BILL NUMBER: AB 315	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Solorio

                        FEBRUARY 9, 2011

   An act to amend Section 2216.2 of the Business and Professions
Code, to amend Sections 51003 and 51007 of the Financial Code, to
amend Sections 675.5, 703, 703.1, 1620, 1760, 1760.5, 1760.7, 1761,
1763, 1763.1, 1764.1, 1764.2, 1764.3, 1765.1, 1765.2, 1765.3, 1765.4,
1766, 1768, 1774, 1775.1, 1775.3, 1775.4, 1775.5, and 1780.56 of,
and to add Sections 1760.1, 1760.2, 1765.5, and 1774.1 to, the
Insurance Code, and to amend Section 13210 of, and to add Section
13215 to, the Revenue and Taxation Code, relating to surplus line
brokers, and declaring the urgency thereof, to take effect
immediately.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 315, as introduced, Solorio. Surplus line brokers.
   Existing law limits the ability of a surplus line broker to place
any coverage with a nonadmitted insurer, as specified.
   This bill would revise and recast the provisions governing surplus
line brokers and nonadmitted insurers to make them consistent with
the federal Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, including, but not limited to, the duties,
responsibilities, and licensure of surplus line brokers, taxation of
surplus line insurance, and the eligibility of nonadmitted insurers
to do business in this state. Certain provisions of the act would
become operative on July 21, 2011.
   The bill would also make conforming changes.
   This bill would declare that it is to take effect immediately as
an urgency statute.
   Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


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

  SECTION 1.  Section 2216.2 of the Business and Professions Code is
amended to read:
   2216.2.  (a) It is unprofessional conduct for a physician and
surgeon to fail to provide adequate security by liability insurance,
or by participation in an interindemnity trust, for claims by
patients arising out of surgical procedures performed outside of a
general acute care hospital as defined in subdivision (a) of Section
1250 of the Health and Safety Code.
   (b) For purposes of this section, the board shall determine what
constitutes adequate security.
   (c) Nothing in this section shall require an insurer admitted to
transact liability insurance in this state to provide coverage to a
physician and surgeon.
   (d) The security required by this section shall be acceptable only
if provided by any one of the following:
   (1) An insurer admitted pursuant to Section 700 of the Insurance
Code to transact liability insurance in this state.
   (2) An insurer that  appears on the list of eligible
surplus line insurers pursuant to subdivision (f) of  
is eligible pursuant to  Section 1765.1 of the Insurance Code.
   (3) A cooperative corporation authorized by Section 1280.7 of the
Insurance Code.
   (4) An insurer licensed to transact liability insurance in at
least one state of the United States.
  SEC. 2.  Section 51003 of the Financial Code is amended to read:
   51003.  (a) A person who engages in business as an exchange
facilitator shall at all times comply with one or more of the
following:
   (1) Maintain a fidelity bond or bonds in an amount not less than
one million dollars ($1,000,000), executed by an insurer authorized
to do business in this state or an eligible surplus line insurer
 that is on the list of eligible surplus line insurers
maintained by the Insurance Commissioner pursuant to subdivision (f)
of   pursuant to  Section 1765.1 of the Insurance
Code.
   (2) Deposit an amount of cash or securities or irrevocable letters
of credit in an amount not less than one million dollars
($1,000,000) in an interest-bearing deposit account or a money market
account with the financial institution of the person's choice.
Interest on that amount shall accrue to the exchange facilitator.
   (3) Deposit all exchange funds in a qualified escrow account or
qualified trust, as those terms are defined under Treasury Regulation
1.1031(k)-1(g)(3), with a financial institution and provide that any
withdrawals from that escrow account or trust require that person's
and the client's written authorization.
   (b) A person who engages in business as an exchange facilitator
may maintain a bond or bonds or deposit an amount of cash or
securities or irrevocable letters of credit in excess of the minimum
required amounts.
   (c) If the person engaging in business as an exchange facilitator
is listed as a named insured on one or more fidelity bonds that total
at least one million dollars ($1,000,000), the requirements of this
section shall be deemed satisfied.
  SEC. 3.  Section 51007 of the Financial Code is amended to read:
   51007.  (a)  A person who engages in business as an exchange
facilitator shall at all times comply with either of the following:
   (1) Maintain a policy of errors and omissions insurance in an
amount not less than two hundred fifty thousand dollars ($250,000),
executed by an insurer authorized to do business in this state or an
eligible surplus line insurer  that is on the list of
eligible surplus line insurers maintained by the Insurance
Commissioner pursuant to subdivision (f) of   pursuant
to  Section 1765.1 of the Insurance Code.
   (2) Deposit an amount of cash or securities or irrevocable letters
of credit in an amount not less than two hundred fifty thousand
dollars ($250,000) in an interest-bearing deposit account or a money
market account with the financial institution of the person's choice.
Interest on that amount shall accrue to the exchange facilitator.
   (b) A person who engages in business as an exchange facilitator
may maintain insurance or deposit an amount of cash or securities or
irrevocable letters of credit in excess of the minimum required
amounts.
   (c) If the person engaging in business as an exchange facilitator
is listed as a named insured on an errors and omissions policy of at
least two hundred fifty thousand dollars ($250,000), the requirements
of this section shall be deemed satisfied.
  SEC. 4.  Section 675.5 of the Insurance Code is amended to read:
   675.5.  (a) In addition to any policy of insurance specified in
Section 675, this chapter shall apply to policies of commercial
insurance issued or issued for delivery in this state which are
issued and take effect or are renewed on or after January 1, 1987.
   (b) As used in this section, commercial insurance means commercial
multiperil, commercial property, commercial liability, commercial
special multiperil, commercial comprehensive multiperil, errors and
omissions liability, and professional liability insurance, and any
other insurance not included in subdivision (d) which covers any of
the following contingencies:
   (1) Loss of or damage to real property used or owned by a
commercial or industrial enterprise.
   (2) Loss of or damage to personal property, except personally
owned motor vehicles, used in the conduct of a commercial or
industrial enterprise.
   (3) Legal liability of any person for loss of, damage to, or
injury to persons or property, arising from the conduct of a
commercial or industrial enterprise.
   (c) As used in this section, the term commercial or industrial
enterprise includes a business operated for profit, a professional
practice, a nonprofit organization, or a governmental entity.
   (d) As used in this section, the term commercial insurance does
not include any of the following:
   (1) Worker's compensation insurance.
   (2) Insurance provided pursuant to the California FAIR plan or the
California automobile assigned risk plan.
   (3) Disability insurance.
   (4) Automobile insurance covered by Section 660 and property
insurance covered by Section 675.
   (5) Ocean marine insurance.
   (6) Fidelity and surety insurance.
   (7) Surplus line insurance  is nonadmitted insurance as
defined in subdivision (m) of Section 1760.1  .
   (8) Reinsurance.
   (9) Any insurance, other than professional liability insurance for
malpractice, errors, or omissions, for which premiums are determined
on a retrospective rating basis.
   (10) Nuclear liability insurance.
   (11) Nuclear property insurance.
  SEC. 5.  Section 703 of the Insurance Code is amended to read:
   703.  Except when performed by a surplus line broker, the
following acts are misdemeanors when done in this state:
   (a) Acting as agent for a nonadmitted insurer in the transaction
of insurance business in this state  for a home state insured as
defined in subdivision (f) of Section 1760.1  .
   (b) In any manner advertising a nonadmitted insurer in this state.

