AB 1708

Bill Subjects

Abstract

Existing law limits the ability of a surplus line broker to place any coverage with a nonadmitted insurer, as specified. In order for a nonadmitted insurer to qualify for coverage it must demonstrate financial stability, as defined. Existing law defines financial stability to include, but not be limited to, having a total of capital and surplus of at least $15,000,000 with the type of assets to be used in calculating capital and surplus being at least $15,000,000 in the form of cash, securities of a specified character, or in readily marketable securities, as defined. This bill would instead require the total capital and surplus requirement be at least $45,000,000 and the amount of assets to be used in calculating capital and surplus that consist of cash and those other specified types of securities to be at least $25,000,000. The bill would provide that if a nonadmitted insurer on the list of eligible surplus line insurers does not meet the capital and surplus requirements as of January 1, 2011, that insurer would be required to have at least $30,000,000 of capital and surplus as of December 31, 2011, and at least $45,000,000 of capital and surplus as of December 31, 2013. Existing law also defines financial stability, in the case of an Insurance Exchange created and authorized under the laws of individual states, as maintaining capital and surplus of not less than $50,000,000 in the aggregate, with the type of assets to be used in calculating capital and surplus being at least $15,000,000 in the form of cash, securities of a specified character, or in readily marketable securities. In the case of an Insurance Exchange that maintains funds for the protection of all Insurance Exchange policyholders, each individual syndicate seeking to accept surplus line placements of risks resident, located, or to be performed in this state are required to maintain minimum capital and surplus of not less than $6,400,000. Each individual syndicate is required to increase the capital and surplus required by $1,000,000 each year until it attains a capital and surplus of $15,000,000. In the case of Insurance Exchanges that do not maintain funds for the protection of all Insurance Exchange policyholders, each individual syndicate seeking to accept surplus line placement of risks resident, located, or to be performed in this state are required to meet the specified capital and surplus requirements applicable to nonadmitted insurers of at least $15,000,000 with the type of assets to be used in calculating capital and surplus being at least $15,000,000 of that in the form of cash, securities of a specified character, or in readily marketable securities. This bill would instead require the amount of assets to be used in calculating capital and surplus to be at least $25,000,000 in the form of cash, securities of a specified character, or in readily marketable securities. The bill would repeal the minimum capital and surplus requirement formula for an individual syndicate with regard to an Insurance Exchange that maintains funds for the protection of all Insurance Exchange policyholders, and would instead require each syndicate to maintain capital and surplus of not less than $45,000,000. The bill would also raise the capital and surplus requirements regarding each syndicate of Insurance Exchanges that do not maintain funds for the protection of all Insurance Exchange policyholders to $45,000,000. The bill would make conforming changes. The bill would incorporate additional changes to Section 1765.1 of the Insurance Code, proposed by AB 1837 of the 2009–10 Regular Session, to be operative only if both bills are chaptered and become effective on or before January 1, 2011, and this bill is chaptered last.