondent cites Section 625.301.

    
    

24. Section 625.301, Florida Statutes, provides that Part II of Chapter 625 applies only to domestic insurers and commercially domiciled insurers except as provided otherwise in Section 625.340. Respondent is neither a domestic insurer nor a commercially domiciled insurer. Section 625.340, however, requires the investment portfolio of an alien insurer, such as Respondent, to be of a quality substantially as high as that required under Chapter 625 for similar funds of like domestic insurers.

    
    

25. The quality of investments required of domestic insurers is prescribed in Sections 625.302 through 625.338, Florida Statutes. Section 625.305(2)(a), Florida Statutes, provides in relevant part:

    
    

    . . . The cost of investments made by

    insurers in stock authorized by s. 625.324 10/ shall not exceed 15 percent of the insurer admitted assets; the cost of such investment

    in common stocks shall not exceed 10 percent of the insurer's admitted assets; and the cost of such investment in stock of any one corporation shall not exceed 3 percent of the insurer's admitted assets. Notwithstanding any other provision in this chapter, the cost basis or market value, if lower, of all stock investment shall be used for the purpose of determining the asset value against which such percentage limitations are to be applied. (emphasis added)

    
    

26. Respondent did not exceed the percentage limitations for investments in stock. Section 625.305(2)(a), Florida Statutes, requires use of the lower of cost or market value for the purpose of determining whether the statutory percentage limits for stock investments have been violated. 11/ No evidence of the date of acquisition or the lower of cost or market value was presented for the stock owned by Respondent. No evidence was presented showing that the amount used by Respondent to report the value of its stock was either the cost or market value. A comparison of the cost and market value of the stock owned by Respondent could not be made based upon the evidence presented in this proceeding. While it may be reasonable to assume that the cost of the stock owned by Respondent approximates the value reported in the financial statements, such an assumption does not constitute a preponderance of the evidence that Respondent exceeded the stock limitations prescribed in

    Section 625.305(2)(a) 12/

27. Petitioner argues in its proposed conclusions of law that Respondent's investments in the common stock of Polydex and Novatek violate Section 625.324, Florida Statutes, in that neither is listed in the national securities exchange but are traded over the counter. As a threshold matter, allegations in the Order To Show Cause do not allege any violation of Section 625.324 but are limited to violations of the percentage limitations in Sections 625.305(2) and 625.325(2). Even if a violation of Section 625.324 had been properly alleged in the Order To Show Cause, the requirement that stocks be listed in a national securities exchange applies only to stocks of corporations created under the laws of ". . . any foreign country other than Canada . . . ." Section 625.324 permits an insurer to invest in the stock of any corporation created under the laws of any state in the United States or Canada without limitation. Further, Petitioner presented no evidence of whether Polydex and Novatek were created under the laws of a state, Canada, or a foreign country.

    
    

28. Respondent did not violate the limitations on investments in the stock of subsidiaries and related corporations. Section 625.325, Florida Statutes, provides:

    
    

    In addition to investments in common stock, preferred stock, debt obligations, and other securities permitted under all other sections of this chapter, an insurer may also invest and maintain investments in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries or related corporations in an amount which in the aggregate in all such corporations is not, at the time any such investment is made, in excess of the lesser of:

    1. Ten percent of the insurer's admitted assets, or

    2. Fifty percent of the sum of the insurer's:

       1. Entire capital, and

       2. Surplus in excess of the minimum surplus required to be maintained by the insurer under this code.

       
       

       The testimony presented by Petitioner's witness was not persuasive. Calculations made within the testimony were not accurately made. 13/ In addition, the limitation in Section 625.325 must be determined ". . . at the time such investment is made . . . ." Petitioner presented no evidence of when Respondent's investment in the stock of subsidiary and affiliated corporations was made. 14/ In addition, the infusion of approximately $2.5 million dollars to Respondent's admitted assets brought Respondent into compliance. 15/

       
       

29. Respondent did not violate the limitations in Section 624.4095(1), Florida Statutes, for net written premiums. Section 624.4095(1) provides in relevant part:

Whenever an insurer's ratio of actual or projected annual written premiums .

exceeds 4 to 1 for net written premiums, the department shall suspend the insurer's certificate of authority . . When Petitioner

annualized Respondent's ratio of written premiums to surplus as to policyholders based upon Respondent's quarterly reports, the annualized ratio was 8.33 percent or 4.3 percent in excess of the statutory limit. When Petitioner reviewed the actual ratios on the annual report, however, Respondent was within the permitted limits. In addition, the infusion of approximately $2.5 million dollars of capital into Respondent's admitted assets brings Respondent into compliance. 16/

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent

not guilty of the allegations in the Order To Show Cause and imposing no disciplinary action against Respondent's eligibility as an unauthorized alien surplus lines insurer.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st of January 1992.