   (c) In any other manner aiding a nonadmitted insurer to transact
insurance business in this state  for a home state insured as
defined in subdivision (f) of Section 1760.1  .
   In addition to any penalty provided for commission of
misdemeanors, a person violating any provision of this section shall
forfeit to this state the sum of five hundred dollars ($500),
together with one hundred dollars ($100) for each month or fraction
thereof during which he or she continues the violation. This section
shall not apply to advertising authorized by Section 703.1,
subdivision (h) of Section 1760.5, or Section 1773.
  SEC. 6.  Section 703.1 of the Insurance Code is amended to read:
   703.1.  (a) Any nonadmitted insurer that is  on the list
of eligible surplus line insurers issued by the commissioner pursuant
to subdivision (f) of   an eligible surplus line
insurer pursuant to  Section 1765.1 may advertise in all media,
provided that all of the following apply: (1) the insurer's
unlicensed status in California is disclosed in type of a size no
smaller than any telephone number, address, or fax number appearing
in the advertisement or solicitation, (2) the advertisement does not
contain any assertion, representation, or statement with respect to
the business of insurance or with respect to any person in the
conduct of his or her insurance business, that is untrue, deceptive,
or misleading, and that is known, or that by the exercise of
reasonable care should be known, to be untrue, deceptive, or
misleading, (3) the advertisement does not contain any information
about the nonadmitted insurer's premiums or rates, and (4) no
specific product shall be advertised in a newspaper of general
circulation, in a television or radio broadcast, or in a news
magazine of general circulation.
   (b) Any nonadmitted insurer that is not  on the list of
eligible surplus line insurers issued by the commissioner pursuant to
subdivision (f) of   an eligible surplus line insurer
pursuant to  Section 1765.1 may advertise in all media, except
for media that are targeted primarily at insureds or prospective
insureds residing in California, provided that all of the conditions
set forth in subdivision (a) are complied with and the advertisement
does not contain any information about the insurer's specific
products.
   (c) A group of nonadmitted insurers may advertise to the same
extent as a nonadmitted insurer, subject to the same requirements set
forth in subdivision (a) or (b), as applicable.
   (d) An eligible nonadmitted insurer that is a member of a group of
insurers may include the name of the group in advertisements that
are authorized by this section.
   (e) The permission to advertise granted by this section shall not
be deemed to authorize an insurer to do business in this state.
  SEC. 7.  Section 1620 of the Insurance Code is amended to read:
   1620.  (a) The provisions of the preceding sections of this
article shall not apply to any action, suit or proceeding against any
unauthorized foreign or alien insurer arising out of any contract of
insurance effected in accordance with Section 1760, 1760.5, 1763, or
1763.1, or, if the contract is governed by and complies with the
laws of the state in which the contract was entered. The provisions
of Section 1610 shall apply to any action, suit, or proceeding under
this section unless the insurer has designated an agent in California
for service of process or the contract contains a provision
designating a resident of this state or any firm of which one member
is a resident of this state to be its true and lawful attorney upon
whom may be served all lawful process in any such action, suit or
proceeding.
   (b) In any such action, suit or proceeding arising out of any such
contract of insurance, the court may require the insurer to file a
bond, in an amount sufficient to secure the payment of any final
judgment which may be rendered unless one or more of the following is
applicable:
   (1) The insurer makes a showing satisfactory to the court that it
maintains in a state of the United States funds or securities in
trust or otherwise, sufficient and available to satisfy any such
final judgment and that it will pay the judgment without requiring
suit to be brought thereon in the state where the securities or funds
are located.
   (2) At the time the insurer files any pleading in any action,
suit, or proceeding instituted against it, the insurer is 
listed as  an eligible surplus line insurer in accordance
with  subdivision (f) of  Section 1765.1, unless by
facts presented to the court there is created a reasonable doubt as
to the present ability of the insurer to satisfy any final judgment
in the action, suit, or proceeding. Upon request of a party or the
court, the unauthorized foreign or alien insurer or reinsurer shall
provide the court and the party requesting the bond with copies of
documents relating to the financial condition of the insurer,
including, but not limited to, copies of the insurer's most recent
annual statement and audited financial report and, where applicable,
a certified copy of the trust agreement required by subdivision (b)
of Section  1765.1   1765.2  and a verified
copy of the most recent quarterly statement or list of assets in the
trust.
   (3) With respect to a contract of reinsurance issued in accordance
with Section 1760.5, the reinsurer has complied with the provisions
of this code necessary to permit the ceding insurer to take credit on
its financial statement for the reinsurance as set forth in Section
922.4 or 922.5.
  SEC. 8.  Section 1760 of the Insurance Code is amended to read:
   1760.  (a)  Any person   A home state
insured, as defined in subdivision (f) of Section 1760.1,  may
negotiate and effect insurance to protect himself, herself, or itself
against loss, damage, or liability with any nonadmitted insurer.
   (b) Every  person   home state insured 
that effects insurance governed by this chapter shall pay the tax
imposed by Part 7.5 (commencing with Section 13201) of Division 2 of
the Revenue and Taxation Code.
  SEC. 9.  Section 1760.1 is added to the Insurance Code, to read:
   1760.1.  For the purposes of this chapter, the following terms
have the following definitions.
   (a) "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.
   (b) "Commercial insured" means any person purchasing commercial
insurance that, at the time of placement, meets all of the following
requirements:
   (1) The person employs or retains a qualified risk manager to
negotiate insurance coverage.
   (2) The person has paid aggregate nationwide commercial property
and casualty insurance premiums in excess of one hundred thousand
dollars ($100,000) in the immediately preceding 12 months.
   (3) (A) The person meets at least one of the following criteria:
   (i) The person possesses a net worth in excess of twenty million
dollars ($20,000,000), as that amount is adjusted pursuant to
subparagraph (B).
   (ii) The person generates annual revenues in excess of fifty
million dollars ($50,000,000), as that amount is adjusted pursuant to
subparagraph (B).
   (iii) The person employs more than 500 full-time or full-time
equivalent employees per individual insured or is a member of an
affiliated group employing more than 1,000 employees in the
aggregate.
   (iv) The person is a not-for-profit organization or public entity
generating annual budgeted expenditures of at least thirty million
dollars ($30,000,000), as that amount is adjusted pursuant to
subparagraph (B).
   (v) The person is a municipality with a population in excess of
50,000 persons.
   (B) Effective on January 1, 2015, and each fifth January 1
occurring thereafter, the dollar amounts in subparagraph (A) shall be
adjusted to reflect the percentage change for that five-year period
in the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the United States Department of Labor.
The commissioner shall issue a bulletin to all surplus line brokers
advising of any adjustments and may adopt the calculations of the
NAIC or other entity in doing so.
   (c) "Domiciliary jurisdiction" means the state, nation, or
subdivision thereof under the laws of which an insurer is
incorporated or otherwise organized.
   (d) "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.
   (e) "Home state" means, except as provided in paragraph (2), any
of the following, with respect to an insured or applicant:
   (1) (A) The state in which the insured maintains its principal
place of business or, in the case of an individual, the individual's
principal residence.
   (B) If 100 percent of the insured risk is located outside the
state referred to in subparagraph (A), the state to which the
greatest percentage of the insured's taxable premium for that
insurance contract is allocated.
   (2) "Principal place of business" means, with respect to
subparagraph (A) of paragraph (1) determining the home state of the
insured, (A) the state where the insured maintains its headquarters
and where the insured's high-level officers direct, control, and
coordinate the business activities; or (B) if the insured's
high-level officers direct, control, and coordinate the business
activities in more than one state, the state in which the greatest
percentage of the insured's taxable premium for that insurance
contract is allocated; or (C) if the insured maintains its
headquarters or the insured's high-level officers direct, control,
and coordinate the business activities outside any state, the state
to which the greatest percentage of the insured's taxable premium for
that insurance contract is allocated.
   (3) "Principal residence" means, with respect to determining the
home state of the insured, (A) the state where the insured resides
for the greatest number of days during a calendar year; or (B) if the
insured's principal residence is located outside any state, the
state to which the greatest percentage of the insured's taxable
premium for that insurance contract is allocated.
   (4) Affiliated Groups. If more than one insured from an affiliated
group are named insureds on a single nonadmitted insurance contract,
the term ''home state'' means the home state, as determined pursuant
to subparagraph (A) of paragraph (1) of this subdivision, of the
member of the affiliated group that has the largest percentage of
premium attributed to it under such insurance contract.
   (5) Group Insurance. When the group policyholder pays 100 percent
of the premium from its own funds, the term "home state" means the
home state, as determined pursuant to subparagraph (A) of paragraph
(1), of the group policyholder. When the group policyholder does not
pay 100 percent of the premium from its own funds, the term "home
state" means the home state, as determined pursuant to subparagraph
(A) of paragraph (1), of the group member.
   (f) "Home state insured" or "home state insured applicant" means a
person whose home state is California and who has received a
certificate or evidence of coverage as set forth in Section 1764 or a
policy as issued by an eligible surplus line insurer, or a person
who is an applicant therefor.
   (g) "IID" means the International Insurers Department of the
National Association of Insurance Commissioners.
   (h) "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 1990 (Chapter 1.5 (commencing with Section 125) of Part 1),
except insurers that are risk retention groups as defined by those
acts.
   (i) "ISI" means Insurance Solvency International.
   (j) "Licensee" means a surplus line broker as defined in Section
47.
   (k) "Multistate risk" means a risk covered by a nonadmitted
insurer with insured exposures in more than one state.
   (l) "NAIC" means the National Association of Insurance
Commissioners or its successor organization.
   (m) "Nonadmitted insurance" means any property and casualty
insurance permitted to be placed directly or through a surplus line
broker with a nonadmitted insurer eligible to accept such insurance.
   (n) "Nonadmitted insurer" means an insurer not licensed or
admitted to engage in the business of insurance in this state in
conformity with Section 700; but does not include a risk retention
group, as that term is defined in Sections 130(k) and 2(a)(4) of the
federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901(a)
(4)).
   (o) "State" means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana
Islands, the Virgin Islands, and American Samoa.
   (p) "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
the penalty of perjury under California law, that the assertions made
in the document are true.
  SEC. 10.  Section 1760.2 is added to the Insurance Code, to read:
   1760.2.  The surplus line broker shall be responsible for
determining whether an applicant for nonadmitted insurance is a
California home state insured. A surplus line broker who reasonably
relies on information provided in good faith by the applicant,
whether directly or through the producer, shall be deemed to be in
compliance with this requirement.
  SEC. 11.  Section 1760.5 of the Insurance Code is amended to read:
   1760.5.  (a) The provisions of this chapter limiting the insurance
that may be placed with nonadmitted insurers and requiring any
report thereof shall not apply to:
   (1) Reinsurance of the liability of an admitted insurer.
   (2) Insurance against perils of navigation, transit or
transportation upon hulls, freights or disbursements, or other
shipowner interests; upon goods, wares, merchandise  ,  and
all other personal property and interests therein, in the course of
exportation from or importation into any country, or transportation
coastwise, including transportation by land or water from point of
origin to final destination and including war risks; and marine
builder's risks, drydocks and marine railways, including insurance of
ship repairer's liability, and protection and indemnity insurance,
but excluding insurance covering bridges or tunnels.
   (3) Aircraft or spacecraft insurance.
   (4) Insurance on property or operations of railroads engaged in
interstate commerce.
   (b) The insurance specified in paragraphs (2), (3), and (4) of
subdivision (a) may be placed with a nonadmitted insurer  for a
home state insured  only by and through a special lines' surplus
line broker. The license of a special lines' surplus line broker
shall be applied for and procured and shall be subject to the same
fees for filing on issuance in the same manner as the license of a
surplus line broker, except that in lieu of the bond required by
Section 1765, there shall be delivered to the commissioner a bond in
the form, amounts, and conditions specified in Sections 1663 and 1665
for an insurance broker and only one fee shall be collected from one
person for both licenses. The licensee in respect to the business
shall be subject to all the provisions of this chapter except
Sections 1761, 1763, 1765.1,  1765.2,  and 1775.5.
   (c) The commissioner may address to any licensed special lines'
surplus line broker 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 specified in
paragraphs (2), (3), or (4) of subdivision (a). 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 in writing the licensee 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   for home state insureds 
with that nonadmitted insurer on behalf of any person. Any placement
with that nonadmitted insurer made by a licensee after receipt of the
order is a violation of this chapter. The commissioner may issue an
order if he or she finds that a nonadmitted insurer with whom the
licensee has dealt or proposes to deal in the transaction of
insurance is in an unsound financial condition, is disreputable, or
is lacking in integrity. The order shall also include notice of a
hearing to be held at a time and place fixed therein, which shall be
not less than 20 nor more than 30 days from service of the order upon
the licensee.
   (d) The commissioner may, in respect to business written or placed
under the provisions of this section, require information and
reports thereof that the commissioner considers necessary,
convenient, or advisable.
   (e) Each placing of insurance in violation of this chapter is a
misdemeanor.
   (f) The commissioner may revoke, suspend, or deny any license
granted pursuant to this code in accordance with the procedure
provided in Article 13 (commencing with Section 1737) of Chapter 5,
or any certificate of authority granted pursuant to this code in
accordance with the procedure provided in Section 704 whenever the
commissioner finds that the licensee or holder of the certificate has
committed a violation of this section.
   (g) The premium for insurance placed by or through a special lines'
surplus line broker pursuant to this section shall not be subject to
the tax imposed upon the broker based upon gross premiums paid for
insurance placed under authority conferred by the license  ,
unless the risk is a multistate risk and premium taxes are taxable
and collectable pursuant to a tax compact agreement  .
   (h) Special lines' surplus line brokers may advertise and solicit
in conformity with Section 1773, except that they are not subject to
the limitation that any nonadmitted insurer's name appearing in the
advertisements or solicitations must be  authorized to accept
placements   eligible  under Section 1765.1.
  SEC. 12.  Section 1760.7 of the Insurance Code is amended to read:
   1760.7.  In addition to the authority granted by Section 1760.5,
the commissioner has the discretion to direct special lines' surplus
line brokers to not place further business  for a home
                                  state insured  with an insurer
whose eligibility has been withdrawn pursuant to Section 1765.1.
  SEC. 13.  Section 1761 of the Insurance Code is amended to read:

   1761.  Except as provided in sections 1760 and 1760.5, a person
within this State shall not transact any insurance on property
located or operations conducted within, or on the lives or persons of
residents of this State with nonadmitted insurers, except by and
through a surplus line broker licensed under this chapter and upon
the terms and conditions prescribed in this chapter. 
    1761.    (a) Except as provided in Sections 1760 and
1760.5, and paragraphs (1) and (2) of subdivision (b), a person
within this state shall not transact any insurance for a home state
insured with nonadmitted insurers, except by and through a surplus
line broker licensed under this chapter and upon the terms and
conditions prescribed in this chapter.  
   (b) (1) 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. 

   (2) 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, 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, claim 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.  
   (3) 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. 
  SEC. 14.  Section 1763 of the Insurance Code is amended to read:
   1763.  (a) A surplus line broker may solicit and place insurance
 for a home state insured  , other than as excepted in
Section 1761, with nonadmitted insurers only if that insurance can
not be procured from insurers admitted for the particular class or
classes of insurance and that actually write the particular type of
insurance in this state. Each surplus line broker shall be
responsible to ensure that a diligent search is made among insurers
that are admitted to transact and are actually writing the particular
type of insurance in this state before procuring the insurance 
for a home state insured  from a nonadmitted insurer. Each
surplus line broker shall file with the commissioner or his or her
designee, within 60 days of placing any insurance  for a home
state insured  with a nonadmitted insurer, a written report,
that shall be kept confidential, regarding the insurance. This report
shall include the name and address of the insured,  verification
that the insured is a home state insured,  the identity of the
insurer or insurers, a description of the subject and location of the
risk, the amount of premium charged for the insurance, a copy of the
declarations page of the policy or a copy of the surplus line broker'
s certificate or binder evidencing the placement of insurance, and
other pertinent information that the commissioner may reasonably
require. In addition, each surplus line broker shall file a
standardized form to be prescribed by the commissioner setting forth
the diligent efforts to place the coverage with admitted insurers and
the results of these efforts. The form shall be signed by a person
licensed under this code who has made the diligent search required by
this section or who supervised an unlicensed person or persons who
actually conducted the search. The insurance shall not be placed with
a nonadmitted insurer for the purpose of procuring a rate lower than
the lowest rate that will be accepted by any admitted insurer except
as provided by subdivision (c). The commissioner may make and
publish reasonable rules and regulations, consistent with this
chapter, in respect to transactions governed thereby and the basis or
bases for his or her determinations hereunder.
   (b) It shall be prima facie evidence that a diligent search among
admitted insurers has been made if the standardized form filed as
required by subdivision (a) establishes that three admitted insurers
that actually write the particular type of insurance in this state
have declined the risk, or that fewer than three admitted insurers
actually write the particular type of insurance. The commissioner, or
his or her designee, may review the form for the accuracy of the
information provided on it, including, but not limited to, whether
the listed insurers actually write that type of insurance, and
whether the three insurers declined the risk. The commissioner may
take disciplinary action against the person signing the form for any
misrepresentation made in the form due to the negligence of or the
result of an intentional act by that person or the person or persons
who actually conducted the search. Those actions may include any
action authorized to be taken against a licensed person by this code.
Nothing in this subdivision shall preclude the commissioner or his
or her designee from directing the surplus line broker to conduct a
further or additional search among admitted insurers for similar
placements in the future.
   (c) It shall be conclusively presumed that insurance is placed in
violation of this section if the insurance is actually placed with a
nonadmitted insurer at a lower rate of premium or lower premium than
the lowest rate of premium or the lowest premium that could be
obtained from an admitted insurer unless, at the time the insurance
attaches, there is filed with the commissioner a statement describing
the insurance, specifying the rate and the nearest procurable rates
from admitted insurers. The statement shall include an explanation of
the reasons that the insurance must be placed with a nonadmitted
insurer even though it is available from an admitted insurer. Unless
the commissioner, or his or her designee, within five days after that
filing notifies the filing broker that in his or her opinion the
placing of the insurance constitutes a violation of this section, the
broker may thereafter maintain in effect that insurance. If within
that five-day period the commissioner notifies the surplus line
broker that the insurance is in violation of this section and orders
the broker to effect termination of that insurance within 10 days
from the notice, and the broker fails or refuses to effect that
termination, that failure or refusal is a violation of this section.
   (d) Statements filed under this section are not subject to public
inspection unless the commissioner determines that the public
interest or the welfare of the filing broker requires that any
statement be made public.
   (e) For purposes of this section, "type of insurance" means the
hazard or combination of hazards covered by a contract of insurance.
   (f) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state  to a home state
insured  by a nonadmitted Mexican insurer by and through a
surplus line broker affording coverage exclusively in the Republic of
Mexico on property located temporarily or permanently in, or
operations conducted temporarily or permanently within, the Republic
of Mexico.
   (g) This section does not apply to the extension of coverage by a
nonadmitted insurer, of or for the same risks, and to the same
insured under an existing surplus lines policy. Such an extension may
not exceed 90 days in the aggregate during any 12-month period. The
extension may not include a change in coverage, terms, and
conditions, or limits. Any additional premium charged for the
extension shall be determined pro rata, based on the same rate of
premium as the existing surplus lines policy. 
   (h) (1) The diligent search requirement set forth in subdivision
(a) shall not apply to a commercial insured as defined in subdivision
(b) of Section 1760.1 when both of the following occur:  
   (A) The surplus line broker procuring or placing the surplus line
insurance has disclosed in writing to the commercial insured that
surplus insurance may or may not be available from the admitted
market that may provide greater protection with more regulatory
oversight.  
   (B) The commercial insured has subsequently requested in writing
that the surplus line broker procure or place surplus insurance from
a nonadmitted insurer.  
   (2) The surplus line broker shall be responsible to ensure that
the applicant is a commercial insured. A surplus line broker who
reasonably relies on information provided in good faith by the
applicant, whether directly or through a producer, shall be deemed to
be in compliance with this requirement. 
  SEC. 15.  Section 1763.1 of the Insurance Code is amended to read:
   1763.1.  (a) The commissioner may by order declare 
eligible   permissible  for placement  for a
home state insured  with a nonadmitted insurer and exempt from
all requirements of Section 1763 except the filing of a confidential
