Bill Text: AZ HB2112 | 2011 | Fiftieth Legislature 1st Regular | Engrossed
Bill Title: Insurance; surplus lines
Spectrum: Partisan Bill (Republican 2-0)
Status: (Passed) 2011-04-18 - Governor Signed [HB2112 Detail]
Download: Arizona-2011-HB2112-Engrossed.html
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Senate Engrossed House Bill |
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State of Arizona House of Representatives Fiftieth Legislature First Regular Session 2011
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HOUSE BILL 2112 |
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AN ACT
Amending sections 20‑401, 20‑401.07, 20‑408, 20‑411, 20-411.02, 20‑413, 20‑415 and 20‑416, Arizona Revised Statutes; amending title 20, chapter 2, article 5, Arizona Revised Statutes, by adding section 20‑416.01; relating to surplus lines.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 20-401, Arizona Revised Statutes, is amended to read:
20-401. Definitions
In this article, unless the context otherwise requires:
1. "Affiliated" means, with respect to an insured, any entity that controls, is controlled by or is under common control with the insured. For the purposes of this paragraph, "control" means either:
(a) Directly or indirectly acting through one or more other persons who own, control or have the power to vote twenty‑five per cent or more of any class of voting securities of the other entity.
(b) Control in any manner over the election of a majority of the directors or trustees of the other entity.
2. "Affiliated group" means any group of entities that are affiliated.
3. "Clearinghouse" means the mechanism or entity established pursuant to a multistate agreement or compact for the receipt and distribution of premium taxes and transaction data related to the sale of unauthorized insurance.
1. 4. "Diligent effort" means having sought insurance for the same risk from at least three insurers authorized in this state to write the particular insurance coverage or type, class or kind of insurance.
2. 5. "Foreign decree" means any decree or order in equity of a court located in a reciprocal state, including a court of the United States located therein, obtained by a qualified party against any insurer incorporated or authorized to do business in this state.
6. "Home state" means one of the following:
(a) The state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal place of residence.
(b) If one hundred per cent of the insured risk is located out of the state that would be the insured's home state pursuant to subdivision (a) of this paragraph, the state to which the greatest percentage of the insured's taxable premium is allocated for the insurance contract in question.
(c) If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the state as determined pursuant to subdivision (a) of this paragraph of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract.
7. "Multistate risk" means a risk covered by an unauthorized insurer with insured exposures in more than one state.
3. 8. "Qualified party" means a state regulatory agency acting in its capacity to enforce the insurance laws of such state.
4. 9. "Reciprocal state" means any state or territory of the United States the laws of which give to insurers organized under the laws of this state the same right to defend actions as that granted to foreign insurers under the laws of this state and the laws of which contain procedures substantially similar to those specified in this article for the enforcement of decrees or orders in equity issued by courts located in other states or territory of the United States against any insurer incorporated or authorized to do business in such state or territory.
10. "Single‑state risk" means a risk with insured exposures in only one state.
11. "Unauthorized insurance" or "nonadmitted insurance" means any insurance permitted to be placed directly or through a surplus lines broker with an insurer who is not licensed to transact insurance in this state.
Sec. 2. Section 20-401.07, Arizona Revised Statutes, is amended to read:
20-401.07. Premium receipts tax on industrial insureds contracting with unauthorized insurer; definitions
A. Every industrial insured under a contract procured from an unauthorized insurer shall pay to the director before March 1 next succeeding the calendar year in which the insurance was so effectuated, continued or renewed for coverage on Arizona single‑state risks or to the clearinghouse for coverage on multistate risks on or before the dates prescribed by in section 20‑415 a premium receipts tax of three per cent of the gross premiums, less premiums returned on account of cancellation or reduction of premium, charged for insurance on subjects resident, located or to be performed in this state. Such insurance procured by an insured whose home state is Arizona, whether procured through negotiation or an application, in whole or in part occurring or made within or outside of this state, or for which premiums in whole or in part are remitted directly or indirectly from within or outside of this state, shall be deemed to be insurance effectuated or continued in this state. If a contract covers risks or exposures only partly in this state, the tax payable shall be computed on the portions of the premium that are properly allocable to the risks or exposures located in this state. Proration of premium taxes due from an industrial insured under a contract procured from an unauthorized insurer having property in states other than Arizona shall be determined by rules adopted by the director using the following criteria where applicable:
1. Percentage of physical assets in Arizona.
2. Percentage of employee payroll in Arizona.
3. Percentage of sales in Arizona.
4. Percentage of taxable income reportable in Arizona.
B. Beginning January 1, 2015 and every five years thereafter, the amounts listed in subsection C, paragraph 1, subdivisions (a) and (e) shall be adjusted to reflect the percentage change for the five-year period in the consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor.
B. C. For the purposes of this section:
1. "Industrial insured" means an insured whose home state is Arizona, that applies for or procures any insurance that is subject to article 4.1 of this chapter through the use of a qualified risk manager, that has aggregate annual gross premiums for insurance on all property and casualty risks that are subject to article 4.1 of this chapter totaling at least one hundred thousand dollars as of the insured's preceding fiscal year end and that meets at least two one of the following criteria:
(a) Has aggregate annual gross premiums for insurance on all property and casualty risks that are subject to article 4.1 of this chapter totaling at least one hundred thousand dollars as of the preceding fiscal year end of the industrial insured.
(b) (a) Possesses a net worth of over ten twenty million dollars as of the preceding fiscal year end of the industrial insured as verified by a certified public accountant.
(c) (b) Has net revenues or sales exceeding twenty‑five fifty million dollars as of the preceding fiscal year end of the industrial insured as verified by a certified public accountant.
(d) (c) Has more than eighty five hundred full‑time employees or equivalent per individual company or one hundred full‑time employees or equivalent per holding company system as of the date the policy is issued is a member of an affiliated group employing more than one thousand employees in the aggregate.
(d) Is a municipality with a population of more than fifty thousand persons.
(e) Is a nonprofit organization or public entity generating annual budgeted expenditures of at least thirty million dollars.
2. "Risk manager" means a full‑time employee of the industrial insured or a third party consultant who is retained by the industrial insured, who provides skilled services in loss prevention, loss reduction, risk and insurance coverage analysis and the purchase of insurance and who possesses at least one of the following qualifications:
(a) A baccalaureate or higher degree in risk management that is issued by an accredited college or university.
(b) A designation as a chartered property and casualty underwriter that is issued by an insurance institute.
(c) A designation as a certified insurance counselor that is issued by a society of certified insurance counselors.
(d) A designation as an associate in risk management that is issued by an insurance institute.
(e) A designation as a certified risk manager that is issued by a national alliance for insurance education and research.
(f) A designation as a fellow in risk management that is issued by a global risk management institute.
(g) Any other similar qualification that, before the employee or consultant applies for or procures any insurance that is subject to article 4.1 of this chapter, the director determines is sufficient, other than a license as an insurance producer pursuant to article 3 of this chapter.
2. "Qualified risk manager" has the same meaning prescribed in the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8206).
Sec. 3. Section 20-408, Arizona Revised Statutes, is amended to read:
20-408. Report of broker; civil penalty
A. Within sixty days after procuring any surplus lines insurance, the broker procuring the coverage A broker procuring surplus lines insurance on behalf of an insured whose home state is Arizona shall execute and file with the director on or before the date specified in section 20‑415, subsection B a verified report setting forth facts from which it may be determined whether the requirements of section 20‑407 have been met. The report shall also contain or be accompanied by the following:
1. The name of the insurer and the identification number assigned to it by the national association of insurance commissioners.
2. The number of the policy issued.
3. The name and address of the insured.
4. The premium, including taxable policy fees.
5. The identity of the specific recognized surplus lines coverage written.
6. or if the insurance coverage is not a recognized surplus line pursuant to section 20‑409, an affidavit executed by the surplus lines broker attesting to compliance with the requirements of section 20‑407, subsection A and confirming that evidence of compliance will be maintained in the broker's file for the duration of the insurance policy and for a period of six years after the expiration of the policy.
