Fla. Stat. § 634.406 — Florida Code / Title XXXVII / Chapter 634 / Part III / Section 634.406
634.406 Financial requirements.
Status: in_force

(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 which are written in this state. Such reserve account must be a separate auditable account for contracts in force in this state. Such assets must 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 must 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 for contracts in force in this state equal to 10 percent of the gross written premium received on all warranty contracts in force in this state. Such reserve deposit must 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 must be included in calculating the reserve required by subsection (1). The deposit required in s. 634.405(1)(b) must 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 or policies. The contractual liability insurance must be obtained from an insurer or insurers that hold a certificate of authority to do business within the state. For the purposes of this subsection, the contractual liability policy or policies must 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 or insurers will pay losses and unearned premium refunds under such plans directly to the person making a claim under the contract. (b) The insurer or insurers issuing the contractual liability policy or policies shall assume full responsibility for the administration of claims in the event of the inability of the association to do so. (c) The policy or policies may not be canceled or not renewed by either the insurer or insurers or the association unless 60 days’ written notice thereof has been given to the office by the insurer or insurers before the date of such cancellation or nonrenewal. (d) The contractual liability insurance policy or policies must insure all service warranty contracts which were issued while the policy or policies were in effect regardless of whether the premium has been remitted to the insurer or insurers. (e) In the event the issuer or issuers of the contractual liability policy or policies are fulfilling the service warranty covered by policy or policies and in the event the service warranty holder cancels the service warranty, it is the responsibility of the contractual liability policy issuer or issuers to effectuate a full refund of unearned premium to the consumer. This refund is subject to the cancellation fee provisions of s. 634.414. The salesperson or agent shall refund to the contractual liability policy issuer or issuers the unearned pro rata commission. (f) An association may not use both the unearned premium reserve and contractual liability insurance simultaneously. However, an association is 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 is also allowed. An association must be able to distinguish how each individual service warranty is covered. (g) The contractual liability insurance policy or policies must either pay 100 percent of claims as they are incurred or pay 100 percent of claims due in the event of the association’s failure to pay claims when due.

(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: (a) The company: 1. Holds licenses issued pursuant to the provisions of part I and this part; 2. Maintains net assets of at least $2.5 million; and 3. Uses contractual liability insurance which reimburses the service warranty association for 100 percent of its paid claims; and (b) The insurer or insurers issuing the contractual liability insurance policy or policies maintain a policyholder surplus of at least $100 million and are rated “A” or higher by A.M. Best Company.

(5) No warranty seller may allow its gross written premiums in force for contracts written in this state to exceed a 7-to-1 ratio to net assets.

(6) An association that holds a license under this part may allow its premiums for service warranties written under this part 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) Uses a contractual liability insurance policy or policies approved by the office that: 1. Reimburse the service warranty association for 100 percent of their claims liability and are issued by an insurer or insurers that maintain a policyholder surplus of at least $100 million; or 2. Comply with subsection (3) and are issued by an insurer or insurers that maintain a policyholder surplus of at least $200 million. (c) The insurer or insurers issuing the contractual liability insurance policy or policies: 1. Are rated “A” or higher by A.M. Best Company or an equivalent rating by another national rating service acceptable to the office. 2. In conjunction with the warranty association’s filing of the quarterly and annual reports, provide, 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 or policies, regardless of whether it has been reported.

(7) An association licensed under this part and holding no other license under part I or part II of this chapter is not required to establish an unearned premium reserve or maintain contractual liability insurance and may allow its premiums to exceed the ratio to net assets limitation of this section if the association complies with the following: (a) The association or, if the association is a direct or indirect wholly owned subsidiary of a parent corporation, its parent corporation has, and maintains at all times, a minimum net worth of at least $100 million and provides the office with one of the following: 1. A copy of the association’s annual audited financial statements or the audited consolidated financial statements of the association’s parent corporation, prepared by an independent certified public accountant in accordance with generally accepted accounting principles, which clearly demonstrate the net worth of the association or its parent corporation to be $100 million and a quarterly written certification to the office that such entity continues to maintain the net worth required under this paragraph. 2. The association’s, or its parent corporation’s, Form 10-K, Form 10-Q, or Form 20-F as filed with the United States Securities and Exchange Commission or such other documents required to be filed with a recognized stock exchange, which shall be provided on a quarterly and annual basis within 10 days after the last date each such report must be filed with the Securities and Exchange Commission, the National Association of Security Dealers Automated Quotation system, or other recognized stock exchange. Failure to timely file the documents required under this paragraph may, at the discretion of the office, subject the association to suspension or revocation of its license under this part. (b) If the net worth of a parent corporation is used to satisfy the net worth provisions of paragraph (a), the following provisions must be met: 1. The parent corporation must guarantee all service warranty obligations of the association, wherever written, on a form approved in advance by the office. No cancellation, termination, or modification of the guarantee shall become effective unless the parent corporation provides the office written notice at least 90 days before the effective date of the cancellation, termination, or modification and the office approves the request in writing. Prior to the effective date of cancellation, termination, or modification of the guarantee, the association must demonstrate to the satisfaction of the office compliance with all applicable provisions of this part, including whether the association will meet the requirements of this section by the purchase of contractual liability insurance, establishing required reserves, or other method allowed under this section. If the association or parent corporation does not demonstrate to the satisfaction of the office compliance with all applicable provisions of this part, it shall immediately cease writing new and renewal business upon the effective date of the cancellation, termination, or modification. 2. The association must maintain at all times net assets of at least $750,000.

(8) An association operating in this state that issues service warranty or service contracts in other states must comply with all financial requirement laws of such other states.

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; s. 41, ch. 2004-374; s. 31, ch. 2010-175; s. 3, ch. 2014-111; s. 3, ch. 2019-87; s. 18, ch. 2023-130; s. 2, ch. 2025-160.