written report, any type of insurance coverage or risk for which he
or she finds, after a public hearing, that there is not a reasonable
or adequate market among admitted insurers. The commissioner or his
or her designee shall maintain an export list showing all those
exempt coverages and risks. A public hearing shall be held annually
or more often at the commissioner's discretion and reasonable notice
of a hearing shall be given to all interested parties including
surplus line brokers, admitted insurers, trade associations
representing admitted insurers, agents and brokers, and consumer
groups. The hearing shall not be required to be conducted in
accordance with Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code. Any such order by
the commissioner shall continue in effect until terminated by the
commissioner. Where the commissioner receives written comments or
testimony or otherwise determines, prior to a hearing that a type of
insurance on the export list is more available in the admitted market
the commissioner may remove the type of insurance from the list. The
 eligibility   permissibility  of any type
of insurance to remain on the list is subject to an annual
affirmative finding by the commissioner, however, when written
comment or testimony is received prior to a hearing, the 
eligibility   permissibility  of that type of
insurance to remain on the export list shall be reviewed at the next
hearing and that type of insurance may not remain on the export list
without an affirmative decision by the commissioner or his or her
designee that there is not a reasonable or adequate market among
admitted insurers. The commissioner or his or her designee shall
notify all surplus line brokers of any removal. For purposes of this
section, the commissioner shall not be authorized to include on the
export list as  eligible   permissible  for
placement with a nonadmitted insurer, automobile or motor vehicle
liability insurance, insurance on residential property, as defined
under Section 10087, or any insurance written by the California FAIR
plan.
   (b) The surplus line advisory organization authorized by Chapter
6.1 (commencing with Section 1780.50) shall pay the costs for a
maximum of two public hearings per year held by the commissioner or
his or her designee pursuant to this section.
   (c) Except for the removal of a type of insurance from the export
list pursuant to subdivision (a), nothing in this section shall
authorize the commissioner to declare any type of insurance 
ineligible   impermissible  for exportation.
  SEC. 16.  Section 1764.1 of the Insurance Code is amended to read:
   1764.1.  (a) (1) Every nonadmitted insurer, in the case of
insurance to be purchased by a  resident of this state
  home state insured  pursuant to Section 1760, and
surplus line broker, in the case of any insurance with a nonadmitted
carrier  for a home state insured  to be transacted by the
surplus line broker, shall be responsible to ensure that, at the time
of accepting an application for an insurance policy, other than a
renewal of that policy, issued by a nonadmitted insurer, the
signature of the applicant on the disclosure statement set forth in
subdivision (b) is obtained. In fulfillment of this responsibility,
the nonadmitted insurer and the surplus line broker may rely, if it
is reasonable under all the circumstances to do so, on the disclosure
statement received from a licensee involved in the transaction as
prima facie evidence that the disclosure statement and appropriate
signature from the applicant have been obtained. The surplus line
broker shall maintain a copy of the signed disclosure statement in
his or her records for a period of at least five years. These records
shall be made available to the commissioner and the insured upon
request. This disclosure shall be signed by the applicant, and is not
subject to any limited power of attorney agreement between the
applicant and an agent or broker, or a surplus line broker. The
disclosure statement shall be in boldface 16-point type on a
freestanding document. In addition, every policy issued by a
nonadmitted insurer and every certificate evidencing the placement of
insurance shall contain, or have affixed to it by the insurer or
surplus line broker, the disclosure statement set forth in
subdivision (b) in boldface 16-point type on the front page of the
policy.
   (2) In a case in which the applicant has not received and
completed the signed disclosure form required by this section, he or
she may cancel the insurance so placed. The cancellation shall be on
a pro rata basis as to premium, and the applicant shall be entitled
to the return of any broker's fees charged for the placement.
   (b) The following notice shall be provided to 
policyholders   home state insureds  and  home
state insured  applicants for insurance as provided by
subdivision (a), and shall be printed in English and in the language
principally used by the surplus line broker and nonadmitted insurer
to advertise, solicit, or negotiate the sale and purchase of surplus
line insurance. The surplus line broker and nonadmitted insurer shall
use the appropriate bracketed language for application and issued
policy disclosures:

      "NOTICE:

   1. THE INSURANCE POLICY THAT YOU HAVE PURCHASED] ARE APPLYING TO
PURCHASE] IS BEING ISSUED BY AN INSURER THAT IS NOT LICENSED BY THE
STATE OF CALIFORNIA. THESE COMPANIES ARE CALLED "NONADMITTED" OR
"SURPLUS LINE" INSURERS.
   2. THE INSURER IS NOT SUBJECT TO THE FINANCIAL SOLVENCY REGULATION
AND ENFORCEMENT THAT APPLY TO CALIFORNIA LICENSED INSURERS.
   3. THE INSURER DOES NOT PARTICIPATE IN ANY OF THE INSURANCE
GUARANTEE FUNDS CREATED BY CALIFORNIA LAW. THEREFORE, THESE FUNDS
WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE INSURER
BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED.

   4. CALIFORNIA MAINTAINS A LIST OF ELIGIBLE SURPLUS LINE INSURERS
APPROVED BY THE INSURANCE COMMISSIONER. ASK YOUR AGENT OR BROKER IF
THE INSURER IS ON THAT LIST, OR VIEW THAT LIST AT THE INTERNET WEB
SITE OF THE CALIFORNIA DEPARTMENT OF INSURANCE: www.insurance.ca.gov.
 
   5. FOR ADDITIONAL INFORMATION ABOUT THE INSURER, YOU SHOULD ASK
QUESTIONS OF YOUR INSURANCE AGENT, BROKER, OR "SURPLUS LINE" BROKER
OR CONTACT THE CALIFORNIA DEPARTMENT OF INSURANCE, AT THE FOLLOWING
TOLL-FREE TELEPHONE NUMBER: ____.  
   4. THE INSURER SHOULD BE LICENSED EITHER AS A FOREIGN INSURER IN
ANOTHER STATE IN THE UNITED STATES OR AS A NON-UNITED STATES (ALIEN)
INSURER. YOU SHOULD ASK QUESTIONS OF YOUR INSURANCE AGENT, BROKER, OR
"SURPLUS LINE" BROKER OR CONTACT THE CALIFORNIA DEPARTMENT OF
INSURANCE AT THE FOLLOWING TOLL-FREE TELEPHONE NUMBER____. ASK
WHETHER OR NOT THE INSURER IS LICENSED AS A FOREIGN OR NON-UNITED
STATES (ALIEN) INSURER AND FOR ADDITIONAL INFORMATION ABOUT THE
INSURER. YOU MAY ALSO CONTACT THE NAIC'S INTERNET WEB SITE AT
WWW.NAIC.ORG.  
   5. FOREIGN INSURERS SHOULD BE LICENSED BY A STATE IN THE UNITED
STATES AND YOU MAY CONTACT THAT STATE'S DEPARTMENT OF INSURANCE TO
OBTAIN MORE INFORMATION ABOUT THAT INSURER.  
   6. FOR NON-UNITED STATES (ALIEN) INSURERS, THE INSURER SHOULD BE
LICENSED BY A COUNTRY OUTSIDE OF THE UNITED STATES AND SHOULD BE ON
THE NAIC'S INTERNATIONAL INSURERS DEPARTMENT (IID) LISTING OF
APPROVED NONADMITTED NON-UNITED STATES INSURERS. ASK YOUR AGENT,
BROKER, OR "SURPLUS LINE" BROKER TO OBTAIN MORE INFORMATION ABOUT
THAT INSURER.  
   7. CALIFORNIA MAINTAINS A LIST OF APPROVED SURPLUS LINE INSURERS.
ASK YOUR AGENT OR BROKER IF THE INSURER IS ON THAT LIST, OR VIEW THAT
LIST AT THE INTERNET WEB SITE OF THE CALIFORNIA DEPARTMENT OF
INSURANCE: WWW.INSURANCE.CA.GOV.  
   6. 
    8.  IF YOU, AS THE APPLICANT, REQUIRED THAT THE
INSURANCE POLICY YOU HAVE PURCHASED BE BOUND IMMEDIATELY, EITHER
BECAUSE EXISTING COVERAGE WAS GOING TO LAPSE WITHIN TWO BUSINESS DAYS
OR BECAUSE YOU WERE REQUIRED TO HAVE COVERAGE WITHIN TWO BUSINESS
DAYS, AND YOU DID NOT RECEIVE THIS DISCLOSURE FORM AND A REQUEST FOR
YOUR SIGNATURE UNTIL AFTER COVERAGE BECAME EFFECTIVE, YOU HAVE THE
RIGHT TO CANCEL THIS POLICY WITHIN FIVE DAYS OF RECEIVING THIS
DISCLOSURE. IF YOU CANCEL COVERAGE, THE PREMIUM WILL BE PRORATED AND
ANY BROKER'S FEE CHARGED FOR THIS INSURANCE WILL BE RETURNED TO YOU."