7. 6. The policy effective dates that shall not be open to public inspection.
B. The director shall prescribe the required report form.
C. The director may direct a broker to file the broker's report required by this section with a voluntary domestic organization of surplus lines brokers with which the director has contracted to accept reports pursuant to section 20‑167.
D. A broker may collect from the insured the stamping fee prescribed in section 20‑167.
E. The director may impose and collect a civil penalty of not more than twenty‑five dollars against a broker for each day the report prescribed in subsection A of this section is late.
Sec. 4. Section 20-411, Arizona Revised Statutes, is amended to read:
20-411. Licensing of surplus lines broker; examination
A. A person shall not act as a surplus lines broker in this state on behalf of an insured whose home state is Arizona unless the person has a current surplus lines broker license issued by the director.
B. Any individual who is a resident of this state and who is licensed as a resident insurance producer authorized for property or casualty insurance in this state may also be licensed as a resident surplus lines broker if the director determines that the insurance producer is competent and trustworthy. The director shall prescribe and furnish application forms.
C. Each individual applicant for an original license as a resident surplus lines broker or for renewal of a resident surplus lines broker license who has not previously taken and passed a surplus lines broker license examination in this state shall take and pass to the director's satisfaction a written examination given by or under the supervision of the director. The examination shall reasonably test the applicant's knowledge of surplus lines insurance and the legal responsibilities of a surplus lines broker.
D. The director may issue a resident surplus lines broker license to any business entity that is licensed as a resident property or casualty insurance producer in this state and that satisfies all of the requirements prescribed by section 20‑285, subsections C and D.
E. At least one individual in each office or place where surplus lines insurance is transacted in this state shall be licensed pursuant to this title as either an insurance producer authorized for property or casualty insurance or a managing general agent for property or casualty insurance, and shall be licensed pursuant to this article as a surplus lines broker.
F. The license prescribed in this section shall expire and be subject to renewal coincidental to, and in the same manner as, other insurance license authority as prescribed in section 20‑289. The director shall charge the surplus lines broker license fee prescribed in section 20‑167, except that, from and after June 30, 2005, a licensee adding surplus lines broker authority to an existing insurance license shall be charged one-half the surplus lines broker license fee if less than two years remain in the term of the existing insurance license as of the date the director receives the application to add surplus lines broker authority to the existing insurance license.
G. To the extent not inconsistent with this article, section 20‑281, section 20‑283, subsection B, paragraph 6, section 20‑286, subsection C and sections 20‑287, 20‑289, 20‑291, 20‑292, 20‑295, 20‑296, 20‑297, 20‑298, 20‑299, 20‑300, 20‑301 and 20‑302 apply to surplus lines brokers.
H. For the purposes of implementing the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201) the director shall participate in the national insurance producer database of the national association of insurance commissioners or any other equivalent national database for the licensure and license renewal of surplus lines brokers on and after July 21, 2012.
Sec. 5. Section 20-411.02, Arizona Revised Statutes, is amended to read:
20-411.02. Nonresident surplus lines broker; remittance of tax on insurance procured out of state
A. The director shall license a nonresident person as a surplus lines broker in accordance with section 20‑287.
B. Except as otherwise provided, a nonresident surplus lines broker is subject to this title as if the broker were licensed as a resident.
C. A license from this state is not required for a nonresident who procures surplus lines insurance in another state in which the nonresident is licensed solely because of the allocation of premium to this state to determine the surplus lines tax due to this state pursuant to section 20‑416, subsection C e. The nonresident shall remit the tax according to this article. The director shall prescribe the form of any reports or statements that are necessary for the nonresident to remit the tax.
