BILL NUMBER: AB 1837	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 20, 2010
	AMENDED IN ASSEMBLY  APRIL 26, 2010
	AMENDED IN ASSEMBLY  APRIL 5, 2010

INTRODUCED BY   Assembly Member Gaines

                        FEBRUARY 12, 2010

   An act to amend Section 1765.1 of the Insurance Code, relating to
insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1837, as amended, Gaines. Insurance transactions: nonadmitted
insurers.
   Existing law limits the ability of a surplus line broker to place
any coverage with a nonadmitted insurer, as specified. In order for a
nonadmitted insurer to qualify for coverage it must demonstrate
financial stability, as defined.
   This bill would authorize an insurer domiciled in California to
have common directors with an affiliated nonadmitted insurer provided
 the   those  common directors do not 
constitute the majority of the voting authority of the nonadmitted
insurer and do not  perform any management functions for the
nonadmitted insurer in California. The bill would also authorize an
insurer domiciled in California to perform specified administrative
 , claims adjusting, and investment management  services on
behalf of an affiliated nonadmitted insurer that has qualified as an
eligible surplus line insurer.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1765.1 of the Insurance Code is amended to
read:
   1765.1.  No surplus line broker shall place any coverage with a
nonadmitted insurer unless the insurer is domiciled in the Republic
of Mexico and the placement covers only liability arising out of the
ownership, maintenance, or use of a motor vehicle, aircraft, or boat
in the Republic of Mexico, or, at the time of placement, the
nonadmitted insurer meets the following requirements:
   (a) (1) Has established its financial stability, reputation, and
integrity, for the class of insurance the broker proposes to place,
by satisfactory evidence submitted to the commissioner through a
surplus line broker.
   (2) Meets one of the following requirements with respect to its
financial stability:
   (A) Has capital and surplus that together total at least fifteen
million dollars ($15,000,000). "Capital" shall be as defined in
Section 36. "Surplus" shall be defined as assets exceeding the sum of
liabilities for losses reported, expenses, taxes, and all other
indebtedness and reinsurance of outstanding risks as provided by law
and paid-in capital in the case of an insurer issuing or having
outstanding shares of capital stock. The type of assets to be used in
calculating capital and surplus shall be as follows: at least
fifteen million dollars ($15,000,000) shall be in the form of cash,
or securities of the same character and quality as specified in
Sections 1170 to 1182, inclusive, or in readily marketable securities
listed on regulated United States' national or principal regional
securities exchanges. The remaining assets shall be in the form just
described, or in the form of investments of substantially the same
character and quality as described in Sections 1190 to 1202,
inclusive. In calculating capital and surplus under this section, the
term "same character and quality" shall permit, but not require, the
commissioner to approve assets maintained in accordance with the
laws of another state or country. The commissioner shall be guided by
any limitations, restrictions, or other requirements of this code or
the National Association of Insurance Commissioners' Accounting
Practices and Procedures Manual in determining whether assets
substantially similar to those described in Sections 1190 to 1202,
inclusive, qualify. The commissioner shall retain the discretion to
disapprove or disallow any asset that is not of a sound quality, or
that he or she deems to create an unacceptable risk of loss to the
insurer or to policyholders. Letters of credit will not qualify as
assets in the calculation of surplus. If less than fifteen million
dollars ($15,000,000), the commissioner has affirmatively found that
the capital and surplus is adequate to protect California
policyholders. The commissioner shall consider, on determining
whether to make this finding, factors such as quality of management,
the capital and surplus of any parent company, the underwriting
profit and investment income trends, and the record of claims payment
and claims handling practices of the nonadmitted insurer.
   (B) In the case of an "Insurance Exchange" created and authorized
under the laws of individual states, maintains capital and surplus of
not less than fifty million dollars ($50,000,000) in the aggregate.
"Capital" shall be as defined in Section 36. "Surplus" shall be
defined as assets exceeding the sum of liabilities for losses
reported, expenses, taxes, and all other indebtedness and reinsurance
of outstanding risks as provided by law and paid-in capital in the
case of an insurer issuing or having outstanding shares of capital
stock. The type of assets to be used in calculating capital and
surplus shall be as follows: at least fifteen million dollars
($15,000,000) shall be in the form of cash, or securities of the same
character and quality as specified in Sections 1170 to 1182,
inclusive, or in readily marketable securities listed on regulated
United States' national or principal regional securities exchanges.