   (c) When a contract is issued to an industrial insured neither the
nonadmitted insurer nor the surplus line broker is required to
provide the notice required in this section except on the
confirmation of insurance, the certificate of placement, or the
policy, whichever is first provided to the insured, nor is the
insurer or surplus line broker required to obtain the insured's
signature. The producer shall ensure that the notice affixed to the
confirmation of insurance, certificate of placement, or the policy is
provided to the insured. The producer shall insert the current
toll-free telephone number of the Department of Insurance as provided
in paragraph 5 of the notice.
   (1) An industrial insured is an insured:
   (A) Which employs at least 25 employees on average during the
prior 12 months; and
   (B) Which has aggregate annual premiums for insurance for all
risks other than workers' compensation and health coverage totaling
no less than twenty-five thousand dollars ($25,000); or
   (C) Which obtains insurance through the services of a full-time
employee acting as an insurance manager or a continuously retained
insurance consultant. A "continuously retained insurance consultant"
does not include: (i) an agent or broker through whom the insurance
is being placed, (ii) a subagent or subproducer involved in the
transaction, or (iii) an agent or broker that is a business
organization employing or contracting with a person mentioned in
clauses (i) and (ii).
   (2) The surplus line broker shall be responsible to ensure that
the applicant is an industrial insured. A surplus line broker who
reasonably relies on information provided in good faith by the
applicant, whether directly or through the producer, shall be deemed
to be in compliance with this requirement.
   (d) For purposes of compliance with the requirement of subdivision
(a) that the signature of the applicant be obtained, the following
shall apply:
   (1) If the insurance transaction is not conducted at an in-person,
face-to-face meeting, the applicant's signature on the disclosure
form may be transmitted by the applicant to the agent or broker via
facsimile or comparable electronic transmittal.
   (2) In the case of commercial lines coverage, or personal
insurance coverage subject to Section 675 and any umbrella coverage
associated therewith, where an applicant requires that insurance
coverage be bound immediately, either because existing coverage will
lapse within two business days of the time the insurance is bound or
because the applicant is required to have coverage in place within
two business days, and the applicant cannot meet in person with the
agent or broker to sign the disclosure form, the agent or broker may
obtain the signature of the applicant within five days of binding
coverage, provided that the applicant may cancel the insurance so
placed within five days of receiving the disclosure form from the
agent or broker. The cancellation shall be on a pro rata basis, and
the applicant shall be entitled to the rescission or return of any
broker's fees charged for the placement. When a policy is canceled,
the broker shall inform the applicant that the broker's fee must be
returned and that the premium must be prorated.
   (e) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state by a nonadmitted
Mexican insurer by and through a surplus line broker affording
coverage exclusively in the Republic of Mexico on property located
temporarily or permanently in, or operations conducted temporarily or
permanently within, the Republic of Mexico.
  SEC. 17.  Section 1764.2 of the Insurance Code is amended to read:
   1764.2.  No surplus line broker shall issue any evidence of
insurance or cause or purport to cause any risk to be insured by a
nonadmitted insurer or advise any  home state  insured or
 home state insured  applicant for insurance that coverage
has been or will be obtained from a nonadmitted insurer unless:
   (a) The broker has prior written authority from the nonadmitted
insurer to cause the risk to be insured;
   (b) The broker has received advice in the ordinary course of
business that the coverage has been obtained; or
   (c) A policy of insurance covering the insured for the risk has
actually been issued by the nonadmitted insurer and delivered to the
insured or his or her representative.
  SEC. 18.  Section 1764.3 of the Insurance Code is amended to read:
   1764.3.  If the surplus line broker acts in reliance on advice
received in accordance with subdivision (b) of Section 1764.2, the
broker shall deliver the policy to the  home state  insured
or his or her representative, and, if the delivery is not made within
30 days after the date of the issuance of the certificate or upon
which the risk has been bound or the  home state  insured or
 the home state insured  applicant has been advised that
coverage has been or will be obtained, he or she shall deliver to the
insured either of the following:
   (a) A photostatic copy of evidence that the insurance has been
bound.
   (b) If the nonadmitted insurer is located outside the United
States, a cover note, placing slip or similar document evidencing
coverage issued or certified to by any broker located outside the
United States who actually placed that insurance with the nonadmitted
insurer.
  SEC. 19.  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  for a home state insured  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   the requirements of either
subdivision (a) or (b)  : 
   (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
forty-five million dollars ($45,000,000). "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
twenty-five million dollars ($25,000,000) 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 the capital and surplus
together total less than forty-five million dollars ($45,000,000),
the commissioner shall have 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. If a nonadmitted insurer that
is on the list of eligible surplus line insurers, as provided in
subdivision (f), does not meet the capital and surplus requirements
on January 1, 2011, that insurer shall have at least thirty million
dollars ($30,000,000) of capital and surplus as of December 31, 2011,
and at least forty-five million dollars ($45,000,000) of capital and
surplus as of December 31, 2013.  
   (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 twenty-five million dollars
($25,000,000) 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. 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 forty-five million dollars ($45,000,000). 

   (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) 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, 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.
 
   (a) If the insurer is domiciled in one of the states of the United
States or its territories as defined in subdivision (o) of Section
1760.1:  
   (1) Is licensed to write the type of insurance in its domiciliary
jurisdiction; and  
   (2) (A) Has capital and surplus that together total forty-five
million dollars ($45,000,000).  
   (B) The requirements of subparagraph (A) may be satisfied by an
insurer possessing less than forty-five million dollars ($45,000,000)
upon an affirmative finding of acceptability by the commissioner.
The finding shall be based upon factors such as quality of
management, capital and surplus of any parent company, company
underwriting profit and investment income trends, market
availability, and company record and reputation within the industry.
The commissioner is prohibited from making an affirmative finding of
acceptability when the foreign insurer's capital and surplus is less
than four million five hundred thousand dollars ($4,500,000); or
 
   (C) If a foreign insurer that was listed as an eligible surplus
line insurer as of January 1, 2011, and did not have the forty-five
million dollars ($45,000,000) of capital and surplus as of January 1,
2011, that insurer shall have at least thirty million dollars
($30,000,000) of capital and surplus as of December 31, 2011, and at
least forty-five million dollars ($45,000,000) of capital and surplus
as of December 31, 2013.  
   (b) If the insurer is not domiciled in one of the states of the
United States or its territories as defined in subdivision (o) of
Section 1760.1, the insurer is listed on the Quarterly Listing of
Alien Insurers maintained by the NAIC International Insurers
Department (IID) and is licensed as an insurer in its domiciliary
jurisdiction.  
   (c) Has caused to be provided to the commissioner the following:
 
   (1) A certificate of capital and surplus issued by the insurer's
domiciliary jurisdiction.  
   (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) Notice, if applicable, that the insurer or licensee 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 notice shall identify
the proceeding by date, jurisdiction, and relief or sanction sought,
and shall attach a copy of the relevant order.  
   (6) 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) Has provided any additional information or documentation
required by the commissioner that pertains to the requirements of
this section or the NAIC review of the insurer including for purposes
of inclusion on or exclusion from the list of authorized nonadmitted
insurers maintained by the NAIC.  
   (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 confirm that the insurer holds a license to
issue insurance policies, other than reinsurance, to residents of the
jurisdiction that granted the license.  
   (4) The information available to the commissioner shall not
indicate that the insurer offers to a home state insured products or
rates that violate any provision of this code.  
   (f) If at any time the commissioner determines that an insurer is
no longer eligible pursuant to subdivision (a) or (b), the
commissioner may issue an order without prior notice and hearing. At
the time an order is issued pursuant to this subdivision to an
insurer, the commissioner shall notify all surplus line brokers of
the order.  
   (g) The commissioner may require, at least annually, the
submission of records and statements as are reasonably necessary to
ensure that the requirements of this section are maintained. 

   (h) The commissioner shall establish by regulation a schedule of
fees to cover costs of administering and enforcing this chapter.
 
   (i) (1) Insurance may be placed on a limited basis with insurers
not eligible 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 are 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 ineligible 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 ineligible insurer, and
annually thereafter for as long as the broker continues to make
placements with the ineligible 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 ineligible insurer has for any reason been objected to by
the commissioner pursuant to this section or become ineligible.

   (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) Ineligible 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 eligible pursuant to this
section, whether the insured is an individual insured, or a group
created primarily for the purpose of purchasing insurance.  

