Florida’s Five Percent Threshold Under Prior Law
The Florida Insurance Code long maintained a five percent threshold triggering an acquiring party’s obligation to submit an acquisition statement to the Florida Office of Insurance Regulation. Prior to October 1, 2014, Section 628.461(1), Florida Statutes, provided in relevant part:
A person may not, individually or in conjunction with any affiliated person . . . , acquire directly or indirectly, conclude a tender offer or exchange offer for, enter into any agreement to exchange securities for, or otherwise finally acquire 5 percent or more of the outstanding voting securities of a domestic stock insurer or of a controlling company, unless the person submits a letter of notification and an acquisition statement and the Office of Insurance Regulation has approved the acquisition.
Alternatively, an acquiring party could submit a “disclaimer of affiliation and control” in lieu of filing an acquisition statement as long as the acquisition involved less than ten percent of the voting securities. In this case, the acquiring person could disclose its material relationships with the insurer or controlling company and provide its basis for disclaiming control. Submitting a disclaimer relieved the acquiring party of any obligation to submit an acquisition statement unless the Office of Insurance Regulation were to disallow the disclaimer after providing notice and an opportunity to be heard and making specific findings to support the disallowance. The statute then provided that, “A filing as required under this section must be made as to any acquisition that equals or exceeds 10 percent of the outstanding voting securities.” As a result, an acquiring person under prior law was required to submit an acquisition statement upon acquiring ten percent or more of the voting securities of an insurer or its controlling company, but for an acquisition of between five and ten percent of the voting securities the acquiring party could either file an acquisition statement or disclaim control.
Law Change Brings a New Ten Percent Threshold
Florida’s five percent trigger for acquisition statement filings did not align with the ten percent threshold used in many other states. Effective October 1, 2014, however, the law changed such that Florida now has a ten percent trigger for acquisition statement filings that is aligned with the requirements in most other states. As of October 1, the filing requirement of subsection (1) now provides:
A person may not, individually or in conjunction with any affiliated person . . . , acquire directly or indirectly, conclude a tender offer or exchange offer for, enter into any agreement to exchange securities for, or otherwise finally acquire 10 percent or more of the outstanding voting securities of a domestic stock insurer or of a controlling company, unless the person submits a letter of notification and an acquisition statement and the Office of Insurance Regulation has approved the acquisition.
With the adoption of this new ten percent standard, the statutory opportunity for an acquiring party to disclaim control for acquisitions of between five and ten percent was no longer necessary and therefore was deleted. However, the statute continues to provide, “A filing required under this subsection must be made for any acquisition that equals or exceeds 10 percent of the outstanding voting securities.”
The implication of the above requirements is that an acquiring party need not file an acquisition statement if it is acquiring an interest of less than ten percent, but must file an acquisition statement if the interest involved is ten percent or more. However, the legislature added a new paragraph (12)(a) to the statute providing:
A person may rebut a presumption of control by filing a disclaimer of control with the office on a form prescribed by the office. The disclaimer must fully disclose all material relationships and bases for affiliation between the person and the insurer as well as the basis for disclaiming the affiliation. In lieu of such a form, a person or acquiring party may file with the office a copy of a Schedule 13G filed with the Securities and Exchange Commission pursuant to rules 13d-1(b) or 13d-1(c) under the Securities Exchange Act of 1934, as amended. After a disclaimer has been filed, the insurer is relieved of any duty to register or report under this section which may arise out of the insurer’s relationship with the person unless the office disallows the disclaimer.
The new chapter law includes a definition of “control” at Section 624.10(3), Florida Statutes, as follows:
“Control” including the terms “controlling,” “controlled by,” and “under common control with,” means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or non-management services, or otherwise. Control is presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of another person.
The statute at subsection (1) therefore specifies that an acquiring person must submit a letter of notification and an acquisition statement when acquiring ten percent or more of the voting securities of a Florida-domiciled insurer or its parent, without regard to whether the acquisition will result in the person’s having “control.” At the same time, subsection (12) contemplates an opportunity to rebut the presumption of control associated with ownership of ten percent or more of a company’s voting securities.
A New Requirement for Controlling Persons Divesting Controlling Interests
Under prior law, a person owning a controlling interest in an insurer or its parent generally was not required to submit a filing when reducing its ownership interest. The professional staff of the Florida Senate’s Committee on Banking and Insurance summarized this point as follows when discussing the evolution of the NAIC model Insurance Holding Company System Regulatory Act:
Prior to the amendments to [the NAIC Model Holding Company Act], a person could divest control of an insurer without prior regulatory review as long as no single acquirer obtained control of 10 percent or more of the outstanding voting shares. Amendments to the model act generally require a person divesting control over an insurer to provide 30 days’ notice to the regulator.
