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