The remaining assets shall be in the form just described, or in the
form of investments of substantially the same character and quality
as described in Sections 1190 to 1202, inclusive. In calculating
capital and surplus under this section, the term "same character and
quality" shall permit, but not require, the commissioner to approve
assets maintained in accordance with the laws of another state or
country. The commissioner shall be guided by any limitations,
restrictions, or other requirements of this code or the National
Association of Insurance Commissioners' Accounting Practices and
Procedures Manual in determining whether assets substantially similar
to those described in Sections 1190 to 1202, inclusive, qualify. The
commissioner shall retain the discretion to disapprove or disallow
any asset that is not of a sound quality, or that he or she deems to
create an unacceptable risk of loss to the insurer or to
policyholders. Letters of credit shall not qualify as assets in the
calculation of surplus. In the case of an Insurance Exchange which
maintains funds for the protection of all Insurance Exchange
policyholders, each individual syndicate seeking to accept surplus
line placements of risks resident, located, or to be performed in
this state shall maintain minimum capital and surplus of not less
than six million four hundred thousand dollars ($6,400,000). Each
individual syndicate shall increase the capital and surplus required
by this paragraph by one million dollars ($1,000,000) each year until
it attains a capital and surplus of fifteen million dollars
($15,000,000). In the case of Insurance Exchanges that do not
maintain funds for the protection of all Insurance Exchange
policyholders, each individual syndicate seeking to accept surplus
line placement of risks resident, located, or to be performed in this
state shall meet the capital and surplus requirements of
subparagraph (A) of this paragraph.
   (C) In the case of a syndicate that is part of a group consisting
of incorporated individual insurers, or a combination of both
incorporated and unincorporated insurers, that at all times maintains
a trust fund of not less than one hundred million dollars
($100,000,000) in a qualified United States financial institution as
security to the full amount thereof for the United States surplus
line policyholders and beneficiaries of direct policies of the group,
including all policyholders and beneficiaries of direct policies of
the syndicate, and the full balance in the trust fund is available to
satisfy the liabilities of each member of the group of those
syndicates, incorporated individual insurers or other unincorporated
insurers, without regard to their individual contributions to that
trust fund, and the trust complies with the terms of and conditions
specified in paragraph (1) of subdivision (b), the syndicate is
excepted from the capital and surplus requirements of subparagraph
(A) of paragraph (2). The incorporated members of the group shall not
be engaged in any business other than underwriting as a member of
the group and shall be subject to the same level of solvency
regulation and control by the group's domiciliary regulator as are
the unincorporated members.
   (b) (1) In addition, to be eligible as a surplus line insurer, an
insurer not domiciled in one of the United States or its territories
shall have in force in the United States an irrevocable trust account
in a qualified United States financial institution, for the
protection of United States policyholders, of not less than five
million four hundred thousand dollars ($5,400,000) and consisting of
cash, securities acceptable to the commissioner which are authorized
pursuant to Sections 1170 to 1182, inclusive, readily marketable
securities acceptable to the commissioner that are listed on a
regulated United States national or principal regional security
exchange, or clean and irrevocable letters of credit acceptable to
the commissioner and issued by a qualified United States financial
institution. The trust agreement shall be in a form acceptable to the
commissioner. The funds in the trust account may be included in any
calculation of capital and surplus, except letters of credit, which
shall not be included in any calculation.
   (2) In the case of a syndicate seeking eligibility under
subparagraph (C) of paragraph (2) of subdivision (a), the syndicate
shall, in addition to the requirements of that subparagraph, at a
minimum, maintain in the United States a trust account in an amount
satisfactory to the commissioner that is not less than the amount
required by the domiciliary state of the syndicate's trust. The trust
account shall comply with the terms and conditions specified in
paragraph (1).
   (3) In the case of a group of incorporated insurers under common
administration that maintains a trust fund of not less than one
hundred million dollars ($100,000,000) in a qualified United States
financial institution for the payment of claims of its United States
policyholders, their assigns, or successors in interest and that
complies with the terms and conditions of paragraph (1) that has
continuously transacted an insurance business outside the United
States for at least three years, that is in good standing with its
domiciliary regulator, whose individual insurer members maintain
standards and a financial condition reasonably comparable to admitted
insurers, that submits to this state's authority to examine its
books and bears the expense of examination, and that has an aggregate
policyholder surplus of ten billion dollars ($10,000,000,000), the
group is excepted from the capital and surplus requirements of
subdivision (a).
