BILL ANALYSIS Ó AB 1395 Page 1 Date of Hearing: April 10, 2013 ASSEMBLY COMMITTEE ON INSURANCE Henry T. Perea, Chair AB 1395 (Committee on Insurance) - As Amended: April 2, 2013 SUBJECT : Surplus Line Brokers SUMMARY : Eliminates unnecessary tax filing requirements for surplus line brokers who have no taxes to report. Specifically, this bill : 1)Deletes the requirement that every surplus line broker must make a Surplus Line Tax filing even if the broker has not transacted any business subject to the Surplus Line Tax. 2)Authorizes the Insurance Commissioner to waive or modify filing requirements where no payment is due by means of notice published on the Department of Insurance (DOI) Internet Web site. EXISTING LAW : 1)Authorizes surplus line brokers to place insurance on California risks with insurance companies that are not licensed to transact insurance in California when certain conditions are met. 2)Requires the surplus line broker to account for and pay a Surplus Line Tax in the amount of 3% of the premium paid for the policy. 3)Requires an annual tax filing by the surplus line broker that reflects net premiums written, even if the surplus line broker has no net tax liability to be paid in that year. FISCAL EFFECT : Undetermined, but minor to moderate savings to the DOI in its Surplus Line tax program. COMMENTS : 1)Purpose . The Committee introduced this bill at the suggestion of the surplus line community, which has been consulting with the DOI to address the circumstances whereby numerous, and possibly a majority of the surplus line licensees, have no tax AB 1395 Page 2 liability in any given year, yet must make tax filings that the DOI must review. 2)Background . Admitted (licensed) insurers pay, based on a provision in the state constitution, a gross premiums tax of 2.35% of gross premiums in lieu of all other taxes. Because the state does not have the same taxing jurisdiction over insurers that do not technically transact insurance within the state (in theory, the surplus line broker reaches out to the nonadmitted insurer which is not technically acting within California at all), nonadmitted insurers do not pay the gross premiums tax. Instead, a 3% "surplus line tax" is collected through the surplus line broker, which is the entity that California does have clear jurisdiction over. Practically speaking, this tax is built into the transaction in the same way the gross premium tax is built into insurance rates. However, its administration is different, and in some ways more costly. In recent years, the number of surplus line licenses has dramatically increased. However, many of these licensees hold the license as a convenience, and frequently do not transact under that license in a given year. As a result, the volume of "no taxes due" tax filings has dramatically increased. The bill is designed to eliminate an unnecessary burden on both these licensees and the DOI. REGISTERED SUPPORT / OPPOSITION : Support California Insurance Wholesalers Association Surplus Lines Association Opposition None received. Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086