Sec. 6. Section 20-413, Arizona Revised Statutes, is amended to read:
20-413. Placing of surplus lines coverage; endorsement by broker; list of unauthorized insurers; removal from list; definition
A. A surplus lines broker shall not knowingly place any surplus lines coverage on behalf of an insured whose home state is Arizona with an unauthorized insurer, Lloyd's association, insurance exchange or syndicate of an insurance exchange that does not meet the minimum financial requirements of this section or that is declared by the director to be in a hazardous financial condition, improperly managed or unreliable in insurance transactions. A surplus lines broker may place surplus lines coverage with a syndicate of an unauthorized insurance exchange even if another syndicate of the insurance exchange is declared by the director to be in a hazardous financial condition, improperly managed or unreliable in insurance transactions, as long as that syndicate does not participate in insuring the risk and unless the declaration of the director specifies that the insurance exchange shall not accept surplus lines placements.
B. An unauthorized foreign insurer authorized to transact insurance on an admitted or surplus lines basis in at least one other state shall possess a minimum capital and surplus of at least five million dollars and shall maintain a deposit of at least two million five hundred thousand dollars in public custody in trust, in part, for the purpose of protecting all of the foreign insurer's policyholders that equals the greater of either the minimum capital and surplus requirements imposed by article 1 of this chapter or fifteen million dollars.
C. An unauthorized alien insurer other than a title insurer shall possess minimum capital and surplus of at least fifteen million dollars and shall maintain within the United States in public depositories or trust institutions approved by the director assets in the amount of two million five hundred thousand dollars. The director may require the unauthorized alien insurer to maintain a larger deposit if the director determines that the public interest reasonably requires a larger deposit. A broker shall not knowingly place any insurance with the unauthorized alien insurer until the insurer complies with the director's requirement to maintain a larger deposit. Notwithstanding the requirements of this subsection, a surplus lines broker may place insurance with an alien insurer that is listed on the quarterly listing of alien insurers maintained by the national association of insurance commissioners international insurers department.
D. Any unauthorized Lloyd's association or any similar association of individual or incorporated insurers under a common administration shall maintain a trust fund in the United States of at least one hundred million dollars as joint and several security for all United States policyholders of any member of the association. The director may require the association to maintain a larger fund if the director determines that the public interest reasonably requires a larger fund. A broker shall not knowingly place any insurance with the association until the association complies with the director's requirement to maintain a larger fund.
E. An unauthorized insurance exchange authorized to transact insurance on an admitted or surplus lines basis in at least one other state shall possess minimum aggregate capital and surplus of at least fifty million dollars. Each syndicate of the insurance exchange with which a risk is to be placed shall possess minimum aggregate capital and surplus of at least four million dollars until December 31, 1996. Beginning January 1, 1997 each syndicate with which a risk is to be placed shall possess minimum capital and surplus of at least five million dollars. The insurance exchange shall maintain a deposit of at least two million five hundred thousand dollars in public custody in trust, in part, for the purpose of protecting all of the policyholders of the insurance exchange. Each syndicate of an insurance exchange qualified to transact surplus lines insurance in this state shall file with the director on or before June 1 an annual statement for the preceding year in a form prescribed by the national association of insurance commissioners. The annual statement is in addition to any other document required of the insurance exchange by the director.
F. If the surplus lines broker delivers a certificate in a form prescribed by the director, it is prima facie evidence of the insurer's compliance with the financial requirements of this section. The certificate shall state the names of the public officials or other persons who have supervision over the insurer in any other state and shall certify the amount of capital and surplus that the insurer possesses and the amount of the trust deposit that the insurer maintains, as determined from the records and knowledge of the public officials or other persons, together with any supporting documentation that the director requires. The certifying surplus lines broker of an alien insurer may deliver other evidence acceptable to the director to establish that the alien insurer meets the financial requirements of this section. The certifying surplus lines broker may withdraw the certificate by providing written notice of intent to withdraw to the director and the affected insurer. The withdrawal is not effective until forty‑five days after delivery of the notice to all parties. The withdrawal is not grounds for removal from the list pursuant to subsection H if, before the withdrawal becomes effective, another licensed surplus lines broker delivers to the director a replacement certificate based on the qualifying documentation already on file with the department.