   (j) With respect to a nonadmitted insurer that is listed as an
eligible surplus line insurer as of July 21, 2011, pursuant to the
former Section 1765.1 as it read prior to July 21, 2011, this section
shall not be effective until the subsequent expiration of the
policies of that insurer in effect on July 21, 2011. Nothing in the
bill that amended this section during the 2011 portion of the 2011-12
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. 
  SEC. 20.  Section 1765.2 of the Insurance Code is amended to read:

   1765.2.  (a) A license under this chapter may be issued to an
individual or any legal business entity. If issued to a business
entity or individual that maintains more than one surplus line office
from which it transacts that business with California residents, it
shall name the natural person or persons located at each such surplus
line office maintained by the licensee who is or are to be
responsible for the proper discharge at each office of all duties
placed upon the licensee acting as a surplus line broker and each of
these natural persons must be licensed as a surplus line broker. Each
natural person shall meet all of the requirements for the license.
   (b) Every application for a license filed by a corporation shall
contain the names and addresses of all stockholders owning 10 percent
or more of the corporation's stock, and of all officers and
directors of the corporation. Every licensed corporation shall file a
written notice with the commissioner of all changes, except address
changes, of its stockholders who own 10 percent or more of the
corporation's stock and of all officers and directors of the
corporation. 
    1765.2.    A surplus line broker may place any
coverage with a California approved nonadmitted insurer if 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, if 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
forty-five million dollars ($45,000,000). "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
twenty-five million dollars ($25,000,000) 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 capital and surplus
                                         together total less than
forty-five million dollars ($45,000,000), 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 twenty-five million dollars
($25,000,000) 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. 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
forty-five million dollars ($45,000,000).  
   (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). 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 approved 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 approval 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) Unless available from the NAIC or other public source, 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 Insurance Solvency International 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 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 approved 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 approved 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 approved 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 approval. Upon receipt of
notice, the surplus line broker shall no longer advertise that the
insurer is approved. Nothing in this subdivision shall limit the
commissioner's discretion to withdraw an insurer's approval. 

   (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 approval 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 a home
state insured or home state insured applicant 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 with a home state insured. 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, advise the licensee
in writing that such insurer does not qualify as an approved insurer.
Any placement in the nonadmitted insurer made by a licensee after
receipt of that advisement shall be accompanied by a copy of such
advisement. The commissioner may issue an advisement 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, and shall be authorized to not
include or remove that insurer from the List of Approved Surplus Line
Insurers.  
   (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.

  SEC. 21.  Section 1765.3 of the Insurance Code is amended to read:

   1765.3.  Any natural person applying for a license to act as a
surplus line broker shall prove his or her competency by showing he
or she holds an existing license to act as a fire and casualty
broker-agent, which requires passing the qualifying examination for
such an insurance broker's license. 
    1765.3.    (a) A license under this chapter may be
issued to an individual or any legal business entity. If issued to a
business entity or individual that maintains more than one surplus
line office from which it transacts that business with California
residents, it shall name the natural person or persons located at
each such surplus line office maintained by the licensee who is or
are responsible for the proper discharge at each office of all duties
placed upon the licensee acting as a surplus line broker and each of
these natural persons are required to be licensed as a surplus line
broker. Each natural person shall meet all of the requirements for
the license.  
   (b) Every application for a license filed by a corporation shall
contain the names and addresses of all stockholders owning 10 percent
or more of the corporation's stock, and of all officers and
directors of the corporation. Every licensed corporation shall file a
written notice with the commissioner of all changes, except address
changes, of its stockholders who own 10 percent or more of the
corporation's stock and of all officers and directors of the
corporation. 
  SEC. 22.  Section 1765.4 of the Insurance Code is amended to read:

   1765.4.  If an applicant for any license under this chapter,
within one year from the date of the receipt by the commissioner of
the application, whether or not the filing is complete, neither fully
qualifies for and receives such license on a permanent basis, nor is
denied its issue, such application is automatically denied without
prejudice to the filing of a new application for such license.

    176   5.4.    Any natural person applying
for a license to act as a surplus line broker shall prove his or her
competency by showing he or she holds an existing license to act as a
property broker-agent or casualty broker-agent, which requires
passing the qualifying examination for such an insurance broker's
license. 
  SEC. 23.  Section 1765.5 is added to the Insurance Code, to read:
   1765.5.  If an applicant for any license under this chapter,
within one year from the date of the receipt by the commissioner of
the application, whether or not the filing is complete, neither fully
qualifies for and receives that license on a permanent basis, nor is
denied its issue, such application is automatically denied without
prejudice to the filing of a new application for the license.
  SEC. 24.  Section 1766 of the Insurance Code is amended to read:
   1766.  A payment of premium to a surplus line broker acting for a
person other than himself or herself in negotiating, continuing, or
renewing any policy of insurance under this chapter shall be deemed
to be payment to the insurer, notwithstanding any conditions or
stipulations in the policy or contract. Nothing in this section shall
be deemed to relieve a surplus line broker or special lines' surplus
line broker of any obligation owed to  an   a
home state  insured or  home state insured  applicant.
  SEC. 25.  Section 1768 of the Insurance Code is amended to read:
   1768.  A resident surplus line broker shall keep in this state
complete records of the business transacted by him or her with
nonadmitted insurers under his or her license as a surplus line
broker  including the following documentation for each policy:
(a) verification that the insured is a California home state insured;
(b) verification that the commercial insured or industrial insured
qualifies for the provisions of this code; (c) whether or not it is a
single state policy or multistate policy; and (d) data as necessary
to allocate the premium taxes owed to the states and risk of loss as
may be required pursuant to a compact  . A nonresident surplus
line broker shall keep in the state where he or she is licensed as a
resident surplus line broker complete records of the business
transacted by him or her with nonadmitted insurers under his or her
California nonresident surplus line broker license. After notice and
hearing, the commissioner shall promulgate reasonable rules and
regulations specifying the manner and type of records to be
maintained by surplus line brokers and the location or locations
where those records shall be kept.
  SEC. 26.  Section 1774 of the Insurance Code is amended to read:
   1774.  (a) On or before the first day of March of each year the
surplus line broker  , placing business for a home state insured
or the home state insured that directly procures insurance pursuant
to Section 1760,  shall file with the commissioner a sworn
statement of all business transacted under his or her surplus line
license during the last preceding calendar year. Such statement shall
contain an account of the business done by the surplus line broker
 for the prior year   placing business for a
home state insured or the home   state insure   d
that directly procures insurance pursuant to Section 1760 for the
prior year, and shall include (1) the total amount of premium for
business conducted; (2) the total premium for single state risks
where 100 percent of the premium is attributable to risks in
California; and (3) for multistate risks, the percentage of premium
allocated to California and each other state  . 
   (b) For purposes of this chapter, "business done" or "business
transacted" under a surplus line broker's license means all insurance
regarding which that surplus line broker is required to file a
confidential written report with the commissioner or the commissioner'
s designee pursuant to subdivision (a) of Section 1763. If two or
more persons licensed as surplus line brokers are involved in placing
a policy, only the one who is responsible for negotiating, effecting
the placement, remitting the premium to the nonadmitted insurer or
its representatives and filing the confidential written report
pursuant to subdivision (a) of Section 1763, shall be considered
transacting under his or her surplus line broker's license. 

