BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
(Solorio)
Hearing Date: 6/27/2011 Amended: 05/05/2011
Consultant: Maureen Ortiz Policy Vote: Ins: 9-0
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BILL SUMMARY: AB 315, an urgency measure, conforms California
law applicable to surplus line insurance to mandatory changes
enacted in the federal Nonadmitted and Reinsurance Reform Act
(NRRA) which becomes effective July 21, 2011.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Admin expenses ----------------minor,
absorbable------------------- Special*
Gross premium tax ---unknown, potentially several million
revenue gain or loss
(see comments below)-- General
*Insurance Fund
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STAFF COMMENTS: This bill may meet the criteria for referral to
the Suspense file.
Nonadmitted insurers pay a surplus line tax which is equal to 3%
of the gross premium on a policy. This tax produces revenue of
approximately $140 million annually which goes directly into the
General Fund. An estimated 5% - 10% of this revenue is related
to multi-state risks -- policies issued to a policyholder in
California, but which cover risks in California and at least one
other state. Currently, surplus line brokers compute how much
of the premium is attributable to each state, and remit taxes to
each state accordingly. The NRRA provides that the tax should
be collected fully by the state of the "home state insured"
unless there is a permissive interstate compact that provides
for the apportionment of the small amount associated with
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multi-state risks. The exact fiscal estimate of this bill is
unknown. While California may lose that portion of tax revenue
currently collected on California's portion of risk on a
multi-state policy, the bill could result in additional tax
revenue by allowing California to collect 100% of the risk on
multi-state policies when it is identified as the home state of
the insured. It is possible that a net change in revenue will be
realized. However, if California does not enact this conforming
legislation prior to July 21, 2011, there will almost certainly
result in a revenue loss to the state.
There are currently several multi-state compact proposals
relating to agreements for the allocation of taxes between
states which are under discussion by stakeholders, however, it
is not anticipated that any will be formally adopted by the July
21, 2011 deadline for states to conform to the NRRA.
The NRRA is intended to simplify the surplus line agent's
payment of premium taxes on multi-state risks by requiring that
all premium tax due on surplus lines transactions that cross
multiple state boundaries be paid only to the insured's "home
state." This provides agents and brokers with the ability to
file multi-state policies with a singular entity as opposed to
filing with each state of exposure separately.
AB 315 is intended to conform California law to the Nonadmitted
and Reinsurance Reform Act that is part of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 enacted last
year by Congress. It adds uniformity and simplicity to the
states' regulatory laws governing the placement of surplus line
insurance and collection of the surplus line tax. The federal
act pre-empts certain regulatory requirements of California law,
and unless conforming law is enacted by July 21, 2011,
California's authority to collect the surplus line tax will be
limited.
Existing law provides that insurance in California be sold by
"admitted" insurance companies which are licensed by the
Department of Insurance. However, where admitted companies
cannot fulfill an insurance need of a California resident or
business, nonadmitted insurance may be purchased through a
specially licensed surplus line broker. Nonadmitted insurers
must be on a List of Eligible Surplus Lines Insurers (LESLI
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List) and must meet detailed financial requirements. The NRRA
prohibits states from having mandatory listing requirements like
the LESLI List but does not prohibit establishment of financial
solvency requirements.
AB 315 does the following:
1. Repeals the requirement that prohibits placement of
insurance with a nonadmitted insurer unless that insurer is on
the LESLI list.
2. Repeals existing and readopts similar criteria necessary for
an insurer to be placed on the LESLI List but makes placement on
the list voluntary.
3. Establishes financial requirements that nonadmitted insurers
not on the voluntary list must meet in order for a surplus line
broker to place insurance with that insurer.
4. Defines "home state insured" as an insured 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 annual
budget of over $30 million, is a municipality of over 50,000
residents, or has over 500 full-time employees.
6. 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.
7. 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 tax from the home state insured.
8. Conforms the statutory notice requirements to the new
federal rules.
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9. Reformulates the surplus line broker licensing law to
conform to the NRRA.
10. Makes numerous technical and conforming changes.