Mr. Gallagher has pushed two years to secure passage of his plan to merge the Florida Residential Property and Casualty Joint Underwriting Association and the Florida Windstorm Underwriting Association into a new Citizens Property Insurance Company. As of January 31, the two residual markets combined equaled roughly 512,000 policies in force representing $118 billion in liabilities and a probable maximum loss for a 100-year storm of $6 billion.

For much of the legislative session, Mr. Gallagher's plan languished as lawmakers showed little enthusiasm for the complex scheme. That changed, however, when U.S. Northern District of Florida Chief Judge Roger Vinson recently ruled that the FRPCJUA is an "integral part of the state" and should be exempt from federal taxation.

FRPCJUA Executive Director Jay Newman said the ruling will result in the association receiving a tax refund of $172 million plus interest.

The money will nearly double the association's current surplus, greatly enhancing its claims paying ability. Additionally, the ruling could potentially ease the assessment burden on all Florida policyholders.

"When the big storm comes, the FRPJCUA can issue tax-exempt debt," said Mr. Newman. "That means there is the choice of smaller assessments or paying off the debt faster."

Because of the circuit court's decision, Mr. Gallagher was able to obtain a private letter ruling from the Internal Revenue Service stating that his CPIC plan would be tax-exempt.

As spelled out in CS/SB 1418, by Senator Rudy Garcia, R-Miami, a new seven-member board, that will serve at the pleasure of the insurance commissioner, will replace the FWUA's 15-member board and the FRPCJUA's 13-member board.

CPIC will operate three accounts that will include personal lines, commercial lines and so-called high-risk or wind-only policies. The wind-only risk accounts will feature quota share policies, whereby insurers and CPIC each would be responsible for a portion of the losses.

Significantly, the plans would cap CPIC rate increases for wind-only policies at 10 percent between July 2002 and July 2003, thus negating the remaining rate hikes scheduled by the FWUA.

Surplus line carriers' premiums will be considered in residual market assessment calculations for the first time. The legislation also includes agent protection measures that allow residual market policyholders to decline offers of coverage from private carriers.

Mr. Gallagher praised the Legislature for passing the CPIC bill, which by all accounts will be the most radical change in the market since the current structure was formed following Hurricane Andrew in 1992.

The commissioner attributed the legislation's success in part to the IRS private letter ruling, which could translate into savings of $80 million per year. "We were confident we would get the letter, but its better to have had it in hand," he said.

Rade Musulin, Florida Farm Bureau vice president, said CPIC's tax-exempt status is an important development in the ongoing struggle to create claims paying ability. He cautioned, however, that much work remains to iron out all the details before the merger takes effect July 1. "I'm glad it passed," he said. "The commissioner worked hard for the tax-exempt and that's good for all Floridians."

In other news, lawmakers failed to resolve the future regulation of banking and insurance. A 1998 constitutional amendment reduces the state's cabinet and merges the State Comptroller's Office with that of the Treasurer/Insurance Commissioner.

Lawmakers almost agreed to a plan to merge the offices into a new position designated the Chief Financial Officer. Additionally, the plan would have created a Department of Financial Services and two new commissioners to oversee a division of insurance and division of financial services. Appointed by the governor and confirmed by the remaining cabinet members, the commissioners would have had final agency action.

The plan was on track to pass, but failed when House and Senate lawmakers failed to agree on an unrelated matter before the session adjourned last Friday. Florida Governor Jeb Bush is expected to call a special session in April or May on the issue, which must be resolved before the November general election.