The Florida Legislature then adopted this requirement in its amendments to the acquisition statement filing requirement. The Legislature specified in a new paragraph (12)(b) that a controlling person who seeks to divest its controlling interest must submit a “confidential notice” to the Office of Insurance Regulation at least 30 days before its cessation of control. The new provision also allows the Office of Insurance Regulation to define situations in which a person seeking to divest a controlling interest must obtain approval of the transaction.
The Legislature specified at Section 628.461(12)(b), Florida Statutes, that information pertaining to a controlling person’s divestiture of the controlling interest remains confidential until the conclusion of the transaction unless the Office of Insurance Regulation determines that confidential treatment of the information will impede its enforcement of the statute. The Legislature also protected the information as “proprietary business information” in companion legislation adopting Section 624.4212, Florida Statutes.
Additional Information Required in Acquisition Statement Filings
A person required to file an acquisition statement must submit a letter of notification to the Office of Insurance Regulation, and to the insurer and its controlling company, no later than five days after the acquisition of the securities. The letter is generated through the Office of Insurance Regulation’s iApply system and must contain basic information about the transaction and the acquirers involved. Then, within 30 days, the acquiring person must submit a complete acquisition statement consisting of information about (a) the backgrounds of the persons involved; (b) the source and amount of funds or other consideration used; (c) any plans the acquirer has to liquidate the insurer, sell its assets, merge the insurer with another company, or make major changes to its corporate structure or management; (d) the number of shares being acquired; and (e) information regarding any contracts or understandings relating to the acquired securities.
The Legislature added two new requirements to the acquisition statement filing requirements beginning January 1, 2015. If an acquiring person will be in a position of control, that person must agree that it will annually provide the enterprise risk report required by the newly enacted requirement at Section 628.801(2), Florida Statutes. In addition, the acquiring person must acknowledge that it and all subsidiaries within its control will provide such information as is necessary upon the request of the Office of Insurance Regulation to enable it to evaluate enterprise risk to the domestic insurer(s) involved. The new requirements in the acquisition statement filing process are part of Florida’s broader adoption of enterprise risk reporting requirements of Chapter Law 2014-101.
Additional Penalties for Noncompliance with Acquisition Statement Filing Requirements
In addition to penalties for noncompliance already provided in the Insurance Code, such as monetary fines, the Legislature authorized two additional sanctions when a person does not comply with the requirements of Section 628.461, Florida Statutes. First, the Legislature specified that the Office of Insurance Regulation may use the noncompliance as an independent basis upon which to disapprove dividends or other distributions. Second, the Office of Insurance Regulation may place the insurer under an order of supervision.
For many years, Florida’s acquisition statement filing requirements did not align with the requirements of other states. This frustrated many acquiring persons and sometimes led to increased costs on filers. These concerns should be alleviated, however, with the recent change from a five percent trigger for filings to a ten percent threshold. At the other end of the spectrum, existing owners seeking to divest and no longer be in controlling positions will find a new requirement to provide at least 30 days’ notice to the Office of Insurance Regulation. The Office of Insurance Regulation also might seek to define circumstances in which the required notice must be followed by regulatory approval. In light of these statutory revisions, acquiring persons and their counsel should monitor the Office of Insurance Regulation’s implementation of the new law to ensure up-to-date compliance with its requirements.
 Fla. Stat. § 628.461(1) (2013) (emphasis added).
 Id. (emphasis added).
 Fla. Stat. § 628.461(1) (2014) (emphasis added).
 Id. (emphasis added).
 Fla. Stat. § 628.461(12)(a) (2014) (emphasis added).
 Fla. Stat. § 624.10(3) (2014).
 Fla. S. Comm. on Banking & Ins., SB 1308 (2014) Staff Analysis (Mar. 12, 2014).
 Fla. Stat. §628.461(12)(b) (2014).
 See Ch. Law 2014-100. Florida’s broad public records laws are set forth not only in statutory law but also in the state Constitution. Exemptions from the public records laws are set forth in standalone statutory provisions and are subject to mandatory review every five years.
 Fla. Stat. § 628.461(1)(a) (2014).
 Fla. Stat. § 628.461(3)(g) (2014).
 Fla. Stat. § 628.803(4) (2014).