   (c) Has caused to be provided to the commissioner the following
documents:
   (1) The financial documents as specified below, each showing the
insurer's condition as of a date not more than 12 months prior to
submission:
   (A) A copy of an annual statement, prepared in the form prescribed
by the NAIC. For an alien insurer, in lieu of an annual statement, a
licensee may submit a form as set forth by regulation and as
prepared by the insurer, and, if listed by the IID, a copy of the
complete information as required in the application for listing by
the IID.
   (B) A copy of an audited financial report on the insurer's
condition that meets the standards of subparagraph (D) for foreign
insurers or subparagraph (E) for alien insurers.
   (C) If the insurer is an alien:
   (i) A certified copy of the trust agreement referenced in
subdivision (b).
   (ii) A verified copy of the most recent quarterly statement or
list of the assets in the trust.
   (D) Financial reports filed pursuant to this section by foreign
insurers shall conform to the following standards:
   (i) Financial documents shall be certified.
   (ii) An audited financial report shall constitute a supplement to
the insurer's annual statement, as required by the annual statement
instructions issued by the NAIC.
   (iii) An audited financial report shall be prepared by an
independent certified public accountant or accounting firm in good
standing with the American Institute of Certified Public Accountants
and in all states where licensed to practice; and be prepared in
conformity with statutory accounting practices prescribed, or
otherwise permitted, by the insurance regulator of the insurer's
domiciliary jurisdiction.
   (iv) An audited financial report shall include information on the
insurer's financial position as of the end of the most recent
calendar year, and the results of its operations, cashflows, and
changes in capital and surplus for the year then ended.
   (v) An audited financial report shall be prepared in a form and
using language and groupings substantially the same as the relevant
sections of the insurer's annual statement filed with its domiciliary
jurisdiction, and presenting comparatively the amounts as of
December 31 of the most recent calendar year and the amounts as of
December 31 of the preceding year.
   (E) Financial reports filed pursuant to this section by alien
insurers shall conform to the following standards:
   (i) Except as provided in clause (ii) of subparagraph (C),
financial documents should be certified. If certification of a
financial document is not available, the document shall be verified.
   (ii) Financial documents should be expressed in United States
dollars, but may be expressed in another currency if the exchange
rate for the other currency as of the date of the document is also
provided.
   (iii) The responses provided pursuant to subparagraph (A) of
paragraph (1) on the form submitted in lieu of an annual statement
should follow the most recent ISI Guide to Alien Reporting Format,
"Standard Definitions of Accounting Items." Responses that do not
agree with a standard definition shall be fully explained in the
form.
   (iv) An audited financial report shall be prepared by an
independent licensed auditor in the insurer's domiciliary
jurisdiction or in any state.
   (v) An audited financial report shall be prepared in accord with
either (I) Generally Accepted Auditing Standards that prescribe
Generally Accepted Accounting Principles, or (II) International
Accounting Standards as published and revised from time to time by
the International Auditing Guidelines published by the International
Auditing Practice Committee of the International Federation of
Accountants; and shall include financial statement notes and a
summary of significant accounting practices.
   (F) The commissioner may accept, in lieu of a document described
above, any certified or verified financial or regulatory document,
statement, or report if the commissioner finds that it possesses
reliability and financial detail substantially equal to or greater
than the document for which it is proposed to be a substitute.
   (G) If one of the financial documents required to be submitted
under subparagraphs (A) and (B) is dated within 12 months of
submission, but the other document is not so dated, the licensee may
use the outdated document if it is accompanied by a supplement. The
supplement must meet the same requirements which apply to the
supplemented document, and must update the outdated document to a
date within the prescribed time period, preferably to the same date
as the nonsupplemented document.
   (2) A certified copy of the insurer's license issued by its
domiciliary jurisdiction, plus a certification of good standing,
certificate of compliance, or other equivalent certificate, from
either that jurisdiction or, if the jurisdiction does not issue those
certificates, from any state where it is licensed.
