About Us - Plan of Operation

INTRODUCTION

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1. DUTIES UNDER SECTION 1780.56(a)(1)3
   - RECEIPT, REVIEW AND RECORDING OF REQUIRED DOCUMENT FILINGS

   The SLA shall serve as the designee of the Insurance Commissioner (the "Commissioner") for receiving, reviewing and recording documents that surplus line brokers are required by law to file with the Commissioner,4 including the following filings:

   Confidential Report of Placement - Form SL-1, including a copy of the declarations page of the policy or the surplus line broker's certificate or binder, and any other pertinent information reasonably required by the Commissioner ( 1763(a)),
   
   Diligent Search Report - Form SL-2 ( 1763(a)), unless the type of coverage or risk meets the Export List requirements ( 1763.1),
   
   California Automobile Assigned Risk Plan ("CAARP") Determination of Ineligibility - private passenger automobile liability only ( 1763.5),

   The following filing may not be filed with the SLA:

   Lower Premium filings under Insurance Code Section 1763(c), which must be filed directly with the Commissioner.5

   If requested to do so by the Commissioner, the SLA shall also receive, review, and record other documents that the Commissioner by law may require surplus line brokers to file.
   
   Any documents received by the SLA pursuant to Insurance Code Section 1780.56(a)(1) shall be maintained in files plainly marked as containing property of the Commissioner.
   1. Processing of Filings
      1. Surplus Line Brokers Filing Procedures

         The SLA shall advise all surplus line brokers to submit SL-1 and SL-2 filings and accompanying documents in the manner prescribed by current statutes, regulations, and bulletins. From time to time, the SLA shall advise all surplus line brokers of the filing procedures and requirements.

      2. Receipt, Review and Recording of Filings

         The SLA shall be the Commissioner's designated recipient of all SL-1 and SL-2 filings and required accompanying documents. For each batch of filings received, the SLA shall record the postmarked date, the brokers licensed name or DBA name, assigned SLA broker number, date received, assigned batch number, premium total and item count. Each batch shall be reviewed by the SLA staff, who shall record all pertinent information, as required by the Commissioner, in the SLA's computer database. Exhibit I describes the required information which may be amended from time to time as directed by the Commissioner.
         
         During the review, the SLA shall determine whether the SL-1 and SL-2 and all documents required by the Commissioner have been fully completed by the filing surplus line broker in accordance with the Commissioner's instructions and existing statutes and regulations and whether the insurer is on the List of Eligible Surplus Line Insurers (LESLI). The SLA shall forward to the Commissioner copies of all filings upon request by the Commissioner. Printouts of the information recorded in the SLAs database pursuant to this section shall be available to the Commissioner on request.
         
         The SLA shall notify the filing surplus line broker of any errors, inaccuracies, or other problems in the filed documents and shall follow up on responses as it deems appropriate or as requested by the Commissioner. This notification may be issued in writing in the form of a tag. Exhibit II is a summary of the tags and the procedures for processing unresolved tags. The tags and procedures may be amended from time to time by agreement between the Commissioner and the SLA. On request or as otherwise set forth herein, the Commissioner shall be provided with periodic reports regarding any unresolved or unanswered tags noted in the submitted documents or with copies of any related documentation.
         
         The SLA shall mail a monthly report and stamping fee invoice to each surplus line broker showing detail of filings processed in the preceding month for that surplus line broker. The SLA shall collect payment of any stamping fee due.

   2. Processing of Security Filings and Supporting Documents

      The Commissioner shall receive security filings, supporting documents, and fees and may forward the documentation to the SLA for processing as discussed in Part II below. The Commissioner may direct that surplus line brokers and others file the items directly with the SLA instead of with the Commissioner. In that event, the SLA may receive the filings and fees as directed by the Commissioner.

   3. Availability of Filed Documents and Records

      Documents maintained by the SLA pursuant to Insurance Code Section 1780.56(a)(1), and information contained in those documents, shall be made immediately available, on request, to the Commissioner. Such documents are the property of the Commissioner, and the Commissioner shall be the sole designated custodian of those records.
      
      The SLA is not authorized to accept service of subpoenas that require production of the Commissioners records. If a subpoena requests both records belonging to the Commissioner and records not belonging to the Commissioner (i.e. those which are not maintained pursuant to Insurance Code Section 1780.56(a)(1)) in the custody of the SLA, acceptance of the subpoena and response thereto by the SLA with respect to records not belonging to the Commissioner shall not be deemed or construed to be acceptance with the respect to the Commissioners records.
      
      A sign shall appear in the SLA office prominently stating:
      
      Documents maintained by the SLA pursuant to Insurance Code Section 1780.56(a)(1) are the property of the Department of Insurance. The Department of Insurance is the sole designated custodian of those records. The SLA is not authorized to accept service of subpoenas that require production of the Department of Insurances records.
      
      Documents maintained pursuant to Insurance Code Section 1780.56(a)(1) shall be made available by the SLA, on request, to the surplus line broker who filed them and to the insured or insurer on whose behalf the documents were filed. The SLA shall not release such documents to any other person, except that statements filed under Insurance Code Section 1763 which the Commissioner has determined in writing that the public interest or the welfare of the filing broker necessitates release, if maintained by the SLA, shall be made available by the SLA to any person for inspection on request made to the Commissioner if all costs of retrieval and/or copying are paid by the requesting party.
      