DANIEL MANRY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 21st day of January 1992.

ENDNOTES

1/ The Guaranty Fund was formed by assessing property and casualty insurers which are licensed in the state to provide for unpaid claims by insolvent insurers. The Guaranty Fund specifically excludes surplus lines insurers.

2/ The reported value for admitted assets is the net admitted assets. Net value of admitted assets is determined in Analysis of Assets contained in the quarterly report for September 30, 1990, by subtracting assets not admitted, including the excess of book value over market value and the amortized value, from ledger assets. The reported value of admitted ledger assets was

$13,972,149. The reported value of excess over book and amortized amounts was

$3,521,610. The difference is $10,450,539.

3/ Admitted ledger assets in the amount of $18,040,127 were reduced by assets not admitted in the amount of $8,018,021 to determine net admitted assets in the amount of $10,022,106.

4/ Petitioner did not subpoena the necessary documents during this proceeding.

5/ The projected amount was an amount determined by using annualized numbers reported in Respondent's quarterly report.

6/ Petitioner presented no evidence that Respondent was not in compliance with current trust fund requirements. Respondent has increased its admitted assets by more than $2 million.

7/ The quarterly statements filed for September 30, 1990, and March 31, 1991, are 14 and 15 pages respectively. Each consists of the following items: a cover page entitled Quarterly Statement; an Analysis of Assets; Liabilities, Surplus, and Other Funds; Statement of Income; Cash Flow; Reconciliation of Ledger Assets; 10 schedules; and general interrogatories. The annual report is approximately 89 pages. The annual report contains all the types of pages included in the quarterly reports and many more.

8/ Sec. 624.09, Fla. Stat., provides that an "authorized" insurer is one duly authorized by a subsisting certificate of authority issued by Petitioner to transact business in the state. An "unauthorized" insurer is one not so authorized. Respondent does not receive a license or certificate of authority to do business in the state but is made eligible to do business pursuant to Sec. 626.918.

9/ Petitioner argues in its proposed conclusions of law that the trust fund investments must necessarily be made in the same proportion as the admitted assets in Respondent's financial reports. However, Petitioner presented no evidence of the quality of the investments in the trust fund, did not subpoena such evidence from Respondent, and did not cite any statute or rule requiring the conclusion asserted by Petitioner.

10/ Sec. 625.324, Fla. Stat., provides:

An insurer may invest in stocks, common or preferred, of any corporation created or existing under the laws of the United States or of any state or Canada or any province thereof. An insurer may invest in stocks, common or preferred, of any corporation created or existing under the laws of any foreign country other than Canada if such stocks are listed and traded on a national securities exchange in the United States or, in the alternative, if such investment in stocks of any corporation created or existing under the laws of any foreign country are first approved by the department. Nothing in this section shall apply to qualifying investments made by an insurer in a foreign country under authority of s. 625.326.

11/ The cited statute does not require the lower of cost or market to be used for reporting purposes in financial reports. It is limited by its terms to a determination of the percentage limitations imposed by statute. The financial reports did not disclose the reporting basis or valuation method used for reporting admitted assets including common stock. The testimony presented by Petitioner was based upon the value used for reporting purposed in the financial statements. Respondent purchased and sold substantial amounts of stock since it became eligible to do business in Florida since August 11, 1988, and was

generally required by Sec. 626.918(2)(b) to do business in the jurisdiction of its domicile for three years prior to the date of its eligibility. No evidence was presented regarding the age of the stock bought and sold by Respondent, i.e., whether Respondent sold its oldest shares or newest shares of stock. No evidence was presented as to whether the stock had appreciated or depreciated or whether recent stock purchases between September 30 and December 31, 1990, were valued for reporting purposes in an amount that was substantially greater than their actual acquisition cost. Petitioner did not subpoena any documents from Respondent during the course of this proceeding which would have enabled Petitioner to value the stock and determine the lower of cost or market.

12/ Petitioner argues in its proposed conclusions of law that Respondent has "invested" in common stock in the amounts shown on Respondents financial statements. However, Petitioner failed to present evidence that the value shown on the financial statements is the same as cost and failed to cite any statute or rule requiring the lower of cost or market to be used for reporting purposes.