   (3) Information on the insurer's agent in California for service
of process, including the agent's full name and address. The agent's
address must include a street address where the agent can be reached
during normal business hours.
   (4) The complete street address, mailing address, and telephone
number of the insurer's principal place of business.
   (5) A certified or verified explanation, report, or other
statement, from the insurance regulatory office or official of the
insurer's domiciliary jurisdiction, concerning the insurer's record
regarding market conduct and consumer complaints; or, if that
information cannot be obtained from that jurisdiction, then any other
information that the licensee can procure to demonstrate a good
reputation for payment of claims and treatment of policyholders.
   (6) A verified statement, from the insurer or licensee, on whether
the insurer or any affiliated entity is currently known to be the
subject of any order or proceeding regarding conservation,
liquidation, or other receivership; or regarding revocation or
suspension of a license to transact insurance in any jurisdiction; or
otherwise seeking to stop the insurer from transacting insurance in
any jurisdiction. The statement shall identify the proceeding by
date, jurisdiction, and relief or sanction sought; and shall attach a
copy of the relevant order.
   (7) A certified copy of the most recent report of examination or
an explanation if the report is not available.
   (8) A list of all California surplus line brokers authorized by
the insurer to issue policies on its behalf, and any additions to or
deletions from that list.
   (d) (1) Has provided any additional information or documentation
required by the commissioner that is relevant to the financial
stability, reputation, and integrity of the nonadmitted insurer. In
making a determination concerning financial stability, reputation,
and integrity of the nonadmitted insurer, the commissioner shall
consider any analyses, findings, or conclusions made by the National
Association of Insurance Commissioners (NAIC) in its review of the
insurer for purposes of inclusion on or exclusion from the list of
authorized nonadmitted insurers maintained by the NAIC. The
commissioner may, but shall not be required to, rely on, adopt, or
otherwise accept any analyses, findings, or conclusions of the NAIC,
as the commissioner deems appropriate. In the case of a syndicate
seeking eligibility under subparagraph (C) of paragraph (2) of
subdivision (a), the commissioner may, but shall not be required to,
rely on, adopt, or otherwise accept any analyses, findings, or
conclusions of any state, as the commissioner deems appropriate, as
long as that state, in its method of regulation and review, meets the
requirements of paragraph (2).
   (2) The regulatory body of the state shall regularly receive and
review the following: (A) an audited financial statement of the
syndicate, prepared by a certified or chartered public accountant;
(B) an opinion of a qualified actuary with regard to the syndicate's
aggregate reserves for payment of losses or claims and payment of
expenses of adjustment or settlement of losses or claims; (C) a
certification from the qualified United States financial institution
that acts as the syndicate's trustee, respecting the existence and
value of the syndicate's trust fund; and (D) information concerning
the syndicate's or its manager's operating history, business plan,
ownership and control, experience and ability, together with any
other pertinent factors, and any information indicating that the
syndicate or its manager make reasonably prompt payment of claims in
this state or elsewhere. The regulatory body of the state shall have
the authority, either by law or through the operation of a valid and
enforceable agreement, to review the syndicate's assets and
liabilities and audit the syndicate's trust account, and shall
exercise that authority with a frequency and in a manner satisfactory
to the commissioner.
   (e) Has established that:
   (1) All documents required by subdivisions (c) and (d) have been
filed. Each of the documents appear after review to be complete,
clear, comprehensible, unambiguous, accurate, and consistent.
   (2) The documents affirm that the insurer is not subject in any
jurisdiction to an order or proceeding that:
   (A) Seeks to stop it from transacting insurance.
   (B) Relates to conservation, liquidation, or other receivership.
   (C) Relates to revocation or suspension of its license.
   (3) The documents affirm that the insurer has actively transacted
insurance for the three years immediately preceding the filing made
under this section, unless an exemption is granted. As used in this
paragraph, "insurer" does not include a syndicate of underwriting
entities. The commissioner may grant an exemption if the licensee has
applied for exemption and demonstrates either of the following:
   (A) The insurer meets the condition for any exception set forth in
subdivision (a), (b), or (c) of Section 716.
   (B) If the insurer has been actively transacting insurance for at
least 12 months, and the licensee demonstrates that the exemption is
warranted because the insurer's current financial strength, operating
history, business plan, ownership and control, management
experience, and ability, together with any other pertinent factors,
make three years of active insurance transaction unnecessary to
establish sufficient reputation.