G. The director may periodically publish a list of unauthorized insurers that may write surplus lines insurance in this state established on the basis of documentation provided to the director pursuant to this section. The director may mail a copy of the list to each licensed surplus lines broker at the last address on the records of the department. This subsection is not deemed to require the director to determine the actual financial condition or claims practices of any unauthorized insurer, and the appearance of an unauthorized insurer on the list indicates only that the insurer appears to be financially sound and to have satisfactory claims practices. A broker shall restrict all surplus lines business placed by the broker with an unauthorized insurer to those insurers qualified with the director as provided in this section.
H. The director may refuse to add an insurer to the list established pursuant to subsection G or may remove an insurer from that list if the director believes that the insurer:
1. Is in a hazardous financial condition.
2. No longer meets the requirements of this article.
3. Does not have the endorsement of a surplus lines broker pursuant to subsection F.
4. Does not comply with all applicable provisions of this title.
5. Is improperly managed.
6. Is unreliable in insurance transactions.
I. In addition to any other penalty provided by law, if a surplus lines broker's license is revoked for a violation of this section, the director shall not license the broker again within a period of two years thereafter.
J. For the purposes of subsections F, G and H, "insurer" means an unauthorized insurer, Lloyd's association, insurance exchange or syndicate of an insurance exchange.
Sec. 7. Section 20-415, Arizona Revised Statutes, is amended to read:
20-415. Statement of surplus lines insurance business transacted by broker; reporting periods
A. Beginning January 1, 1998, Each surplus lines broker shall file semiannually with the director a notarized statement of all surplus lines insurance business covering Arizona single‑state risks transacted by the broker during the period for which the statement is being filed. The statement shall be on a form prescribed by the director and shall show:
1. Gross amount of each kind of insurance transacted.
2. Aggregate gross premiums charged.
3. Aggregate of return premiums paid to insureds.
4. Aggregate of net premiums.
5. Such additional information as may reasonably be required by the director.
B. The statement required by subsection A of this section is due on or before March 1 February 15 of each year for the preceding July through December and on or before September 1 August 15 of each year for the preceding January through June for business covering Arizona single‑state risks.
C. Each surplus lines broker shall file quarterly, with the clearinghouse responsible for administering the compact or multistate agreement entered into by the director pursuant to section 20‑416.01, a notarized statement of all surplus lines insurance business covering multistate risks transacted by the broker on behalf of insureds whose home state is Arizona during the calendar quarter for which the statement is being filed. The statement shall be on a form prescribed by the clearinghouse and shall include all information required by the clearinghouse.
D. The statement required by subsection C of this section is due on or before February 15 for the quarter ending the preceding December 31, May 15 for the quarter ending the preceding March 31, August 15 for the quarter ending the preceding June 30 and November 15 for the quarter ending the preceding September 30.
Sec. 8. Section 20-416, Arizona Revised Statutes, is amended to read:
20-416. Tax on surplus lines
A. On or before the due date prescribed in section 20‑415, each surplus lines broker shall remit to the state treasurer through the director a tax on the premiums, exclusive of sums collected to cover federal and state taxes, examination fees and stamping fees collected pursuant to section 20‑167, on surplus lines insurance covering Arizona single‑state risks subject to tax transacted by the broker during the preceding reporting period, as shown by the statement of surplus lines business filed with the director.
B. On or before the due date prescribed in section 20‑415, each surplus lines broker shall remit to the clearinghouse responsible for administering the compact or multistate agreement entered into by the director pursuant to section 20‑416.01 a tax on the premiums, exclusive of the sums collected to cover federal and state taxes, examination fees and stamping fees collected pursuant to section 20‑167, on surplus lines insurance covering multistate risks subject to tax for insureds whose home state is Arizona transacted by the broker during the preceding reporting period, as shown by the statement of surplus lines business filed with the clearinghouse.
