BILL ANALYSIS �
AB 315
Page 1
ASSEMBLY THIRD READING
AB 315 (Solorio)
As Amended May 5, 2011
2/3 vote. Urgency
INSURANCE 12-0 APPROPRIATIONS 16-0
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|Ayes:|Solorio, Hagman, Charles |Ayes:|Fuentes, Harkey, |
| |Calderon, Carter, Feuer, | |Blumenfield, Bradford, |
| |Grove, Hayashi, Miller, | |Charles Calderon, Campos, |
| |Olsen, Skinner, Torres, | |Davis, Gatto, Hall, Hill, |
| |Wieckowski | |Lara, Mitchell, Nielsen, |
| | | |Norby, Solorio, Wagner |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Conforms California surplus line insurance regulatory
and tax laws to the recently enacted federal financial reform
law. Specifically, this bill :
1)Repeals the requirement that, in most circumstances, prohibits
placement of insurance with a nonadmitted insurer unless that
insurer is on the List of Eligible Surplus Lines Insurers
(LESLI List).
2)Repeals the substantive criteria necessary for an insurer to
be placed on the LESLI List, but readopts similar criteria for
placement on a voluntary list of acceptable insurers.
3)Establishes the financial requirements that a nonadmitted
insurer not on the voluntary list must meet in order for a
surplus line broker to place insurance with that insurer.
4)Defines a "home state insured" as an insured or applicant that
has its principal place of business in the state, or, if an
individual, has his or her principal place of residence in
this state.
5)Defines "commercial insured" as a company that pays over
$100,000 in annual property/casualty insurance premium, has a
qualified risk manager on staff, and has one of the following
attributes: a net worth of over $20 million, annual revenues
of over $50 million, is a non-profit or municipality with an
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annual budget of over $30 million, is a municipality of over
50,000 residents, or has over 500 full-time employees.
6)Defines "qualified risk manager" and "principal place of
business" for purposes of items 4) and 5) above.
7)Exempts a commercial insured from the requirement that a
surplus line broker must make a diligent search of the
admitted market prior to placement of insurance with a
nonadmitted insurer.
8)Imposes on a surplus line broker the duty to ascertain if an
insured is a home state insured, and requires the surplus line
broker to collect the surplus line tax from the home state
insured.
9)Conforms the statutory notice requirements to the new rules
required by federal law.
10)Reformulates the surplus line broker licensing provisions to
conform to the new federal law.
11)Makes numerous technical and conforming amendments.
12)Provides that the bill is an urgency statute, to take effect
immediately.
EXISTING LAW :
1)Requires generally that insurance in California be sold by
"admitted" (licensed) insurance companies, but allows, where
admitted companies cannot fulfill an insurance need of a
California resident or company, nonadmitted insurance to be
purchased through a specially licensed surplus line broker.
2)Requires generally that a nonadmitted insurer meet detailed
financial requirements, and be on the LESLI List before a
surplus line broker may place a policy with that insurer.
3)Requires the surplus line broker to collect the surplus line
tax, which is 3% of the gross premium on the policy, and remit
that amount to the state.
4)Provides, as a matter of federal law, that a state is limited
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in its collection of its surplus line tax after July 21, 2011,
unless federal conformity legislation is enacted.
5)Provides, as a matter of federal law, that a state is limited
in applying its existing laws regulating nonadmitted insurance
after July 21, 2011.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, unknown tax revenue impact with the possible gain or
loss of low millions, but probably revenue neutral or slight
revenue gain.
COMMENTS :
1)This bill is intended to conform California law to the
Nonadmitted and Reinsurance Reform Act (NRRA) that is part of
the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, enacted last year by the federal government. That
federal act included provisions to add uniformity and
simplicity to the states' regulatory laws governing the
placement of surplus line insurance, and collection of the
surplus line tax. It pre-empts certain regulatory
requirements of California law, but more importantly, unless
conforming law is enacted by July 21 of this year,
California's authority to collect the surplus line tax would
also be limited.
2)The bill includes substantial deletion and substantial new
language. But the principles are not as complex as the
language may appear. The federal law prohibits states from
having mandatory listing requirements like the LESLI List, but
does not prohibit establishment of financial solvency
requirements. The surplus line community, however, enjoys the
convenience of a formalized list of insurers that are known to
be in compliance and acceptable. But under the federal law, a
list must be voluntary. As a result, the bill repeals the
LESLI List and its detailed financial requirements, but then
re-enacts very similar detailed financial requirements twice -
once as elements of the criteria to be placed on the voluntary
list, and a second time to govern the criteria of insurers
that are not interested in complying with the voluntary
listing regulatory requirements. The financial standards,
which were increased with industry support to ensure
policyholder protection as recently as last session, remain in
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place essentially in the same form and amount as before.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0000649