   (4) The documents confirm that the insurer holds a license to
issue insurance policies (other than reinsurance) to residents of the
jurisdiction that granted the license unless an exemption is
granted. The commissioner may grant an exemption if the licensee has
applied for an exemption and demonstrates that the exemption is
warranted because the insurer proposes to issue in California only
commercial coverage, and is wholly owned and actually controlled by
substantial and knowledgeable business enterprises that are its
policyholders and that effectively govern the insurer's destiny in
furtherance of their own business objectives.
   (5) The information filed pursuant to paragraph (5) of subdivision
(c) or otherwise filed with or available to the commissioner,
including reports received from California policyholders, shall
indicate that the insurer makes reasonably prompt payment of claims
in this state or elsewhere.
   (6) The information available to the commissioner shall not
indicate that the insurer offers in California a licensee products or
rates that violate any provision of this code.
   (f) Has been placed on the list of eligible surplus line insurers
by the commissioner. The commissioner shall establish a list of all
surplus line insurers that have met the requirements of subdivisions
(a) to (e), inclusive, and shall publish a master list at least
semiannually. Any insurer receiving approval as an eligible surplus
line insurer shall be added by addendum to the list at the time of
approval, and shall be incorporated into the master list at the next
date of publication. If an insurer appears on the most recent list,
it shall be presumed that the insurer is an eligible surplus line
insurer, unless the commissioner, or his or her designee, has mailed
or causes to be mailed notice to all surplus line brokers that the
commissioner has withdrawn the insurer's eligibility. Upon receipt of
notice, the surplus line broker shall make no further placements
with the insurer. Nothing in this subdivision shall limit the
commissioner's discretion to withdraw an insurer's eligibility.
   (g) (1) Except as provided by paragraph (2), whenever the
commissioner has reasonable cause to believe, and determines after a
public hearing, that any insurer on the list established pursuant to
subdivision (f), (A) is in an unsound financial condition, (B) does
not meet the eligibility requirements under subdivisions (a) to (e),
inclusive, (C) has violated the laws of this state, or (D) without
justification, or with a frequency so as to indicate a general
business practice, delays the payment of just claims, the
commissioner may issue an order removing the insurer from the list.
Notice of hearing shall be served upon the insurer or its agent for
service of process stating the time and place of the hearing and the
conduct, condition, or ground upon which the commissioner would make
his or her order. The hearing shall occur not less than 20 days nor
more than 30 days after notice is served upon the insurer or its
agent for service of process.
   (2) If the commissioner determines that an insurer's immediate
removal from the list is necessary to protect the public or an
insured or prospective insured of the insurer, or, in the case of an
application by an insurer to be placed on the list which is being
denied by the commissioner, the commissioner may issue an order
pursuant to paragraph (1) without prior notice and hearing. At the
time an order is served pursuant to this paragraph to an insurer on
the list, the commissioner shall also issue and serve upon the
insurer a statement of the reasons that immediate removal is
necessary. Any order issued pursuant to this paragraph shall include
a notice stating the time and place of a hearing on the order, which
shall be not less than 20 days nor more than 30 days after the notice
is served.
   (3) Notwithstanding paragraphs (1) and (2), in any case where the
commissioner is basing a decision to remove an insurer from the list,
or deny an application to be placed on the list, on the failure of
the insurer or applicant to comply with, meet, or maintain any of the
objective criteria established by this section, or by regulation
adopted pursuant to this section, the commissioner may so specify
this fact in the order, and no hearing shall be required to be held
on the order.
   (4) Notwithstanding paragraphs (1) and (2), the commissioner may,
without prior notice or hearing, remove from the list established
pursuant to subdivision (f) any insurer that has failed or refused to
timely provide documents required by this section, or any
regulations adopted to implement this section. In the case of removal
pursuant to this paragraph, the commissioner shall notify all
surplus line brokers of the action.
