Important Surplus Line Bill Going to Governor



AB 315, by Assemblyman Jose Solorio, passed the Senate Friday with a unanimous vote.  The bill, an urgency measure, now goes to the Governor for his signature.  He has 12 days to sign or veto the measure.



The intent of this legislation is to bring California statutes into line with the Nonadmitted and Reinsurance Reform Act (NRRA) enacted by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  This new federal law will go into effect on July 21, 2011.



Nonadmitted insurers are not licensed in California, but are licensed in another state or foreign jurisdiction.  When coverage is not readily available from admitted insurers, surplus line brokers are authorized to place insurance coverage with approved nonadmitted insurers.  This type of insurance represents a little over $4 billion in premium volume in California and produces approximately $130 million in premium tax.



The Nonadmitted and Reinsurance Reform Act (NRRA) was passed by Congress to create a streamlined tax and regulatory system for the placement of nonadmitted insurance by surplus line brokers.  A key feature of the NRRA is the concept of "Home State.”  In short, only the Home State is allowed to regulate the nonadmitted insurance transaction and the surplus line broker is required to remit the premium tax on the entire transaction to the home state.



Under current practice, California taxes the portion of the premium written on the California operations of the client on behalf of whom the insurance was placed.  In addition, the California surplus line broker must comply with the regulatory and tax requirements of each state where the client has operations.  The current system is both complex and expensive.  The “Home State” provisions of the NRRA were designed to replace this dysfunctional system with a single-state tax payment system with uniform requirements, forms and procedures.



The California Department of Insurance is the sponsor of the bill, which is supported by California Insurance Wholesalers Association, Insurance Brokers and Agents of the West and National Association of Professional Surplus Line Offices.



To view the entire text of the bill, please click here.

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