   (b) For purposes of this section, "business done" or "business
transacted" means all insurance business conducted by the surplus
line broker for a home state insured or directly procured by the home
state insured. If two or more persons licensed as surplus line
brokers are involved in placing a policy, only the one who is
responsible for negotiating, effecting the placement, and remitting
the premium to the nonadmitted insurer or its representatives, shall
be considered transacting business. 
   (c) The date on which the surplus line broker transacting a policy
prepares a bill or invoice for payment of all or part of the
premiums due, shall be considered the date on which that business was
done or transacted, subject to paragraph (d). This date shall be
shown on the face of the bill or invoice and shall be referred to as
the "invoice date."
   (d) (1) The invoice date shall be no more than 60 days after the
policy effective date and no more than 60 days after the insurance
was placed with a nonadmitted insurer, except as provided in
paragraph (2) of this section.
   (2) For purposes of this chapter, the amount of gross premium to
be reported, if premiums are billed and payable in installments,
shall be the amount of the installment premium, provided the amount
and due date of each installment, or the basis for determining each
installment, is identifiable in the policy or an endorsement, and
either of the following conditions is satisfied:
   (A) Installments under the policy are not billed more frequently
than once per month.
   (B) If more than one installment is billed in any month, the
commissioner determines, in his or her discretion, that the
installment billing method used does not unduly burden the
commissioner's ability to accurately determine the amount of premium
paid by the insured.
  SEC. 27.  Section 1774.1 is added to the Insurance Code, to read:
   1774.1.  The Board of Equalization and the Franchise Tax Board,
with the approval of the Department of Finance, may, on behalf of the
state, become a party to a reciprocal surplus line premium tax
compact or agreement between the state and another jurisdiction or an
agency thereof that is authorized to enter into an agreement
providing for the administration, collection, and enforcement by a
party to the agreement of the taxes imposed on multistate risks as
defined in subdivision (k) of Section 1760.1 as set forth in Section
13215 of the Revenue and Taxation Code.
  SEC. 28.  Section 1775.1 of the Insurance Code is amended to read:
   1775.1.  (a) For the calendar year 1995, and each calendar year
thereafter, every surplus line broker whose annual tax for the
preceding calendar year was five thousand dollars ($5,000) or more
shall make monthly installment payments on account of the annual tax
on business done during the current calendar year imposed by Section
1775.5  , unless otherwise required pursuant to a tax compact
agreement as may be agreed to by the State Board of Equalization
 .
   (b) Notwithstanding any other provision, the commissioner may
relieve a surplus line broker of his or her obligation to make
monthly payments where the broker establishes to the satisfaction of
the commissioner that either the broker has ceased to transact
business in this state, or his or her annual tax for the current year
will be less than five thousand dollars ($5,000).
  SEC. 29.  Section 1775.3 of the Insurance Code is amended to read:
   1775.3.  Each surplus line broker required to make monthly
installment payments shall remit them on or before the first day of
the third calendar month following the end of the accounting month in
which the business was done  , unless otherwise required
pursuant to a tax compact agreement as may be agreed to by the State
Board of Equalization  . The annual payment under Section 1775.5
shall be in lieu of an installment payment under this section for
the accounting month of December. Remittances for those payments
shall be made payable to the commissioner and shall be made by
electronic fund transfer in accordance with Section 1775.8 or
delivered to the office of the commissioner, accompanied by an
installment payment form prescribed by the commissioner if remittance
by electronic fund transfer is not mandatory under Section 1775.8.
  SEC. 30.  Section 1775.4 of the Insurance Code is amended to read:
   1775.4.  (a) The amount of the payment shall be 3 percent of the
gross premiums  charged, unless a different rate is required
pursuant to a tax compact agreement,  less return premiums upon
business done by the surplus line broker  under the authority
of his or her license  during the calendar month ending two
calendar months immediately preceding the due date of the payment,
as specified in Section 1775.3, excluding gross premiums and return
premiums paid by him or her upon business governed by the provisions
of Section 1760.5. If during any calendar month those return premiums
upon business done by a surplus line broker exceed the gross
premiums upon the business done by him or her in that calendar month,
then no payment shall be payable by him or her in respect to that
calendar month, and he or she may carry forward that excess to the
next succeeding calendar month or months and apply it in reduction of
the taxable premiums on business done by him or her in that
succeeding calendar month or months. Even though no payment shall be
payable by the broker, he or she shall file a return showing that his
or her return premiums exceeded his or her gross premiums.
   (b) In determining the applicability of subdivision (a) of Section
1775.1 to a surplus line broker who has acquired the business of
another surplus line broker, the amount of tax liability of the
acquired broker for the immediately preceding calendar year shall be
added to the amount of the tax liability of the acquiring broker for
the immediately preceding calendar year.
   (c) All amounts paid, other than penalties and interest, shall be
allowed as a credit on the annual tax imposed by Section 1775.5.
   (d) If the total amount of monthly installment payments for any
calendar year exceeds the amount of annual tax for that year, the
excess shall be treated as an overpayment of annual tax and be
allowed as a credit or refund  , unless otherwise required
pursuant to a tax compact agreement as may be agreed to by the State
Board of Equalization  .
   (e) A penalty of 10 percent of the amount of the monthly payment
due shall be levied upon and paid by any surplus line broker who
fails to make the necessary payment within the time required, plus
interest at the rate of 1 percent per calendar month or fraction
thereof from the due date of the payment until the date payment is
received by the commissioner, but not for any period after the due
date of the annual tax. The penalty and interest shall be applied as
prescribed in Section 12636.5 of the Revenue and Taxation Code. The
commissioner may remit the penalty in a case where he or she finds,
as a result of examination or otherwise, that the failure of, or
delay in, payment arose out of excusable mistake or excusable
inadvertence.
   (f) For any part of a payment required that was not made within
the time required by law, when the nonpayment or late payment was due
to fraud on the part of the taxpayer, a penalty of 25 percent of the
amount unpaid shall be added thereto, in addition to all other
penalties otherwise imposed.
   (g) The commissioner, upon a showing of good cause, may extend for
not to exceed 10 days the time for making a monthly payment. The
extension may be granted at any time, provided that a request
therefor is filed with the commissioner within or prior to the period
for which the extension may be granted. Any surplus line broker to
whom an extension is granted shall, in addition to the monthly
payment, pay interest at the rate of 1 percent per month, or fraction
thereof, from the due date until the annual tax due date.
  SEC. 31.  Section 1775.5 of the Insurance Code is amended to read:
   1775.5.  (a) Every surplus line broker shall annually, on or
before the first day of March of each year  ,  pay to the
Insurance Commissioner for the use of the State of California a tax
of 3 percent of the gross premiums  charged, unless a different
rate is required pursuant to a tax compact agreement,  less
return premiums upon business done by him or her under authority of
his or her license during the preceding calendar year, excluding any
portions of premiums upon business done involving the risk finance
portion of any blended finite risk product used in the financing
element of state or federal Superfund environmental settlements
involving remediation of soil or groundwater contamination or by the
provisions of Section 1760.5. If during any calendar year 3 percent
of such return premiums upon business done by a surplus line broker
exceed 3 percent of the gross premiums upon such business done by him
or her in that year, then he or she may either carry forward such
excess to the next succeeding year and apply it as a credit against 3
percent of gross premiums on such business done by him or her in
such succeeding year, or he or she may elect to receive, and
thereupon be paid a refund equal to the amount of taxes theretofore
paid by him or her on such excess of return premiums paid over gross
premiums received.
   (b) For the purpose of determining such tax, the total premium
charged for all such nonadmitted insurance placed in a single
transaction with one underwriter or group of underwriters, whether in
one or more policies, shall be  allocated to this state in
such proportion as the total premium on the insured properties or
operations in this state, as computed on the exposure in this state
on the basis of any single standard rating method in use in all
states or countries where such insurance applies, bears to the total
premium so computed in all states or countries in which such
nonadmitted insurance may apply   the entire premium
charged on all nonadmitted insurance for the California home state
insured  . This provision shall not apply to interstate motor
transit operations conducted between this and other states. With
respect to such operations surplus line tax shall be payable on the
entire premium charged on all nonadmitted insurance, less the
following:
   (1) Such portion of the premium as is determined, as herein
provided, to have been charged for operations in other states taxing
such premium on operations in such states of an insured maintaining
its headquarters office in this state.
   (2) The premium for any operations outside of this state of an
insured who maintains a headquarters operating office outside of this
state and a branch office in this state.
   (c) A penalty of 10 percent of the amount of the payment due
pursuant to this section shall be levied upon and paid by any surplus
line broker who fails to make the necessary payment within the time
required, plus interest at the rate of 1 percent per calendar month
or fraction thereof, from March 1, the due date of the annual tax,
until the date the payment is received by the commissioner  or as
may be otherwise required pursuant to a tax compact agreement as may
be agreed to by the State Board of Equalization  . The penalty
and interest shall be applied as prescribed in Section 12636.5 of the
Revenue and Taxation Code. The commissioner, upon a showing of good
cause, may extend for a period not to exceed 30 days, the time for
filing a tax return or paying any amount required to be paid with the
return. The extension may be granted at any time, provided that a
request therefor is filed with the commissioner within, or prior to,
the period for which the extension may be granted.
   Any surplus line broker to whom an extension is granted shall, in
addition to the tax, pay interest at the rate of 1 percent per month
or fraction thereof from March 1, until the date of payment. The
commissioner may remit the penalty in a case where the commissioner
finds, as a result of examination or otherwise, that the failure of
or delay in payment arose out of excusable mistake or excusable
inadvertence.
   (d) For any part of a payment required by this section or by
Section 1775.4 which was not made within the time required by law,
when such nonpayment or late payment was due to fraud on the part of
the broker, a penalty of 25 percent of the amount unpaid shall be
added thereto, in addition to all other penalties otherwise imposed.
   (e) For the purposes of this section these terms shall have the
following meanings:
   (1) "Blended finite risk product" means a contractual arrangement
combining risk finance with traditional risk transfer, where a
distinct portion of the program cost represents the funding of a
known, existing, nonfortuitous future cost, obligation,
responsibility, or liability at its discounted net present value, and
another portion of the program cost represents risk transfer for
losses which have yet to occur related to the cost, obligation,
responsibility, or liability that is the subject of the program.
   (2) "Risk financing" means that portion of any blended finite risk
product which represents the funding of a known, existing,
nonfortuitous future cost, obligation, responsibility, or liability.
   (3) "Risk finance" or "financing element" means a method of
funding for a known future cost over a long time horizon in
current-value dollars using the principle of net present value
discounting.
  SEC. 32.  Section 1780.56 of the Insurance Code is amended to read:

   1780.56.  (a) The commissioner may delegate one or more of the
following duties to a qualified surplus line advisory organization
under this chapter:
   (1) To receive, review, and record all documents required by law,
regulation, or order to be filed with the commissioner or his or her
designee with respect to foreign and alien nonadmitted insurers and
any insurance placed with nonadmitted insurers, except that the
advisory organization shall not receive documents submitted pursuant
to subdivision (c) of Section 1763. The review under this subdivision
shall be for completeness, accuracy, and any other matters the
commissioner reasonably may direct the advisory organization to
review. The advisory organization shall notify the filing surplus
line broker in writing of any filing that the advisory organization
determines to be incomplete or inaccurate, and shall request the
filing broker to correct the problem. The advisory organization may,
or as directed by the commissioner shall, notify the commissioner of
incomplete or inaccurate filings.
   (2) To conduct a security review and analysis  of all
foreign and alien nonadmitted insurers with which surplus line
brokers place or propose to place insurance covering property or
risks located or persons residing in this state   as
directed by the commissioner  , and to provide to the
commissioner  , and if directed by the commissioner, to the NAIC,
 a report on any  foreign or alien 
nonadmitted insurer based on that review and analysis. The review and
analysis under this subdivision shall take account of any matters
the commissioner reasonably may direct the advisory organization to
review and any other matters the advisory organization considers
necessary or appropriate.
   (3) To make confidential recommendations to the commissioner 
and, if directed by the commissioner, to the NAIC,  as to the
suitability of any foreign or alien nonadmitted insurer to insure
property or risks located or persons residing in this state or
whether any foreign or alien nonadmitted insurer should be 
added to or removed from any list of either eligible or disapproved
nonadmitted insurers maintained by the commissioner  
eligible or ineligible or approved pursuant to Section 1765.2  .
The advisory organization's recommendations shall be based on any
review and analysis that it performs under this chapter and on any
additional information that may come to the advisory organization's
attention or that the commissioner reasonably may request the
advisory organization to consider.
   (4) To report to the commissioner and other appropriate
authorities instances of actual fraudulent or illegal insurance
activity in the surplus line market that come to the advisory
organization's attention and any facts that come to the advisory
organization's attention that, in the reasonable judgment of the
advisory organization, may indicate the presence of fraudulent or
illegal insurance activity in the surplus line market or potential
risk of harm to consumers of surplus line insurance.
   (5) To maintain and report information necessary or that
reasonably may be requested by the commissioner for the calculation
and collection of premium taxes on surplus line insurance premiums.
   (6) To respond to any request by the commissioner for comments on
any proposed legislation or regulation affecting the placement of
insurance pursuant to the surplus line law.
   (7) To receive and disseminate to its members information relating
to surplus line insurance, to educate its members about the surplus
line law and the regulations pertaining thereto, and to perform any
specific educational activities that the commissioner reasonably may
request.
   (8) To communicate with organizations of admitted insurers with
respect to the proper use of the surplus line market.
   (9) To enter into written arrangements with the commissioner
whereby the advisory organization will perform any other functions
that, in the judgment of the commissioner and the advisory
organization, will help the commissioner provide effective and
cost-efficient supervision of the surplus line market.
   (b) If the commissioner delegates to the advisory organization one
or more of the duties set forth in subdivision (a), the advisory
organization also shall be authorized to assess a stamping fee for
each policy, declarations page, cover note, or other premium bearing
document submitted to the advisory organization. The stamping fee
shall be established from time to time by the governing body of the
advisory organization, shall reflect all reasonable costs associated
with the services provided by the advisory organization, and may be
reviewed by the commissioner for reasonableness as part of the
commissioner's examination of the advisory organization. Except as
otherwise provided in this subdivision, the stamping fee may not
exceed three-fourths of 1 percent of the premium for the insurance.
Any proposed increase in the stamping fee above three-fourths of 1
percent shall be filed with the commissioner along with a written
explanation of the reason for the increase, and the increase shall
take effect upon the expiration of 60 days after the date of filing
unless the commissioner disapproves it within that time. Within 60
days after the date of filing, the commissioner may provisionally
approve the proposed increase, in which event the increase shall take
effect immediately. The proposed
             increase shall be deemed fully approved upon the
expiration of 120 days after the date of filing unless the
commissioner disapproves the proposed increase within that time. The
stamping fee shall be paid by the surplus line broker, provided,
however, that the surplus line broker shall be allowed to receive and
collect the stamping fee from the insured.
   (c) Nothing in this chapter shall affect any delegation by the
commissioner pursuant to the surplus line law, provided, however,
that once the commissioner delegates one or more of the duties set
forth in this section and the advisory organization commences
operations under this chapter, no other organization may
simultaneously perform the same duties under this chapter or exercise
the authority incidental thereto.
   (d) The advisory organization may cease performing the duties
delegated by the commissioner under this chapter and exercising the
authority incidental thereto at any time upon 180 days' written
notice to the commissioner. The commissioner may require the advisory
organization to continue performing the duties under this chapter
for up to an additional 180 days, and the commissioner shall be
entitled, following receipt of notice from the advisory organization
under this subdivision, to obtain copies of all unprivileged files,
documents, and records maintained by the advisory organization on
behalf of the commissioner under this chapter.
   (e) The commissioner's findings, determinations, rules, rulings,
and orders under this chapter shall apply only to the advisory
organization's right to perform the duties delegated by the
commissioner under this chapter and to exercise the authority
incidental thereto. Nothing in this chapter shall be deemed or
construed to affect the advisory organization's right to exist and
function as a private, nonprofit organization, with all powers
attendant thereto, and to engage in lawful activities other than
under the authority of this chapter.
  SEC. 33.  Section 13210 of the Revenue and Taxation Code is amended
to read:
   13210.  (a) For gross premiums paid or to be paid on insurance
contracts that take effect or are renewed on or after January 1,
1994, every  person   California home state
insured as defined by subdivision (f) of Section 1760.1 of the
Insurance Code,  who effects insurance governed by Chapter 6
(commencing with Section 1760) of Part 2 of Division 1 of the
Insurance Code shall pay a gross premium tax of 3 percent 
charged or at the rate required pursuant to a tax compact agreement,
 for the use of the state, less 3 percent of returned premiums
that were subject to the tax received by reason of cancellation or
reduction of premium.
   (1) This section shall not apply to any of the following:
   (A) Insurance coverage for which a tax on the gross premium is due
or has been paid pursuant to Section 1775.5 of the Insurance Code.
   (B) Gross premiums paid and returned premiums received by that
 person   California home state insured as
defined by subdivision (f) of Section 1760.1 of the Insurance Code,
 upon business governed by the provisions of Section 1760.5 of
the Insurance Code.
   (C) Insurance coverage for which a tax on the gross premium is due
or has been paid pursuant to Section 132 of the Insurance Code.
   (2) If during any calendar quarter 3 percent of the returned
premiums received that were subject to the tax imposed by this part
exceed 3 percent of the gross premiums paid or to be paid by that
person on contracts that took effect or were renewed in that calendar
quarter, then that person may either carry forward the excess to a
succeeding calendar quarter and apply it as a credit against the 3
percent of gross premiums paid or to be paid by that person in the
succeeding calendar quarter, or the person may elect to receive, and
be paid a refund equal to the amount of taxes paid by the person on
the excess of returned premiums received over gross premiums paid or
to be paid.
   (b) For purposes of determining the tax, the total premium paid or
to be paid for all nonadmitted insurance placed in a single
transaction with one underwriter or group of underwriters, whether in
one or more policies, in that calendar quarter during which the
taxable insurance contract or contracts took effect or were renewed,
shall be allocated to this state in the proportion that the total
premium on the insured properties or operations in this state, as
computed on the exposure in this state on the basis of any single
standard rating method in use in all states or countries where the
insurance applies, bears to the total premium so computed in all
states or countries in which that nonadmitted insurance may apply or,
with prior approval of the Franchise Tax Board, on any other
reasonable basis as determined by the Franchise Tax Board in its sole
discretion.
   (c) Subdivision (b) shall not apply to interstate motor transit
operations conducted between this and other states. With respect to
those operations, the tax shall be payable on the entire premium
charged on all nonadmitted insurance, less any of the following:
   (1) The portion of the premium that is determined to have been
charged for operations in other states that have taxed the premium on
operations in states of an insured maintaining its headquarters
office in this state.
   (2) The premium for any operations outside of this state of an
insured who maintains a headquarters operating office outside of this
state and a branch office in this state.
  SEC. 34.  Section 13215 is added to the Revenue and Taxation Code,
to read:
   13215.  The State Board of Equalization and the Franchise Tax
Board with the approval of the Department of Finance, may on behalf
of the state become a party to a reciprocal surplus line premium tax
compact or agreement between the state and another jurisdiction or an
agency thereof that is authorized to enter into an agreement
providing for the administration, collection, and enforcement by a
party to the agreement of the taxes imposed on multistate risks as
defined in subdivision (k) of Section 1760.1 of the Insurance Code.
  SEC. 35.  Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14,
15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 28, 29, 30, 31, 32,
and 33 of this act shall become operative on July 21, 2011.
  SEC. 36.  This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
   In order to forestall preemption on July 21, 2011, of state
statutes pertaining to surplus line insurance taxation, eligibility,
and broker licensure by the Nonadmitted Reinsurance and Reform Act of
2010, a part of the federal Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, it is necessary that this act take
effect immediately.