   (h) In addition to any other statements or reports required by
this chapter, the commissioner may also address to any licensee a
written request for full and complete information respecting the
financial stability, reputation, and integrity of any nonadmitted
insurer with whom the licensee has dealt or proposes to deal in the
transaction of insurance business. The licensee so addressed shall
promptly furnish in written or printed form so much of the
information requested as he or she can produce together with a signed
statement identifying the same and giving reasons for omissions, if
any. After due examination of the information and accompanying
statement, the commissioner may, if he or she believes it to be in
the public interest, order the licensee in writing to place no
further insurance business on property located or operations
conducted within or on the lives of persons who are residents of this
state with the nonadmitted insurer on behalf of any person. Any
placement in the nonadmitted insurer made by a licensee after receipt
of that order is a violation of this chapter. The commissioner may
issue an order when documents submitted pursuant to subdivisions (c)
and (d) do not meet the criteria of subdivisions (a) to (e),
inclusive, or when the commissioner obtains documents on an insurer
and the insurer does not meet the criteria of subdivisions (a) to
(e), inclusive.
   (i) The commissioner shall require, at least annually, the
submission of records and statements as are reasonably necessary to
ensure that the requirements of this section are maintained.
   (j) The commissioner shall establish by regulation a schedule of
fees to cover costs of administering and enforcing this chapter.
   (k) (1) Insurance may be placed on a limited basis with insurers
not on the list established pursuant to this section if all of the
following conditions are met:
                        (A) The use of multiple insurers is necessary
to obtain coverage for 100 percent of the risk.
   (B) At least 80 percent of the risk is placed with admitted
insurers or insurers that appear on the list of eligible nonadmitted
insurers.
   (C) The placing surplus line broker submits to the commissioner,
or his or her designee, copies of all documentation relied upon by
the surplus line broker to make the broker's determination that the
financial stability, reputation, and integrity of the unlisted
insurer or insurers, are adequate to safeguard the interest of the
insured under the policy. This documentation, and any other
documentation regarding the unlisted insurer requested by the
commissioner, shall be submitted no more than 30 days after the
insurance is placed with the unlisted insurer for the initial
placement by that broker with the particular unlisted insurer, and
annually thereafter for as long as the broker continues to make
placements with the unlisted insurer pursuant to this paragraph.
   (D) The insured has aggregate annual premiums for all risks other
than workers' compensation or health coverage totaling no less than
one hundred thousand dollars ($100,000).
   (2) Insurance may not be placed pursuant to paragraph (1) if any
of the following applies:
   (A) The unlisted insurer has for any reason been objected to by
the commissioner pursuant to this section, removed from the list, or
denied placement on the list.
   (B) The insurance includes coverage for employer-sponsored
medical, surgical, hospital, or other health or medical expense
benefits payable to the employee by the insurer.
   (C) The insurance is mandatory under the laws of the federal
government, this state, or any political subdivision thereof, and
includes any portion of limits of coverage mandated by those laws.
   (D) The insured is a multiple employer welfare arrangement, as
defined in Section 1002(40)(A) of Title 29 of the United States Code,
or any other arrangement among two or more employers that are not
under common ownership or control, which is established or maintained
for the primary purpose of providing insurance benefits to the
employees of two or more employers.
   (E) Unlisted insurers represent a disproportionate portion of the
lower layers of the coverage.
   (3) Nothing in this section is intended to alter any duties of a
surplus line broker pursuant to subdivision (b) of Section 1765 or
other laws of this state to safeguard the interests of the insured
under the policy in recommending or placing insurance with a
nonadmitted insurer.
   (4) Placements authorized by this subdivision are intended to
provide sophisticated insurance purchasers with a means to obtain
necessary commercial insurance coverage from nonadmitted insurers not
listed by the commissioner in situations where it is not
commercially possible to fully obtain that coverage from either
admitted or listed insurers. This subdivision shall not be deemed to
permit surplus line brokers to place with nonadmitted insurers common
commercial or personal line coverages for insureds that can be
placed with insurers that are admitted or listed pursuant to this
section, whether the insured is an individual insured, or a group
created primarily for the purpose of purchasing insurance.
   (l) As used in this section:
   (1) "Certified" means an originally signed or sealed statement,
dated not more than 60 days before submission, made by a public
official or other person, attached to a copy of a document, that
attests that the copy is a true copy of the original, and that the
original is in the custody of the person making the statement.
   (2) "Domiciliary jurisdiction" means the state, nation, or
subdivision thereof under the laws of which an insurer is
incorporated or otherwise organized.
   (3) "Domiciliary state of the syndicate's trust" means the state
in which the syndicate's trust fund is principally maintained and
administered for the benefit of the syndicate's policyholders in the
United States.