13/ The witness testified:

Q. How does the Department calculate the limitation for investments in subsidiaries and affiliates?

A. 625.325 states the limitation is the lesser of 10 percent of admitted assets or 50 percent of capital and surplus in excess of minimum capital and surplus required to be maintained.

Q. And what is Usher's limitation?

A. . . . I believe it's approximately

$118,000, I believe.

Q. What is Usher's actual investment in subsidiaries and affiliates?

A. They show a receivable for parents and subs and affiliates of approximately 400,000.

Q. And could you run through Usher's statement quickly and show how you came to that number?

A. Well, 10 percent of total admitted assets would be approximately a million dollars. Usher, under 625, if you're looking at that calculation, should maintain a million 150 in policyholder surplus, which would leave them approximately $600,000, and 50 percent of

that would be $300,000. They had approximately 403, which would leave approximately $118,000 in excess. TR at 38-39.

14/ Petitioner could not determine from Respondent's reports when any of its stock was purchased. See TR at 29.

15/ Petitioner's witness testified at page 58 that the infusion of capital in the amount of $2.5 million brings Respondent into compliance with respect to the alleged violations of Secs. 625.324 and 625.325, Fla. Stat.

16/ Petitioner's witness testified at page 58 that the infusion of capital in the amount of $2.5 million brings Respondent into compliance with respect to the alleged violations of Secs. 625.324 and 625.325, Fla. Stat. Respondent infused its admitted assets with capital in the amount of $2,125,572 from September 30,

1990, to December 31, 1990, and $144,925 from December 31, 1990, to March 31,

1991.

APPENDIX TO RECOMMENDED ORDER CASE NO. 91-2220

Petitioner submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. No notation is made for proposed findings contained in unnumbered paragraphs, those which do not cite to that portion of the record which is alleged to support the proposed finding, or proposed findings that consist solely of recited testimony.

Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

The reported value was $5.8 million

1. Rejected in Finding 8

   The reported value was 55 percent

2. Accepted in Finding 10

3. Accepted in Finding 10

4. Rejected as irrelevant and immaterial

5. Rejected as irrelevant and immaterial

Respondent submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. No notation is made for proposed findings contained in unnumbered paragraphs, those which do not cite to that portion of the record which is alleged to support the proposed finding, or proposed findings that consist solely of recited testimony.

Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

1 Rejected as irrelevant and immaterial

The Honorable Tom Gallagher

State Treasurer and Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Bill O'Neil, Esquire General Counsel

Department of Insurance and Treasurer The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Elizabeth J. Gregovits, Esquire Department of Insurance

412 Larson Building Tallahassee, Florida 32399-0300

Eugene E. Stearns, Esquire Curtis H. Sitterson, Esquire Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.

150 West Flagler Street Miami, Florida 33130

=================================================================

AGENCY FINAL ORDER

=================================================================

OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE

IN THE MATTER OF:

USHER INSURANCE COMPANY, LTD. Case No. 9l-CA-O7EJG

91-2220

/

FINAL ORDER

THIS CAUSE came before the undersigned Treasurer and Insurance Commissioner of the State of Florida, for consideration and final agency action. On March 13, 1991, an Order To Show Cause was filed against the Respondent, USHER INSURANCE COMPANY, LTD., an unauthorized alien surplus lines insurer, charging it with various violations of the Insurance Code and Rules of the Department of Insurance. The Respondent timely filed a request for a formal

proceeding pursuant to Section 120.57(l), Florida Statutes. Pursuant to Notice, the matter was heard before Daniel Manry, Hearing Officer for the Division of Administrative Hearings, on August 20,1991.

After consideration of the evidence, argument and testimony presented at hearing, and subsequent written submissions by the parties, the hearing officer issued his Recommended Order (attached hereto as Exhibit A). The hearing officer recommended that a Final Order be entered finding Respondent not guilty of the allegations set forth in the Order To Show Cause and imposing no disciplinary action against Respondent's eligibility as an unauthorized alien surplus lines insurer. Neither party filed exceptions to the Recommended Order.

CONCLUSIONS OF LAW

Upon careful consideration of the record in this matter, the submissions of the parties and being otherwise advised in the premises, the Department modifies the hearing officer's recommended Conclusions of Law as follows:

1. The Department adopts the recommended Conclusions of Law numbered 1-13 by the hearing officer as being correct statements of the Law.