C. The tax required by subsections A and B of this section is at the rate of three per cent of the gross premiums, including policy fees other than stamping fees prescribed in section 20‑167, less and shall not be applied to premiums returned on account of cancellation or reduction of premium and shall exclude not be applied to gross premiums and returned premiums upon on business exempted from surplus lines provisions under section 20‑420. The surplus lines broker shall collect the tax from the insured in addition to the full amount of the gross premium charged by the insurer for the insurance. The surplus lines broker shall return the tax on any portion of the premium unearned at the termination of the insurance policy to the policyholder. The surplus lines broker is prohibited from absorbing the tax and from rebating, for any reason, any part of the tax or commission.
B. D. Notwithstanding section 20‑415 and subsection A of this section, if a surplus lines broker fails to timely renew the license held by the broker to transact surplus lines insurance and the broker's license is revoked by order of the director or the director accepts the consent to voluntary termination of the license, the broker shall file a statement of surplus lines business from the end of the last reporting period covered by the statement filed by the broker through the date the license was last valid and shall remit all outstanding surplus lines taxes to the director. The broker shall file the statement of surplus lines business and shall remit any outstanding surplus lines taxes within thirty days after the nonrenewal, revocation or voluntary termination of the license.
C. E. Except as provided in subsection D F of this section, for the purpose of determining the surplus lines tax, the total premium charged for surplus lines insurance placed in a single transaction with one underwriter or group of underwriters, whether in one or more policies, shall be allocated to this state in the proportion as the total premium on the insured properties or operations in this state, computed on the exposure in this state on the basis of any single standard rating method in use in all states or countries where the insurance applies, bears to the total premium so computed in all the states or countries.
D. F. The surplus lines tax on insurance on motor transit operations conducted between this and other states is payable on the total premium charged on all surplus lines insurance less the portion of the premium determined as provided in subsection C E of this section charged for operations in other states taxing the premium of an insured maintaining its headquarters office in this state or the premium for operations outside of this state of an insured maintaining its headquarters office outside of this state and a branch office in this state.
E. G. Such tax shall be apportioned in the manner provided by section 20‑224, subsection C.
F. H. All surplus lines taxes collected on Arizona single‑state risks pursuant to this section and section 20‑416.01 are monies that belong to this state and constitute a debt to this state. All surplus lines tax on coverage procured for an insured whose home state is Arizona that would otherwise be payable to another state as the other state's portion of a multistate risk shall constitute monies of this state and a debt to this state if the other state has not entered into a compact or multistate agreement to which Arizona is a party to effectuate the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201).
Sec. 9. Title 20, chapter 2, article 5, Arizona Revised Statutes, is amended by adding section 20-416.01, to read:
20-416.01. Collection and payment of tax on surplus lines; multistate agreement
A. In accordance with the nonadmitted and reinsurance reform act of 2010, the director may enter into a compact or multistate agreement to provide for the reporting, payment, collection and allocation of taxes imposed pursuant to sections 20‑401.07 and 20‑416 on unauthorized surplus lines insurance covering multistate risks if, after a hearing conducted pursuant to section 20-161, it is determined that entering into a compact or multistate agreement is in the best interests of this state. In determining whether entering into a compact or multistate agreement is in the best interests of this state, the following factors shall be considered:
1. The impact on the state’s gross receipt of premium taxes, if any.
2. The regulatory burden and costs placed on insurance companies, surplus lines brokers and insurance agents doing business in this state.
3. The cost impact on insureds resulting from any regulatory requirements attributable to a compact or multistate agreement, if any.
4. Other factors as may be raised by the director or any other interested party.
B. Taxes imposed pursuant to sections 20‑401.07 and 20‑416 on unauthorized insurance covering Arizona single-state risks shall not be covered by or payable through any compact or multistate agreement entered into by the director pursuant to subsection A of this section.
C. If a clearinghouse is not established or otherwise in operation or if the director does not enter into a multistate agreement or compact pursuant to subsection a of this section, any statements and taxes otherwise payable to a clearinghouse pursuant to this article shall be filed with the director or with a voluntary domestic organization of surplus lines brokers with which the director has contracted to accept reports pursuant to section 20‑167.
D. The director may adopt reasonable rules to effectuate any provision of the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201).