   (4) "IID" means the International Insurers Department.
   (5) "Insurer" means (unless the context indicates otherwise)
"nonadmitted" insurers that are either "foreign" or "alien" insurers,
as those terms are defined in Sections 25, 27, and 1580, and
syndicates whose members consist of individual incorporated insurers
who are not engaged in any business other than underwriting as a
member of the group and individual unincorporated insurers, provided
all the members are subject to the same level of solvency regulation
and control by the group's domiciliary regulator. The term "insurer"
includes all nonadmitted insurers selling insurance to or through
purchasing groups as defined in the Liability Risk Retention Act of
1986 (15 U.S.C. Sec. 3901 et seq.) and the California Risk Retention
Act of 1991 (Chapter 1.5 (commencing with Section 125) of Part 1),
except insurers that are risk retention groups as defined by those
acts.
   (6) "ISI" means Insurance Solvency International.
   (7) "Licensee" means a surplus line broker as defined in Section
47.
   (8) "NAIC" means the National Association of Insurance
Commissioners or its successor organization.
   (9) "NAIIO" means the Nonadmitted Alien Insurer Information Office
of the NAIC or its successor office.
   (10) "State" means any state of the United States; the District of
Columbia; a commonwealth, or a territory.
   (11) "Verified" means a document or copy accompanied by an
originally signed statement, dated not more than 60 days before
submission, from a responsible executive or official who has
authority to provide the statement and knowledge whereof he or she
speaks, attesting either under oath before a notary public, or under
penalty of perjury under California law, that the assertions made in
the document are true.
   (m) With respect to a nonadmitted insurer that is listed as an
authorized surplus line insurer as of December 31, 1994, pursuant to
Sections 2174.1 to 2174.14, inclusive, of Title 10 of the California
Code of Regulations, this section shall not be effective until the
subsequent expiration of the listing of that insurer. Nothing in the
bill that amended this section during the 1994 portion of the 1993-94
Regular Session is intended to repeal or imply there is not
authority to adopt, or to have adopted, or to continue in force, any
regulation, or part thereof, with respect to surplus line insurance
which is not clearly inconsistent with it. 
   (n) Notwithstanding anything to the contrary in this code, an
insurer domiciled in California may have common directors with an
affiliated nonadmitted insurer provided the common directors do not
perform any management functions for the nonadmitted insurer in
California.  
   (n) An insurer domiciled in California may have common directors
with an affiliated nonadmitted insurer provided these common
directors do not constitute the majority of the voting authority of
the nonadmitted insurer and do not perform any management functions
for the nonadmitted insurer in California. 
   (o) (1) An insurer domiciled in California may perform the
following administrative services on behalf of an affiliated
nonadmitted insurer that has qualified as an eligible surplus line
insurer pursuant to this section: 
   (A) Computer operations that are unrelated to the underwriting
process.  
   (B) Clerical and administrative staffing support. 

   (C) Human resources.  
   (D) Claims adjusting except that all claims notices, decisions,
and payments shall be made directly by the affiliated nonadmitted
insurer.  
   (A) Computer operations that are unrelated to the underwriting
process, which may include such activities as development and
maintenance of application software, databases, and servers;
procurement of information technology and services; network
operations; and Web site development and support.
   (B) Clerical and administrative staffing support, provided that
this staff shall not have any contact or interaction with
policyholders of the nonadmitted insurer.
   (C) Human resources, provided that any decisions relating to the
hiring, firing, disciplinary actions, or compensation of any
employee, officer, or both, of the nonadmitted insurer shall be made
directly by the nonadmitted insurer.
   (D) Claims adjusting, as described in Section 14021, except that
all claims notices, claims-related decisions, including those
relating to setting reserves and claims acceptance, claims payments,
and settlements shall be made directly by the affiliated nonadmitted
insurer.
   (E) Managing investments such as buying, maintaining, and selling
financial investment instruments, except that decisions relating to
investment goals, risk assumptions such as capital preservation and
protection of investment principle, determining liquidity needs, and
diversification ratios shall be made by the affiliated nonadmitted
insurer. 
   (2) Nothing in this section permits the nonadmitted insurer to
conduct any activity through its affiliate that constitutes the
transaction of insurance or a violation of Section 700 or 703.