   
   

2. The hearing officer's recommended Conclusion of Law numbered 14 requires clarification. The language of the Recommended Order appears to indicate that Respondent did not violate the limitations of Section 625.325, Florida Statutes, regarding investments in stock in subsidiaries in part because the infusion of approximately $2.5 million dollars brought Respondent into compliance.

   
   

   If an insurer's investment in the stock of subsidiary or related corporations exceeds the limitations set forth in Section 625.325 at any time, a violation of Section 625.325 is presented. The violation may be corrected and the insurer brought into compliance by a subsequent infusion of surplus.

   However, such corrective action does not eliminate the existence of the earlier violation as appears to be suggested by the hearing officer.

   
   

   As modified herein, the hearing officer's recommended Conclusion of Law numbered 14 is adopted.

   
   

3. Similarly, the hearing officer's recommended Conclusion of Law numbered 15 requires clarification. The hearing officer recognized that the ratio of written premiums to surplus as to policy holders indicated in the quarterly report for the third quarter of 1990 was in excess of the statutory standard. However, the language of the Recommended Order appears to suggest that there was no violation of the limitations set forth in Section 624.4095(1), Florida Statutes, because the actual writing ratios derived from the annual report (which reflected a 4th quarter infusion of over two million dollars) did not violate the statutory writing ratio.

Section 626.919, Florida Statutes, provides in part that the Department shall withdraw the eligibility of a surplus lines insurer if the insurer is in "unsound financial condition". In this regard, the Florida insurance Code provides as follows:

Whenever an insurer's ratio of actual or projected annual written premiums as adjusted in accordance with subsection (4) to current or projected surplus as to policyholders as adjusted in accordance with subsection

(5) exceeds 10 to 1 for gross written premiums or exceeds

4 to 1 for net written premiums, the department shall suspend the insurer's certificate of authority or establish by order maximum gross or net annual premiums to be written by the insurer consistent with maintaining the ratios specified herein unless the insurer demonstrates to the department's satisfaction that exceeding the ratios of this section does not endanger the financial condition of the insurer or endanger the interests of the insurer's policyholders.

Section 624.4095(1), Florida Statutes (emphasis added). The provisions of Section 624.4095 clearly establish that actual or projected ratios in excess of the mandated standards are an indication of "unsound financial condition" within the intent of Section 626.919.

Further, it is significant that Section 624.4095 by its express terms is applicable "whenever" the required ratios are not maintained. Section 624.4095 is applicable at any point in time and is not confined to a static analysis of an insurer's financial condition at the conclusion of its fiscal year. If prior to the infusion of additional surplus by Respondent, the Department had determined that Usher's writings ratio violated the standard set forth in Section 624.4095(1), the Department would have been required by Section 626.919 to remove Usher from the list of eligible surplus lines companies or to take other action to satisfy itself that the excessive writings ratio did not endanger the financial condition of the insurer. Since, however, the non- compliance had been corrected prior to such a determination, the hearing officer's conclusion that disciplinary action was not appropriate at this time, is accepted.

As modified herein, the recommended Conclusion of Law set forth in Paragraph 15 is adopted.

ORDER

Based upon the foregoing, it is ORDERED:

1. The Findings of Fact of the hearing officer are adopted in full as the Department's Findings of Fact.

   
   

2. The Conclusions of Law of the hearing officer, with the modifications set forth above, are adopted in full as the Department's Conclusions of Law.

   
   

3. The hearing officer's recommendation that Respondent be found not guilty of the allegations- set forth in the Order To Show Cause and imposing no disciplinary action against Respondent's eligibility as an unauthorized surplus lines insurer is approved and accepted as the appropriate disposition of this case.

ACCORDINGLY, the Department's Order To Show Cause is hereby DISMISSED.

Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120.68, Florida Statutes,

and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing a Notice of Appeal with the General Counsel, acting

as the agency clerk, at 412 Larson Building, Tallahassee, Florida 32399- 0300, and a copy of same and the filing fee with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.

DONE and ORDERED this 8th day of April, 1992.

Tom Gallagher Treasurer and Insurance Commissioner

COPIES FURNISHED:

Daniel Manry Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Elizabeth J. Gregovits, Esquire DIVISION OF LEGAL SERVICES

412 Larson Building Tallahassee, Florida 32399-0300

Curtis H. Sitterson, Esquire STEARNS, WEAVER, MILLER, WEISSLER,

ALHADEFF & SITTERSON, P.A.

50 West Flagler Street Miami, Florida 33130

Docket for Case No: 91-002220

Orders for Case No: 91-002220