      Aggregate statistics which do not contain confidential or proprietary information may be released, upon the Commissioners approval, to the public or to the press. For purposes of this paragraph, confidential and proprietary information includes any information which identifies premium volume by both surplus line broker and by issuing insurer simultaneously.
      
      The availability of documents and information maintained by the SLA pursuant to Insurance Code Section 1780.56(a)(1) shall be governed by this Section I.C. of the Plan regardless of when they were filed with or maintained by the SLA.

2. DUTIES UNDER SECTION 1780.56(a)(2)6
   - CONDUCTING SECURITY REVIEW
   1. Security Review for Foreign and Alien Insurers

      The SLA shall review and analyze financial documents as requested by the Commissioner with respect to foreign and alien nonadmitted insurers applying for surplus line eligibility and those insurers whose eligibility has been approved unless both the Commissioner and the SLA agree otherwise. Based on its review and analysis, the SLA shall prepare Security Summary Reports in the format agreed upon with the Commissioner. The SLA shall provide the Commissioner with updated reports as necessary or appropriate, based on new or updated information received. (See Exhibits III and IV for a summary of the security review process for foreign and alien insurers, respectively. These processes may be amended from time to time by agreement between the Commissioner and the SLA.) The SLA may also act as expert witness or provide testimony in this area, as requested by the Commissioner.

   2. Review of Filings for GAP Companies

      The SLA shall also review materials as requested by the Commissioner for filings for insurers not on the LESLI but providing coverage for risks pursuant to Insurance Code Section 1765.1(k) (GAP companies). These filings are submitted to the Commissioner by the surplus line brokers who have relied upon them in determining that the financial stability, reputation, and integrity of a GAP company are adequate to safeguard the insureds interest. Based on its review of the filings and other readily available materials, the SLA shall provide the Commissioner with a brief overview of each GAP company and note if there is any information that would indicate the filing does not meet the standards for placement by insureds whose risks meet the qualifications of Insurance Code Section 1765.1(k)(1).

   3. Confidential Reports

      The Security Summary Reports and updates and the reports of reviews of filings for GAP companies prepared by the SLA pursuant to Insurance Code Sections 1780.56(a)(2) and 1780.56(a)(3) are confidential pursuant to Insurance Code Section 1780.66(b). The reports shall be based on the SLA's review and analysis of the documents received from the Department and on such additional information that may come to the SLA's attention or that the Commissioner reasonably requests the SLA to consider. The reports shall include a discussion of those issues and concerns that warrant the Commissioner's attention and questions about the insurer's integrity, reputation, financial stability, or potential risk of harm to the public.

   4. Requesting Additional Information

      As necessary, the SLA shall request any additional information needed for its analysis of the foreign and alien insurers. These supplementary documents may be forwarded directly to the SLA by the insurers when requested by the SLA. Pertinent information from these documents shall be incorporated in the SLAs Security Summary Reports or updates to those reports if, after the review of the documents, the SLA deems it appropriate or necessary.

   5. Meeting with the Commissioners Staff

      The SLA shall make itself available to meet with the Commissioner or the Commissioners staff to discuss ongoing considerations concerning companies on the LESLI, LESLI applicants, and filings for GAP companies on a monthly basis or on any other mutually agreeable schedule.

   6. Qualifications of Security Review Process

      The SLA shall perform its security review based on the documents forwarded by the Commissioner, or obtained by the SLA pursuant to Section D above, for those nonadmitted insurers that the Commissioner has placed on the LESLI or that are seeking placement on the LESLI. The SLA shall prepare Security Summary Reports on these insurers in a sequence to be determined by the SLA unless otherwise directed by the Commissioner. The Security Review Program is not intended to provide any type of warranty as to an insurer's financial stability and/or its ability to perform its contractual obligations.

   7. Filing Compliance

      The SLA shall assist the Commissioner in monitoring whether all documents filed by a nonadmitted insurer are in full compliance with the requirements of Insurance Code Section 1765.1. On its own or in conjunction with the Commissioner, the SLA shall request that the nonadmitted insurer or the insurers contact broker provide any documents that are missing or defective. The SLA shall forward an insurers filing to the Commissioner as soon as the insurers security review has been completed and the entire package is in conformity with all the requirements, or as requested by the Commissioner.

   8. Dissemination of the List of Eligible Surplus Line Insurers

      The SLA shall distribute to its Members and interested parties the LESLI whenever the Commissioner issues a new or updated list.

3. DUTIES UNDER SECTION 1780.56(a)(3)7
   - CONFIDENTIAL RECOMMENDATIONS

   The Security Summary Reports prepared by the SLA shall include a confidential financial recommendation to the Commissioner as to the addition, continuation, or deletion of any foreign or alien insurers seeking new or continuing surplus line eligibility in California.  The SLAs recommendation shall be presented for approval to the Commissioners Financial Analysis Division (FAD).  The SLA may also change its recommendation based on new and revised information.

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4. DUTIES UNDER SECTION 1780.56(a)(4)8
   - INSURANCE FRAUD REPORTING

   The SLA shall report to the Commissioner and other appropriate authorities instances of actual fraudulent or illegal insurance activity in the surplus line market that come to the SLAs attention and any other facts that come to the SLAs attention that, in the reasonable judgment of the SLA, may indicate the presence of fraudulent or illegal insurance activity in the surplus line market or potential risk of harm to consumers of surplus line insurance.
   
   The SLA shall cooperate with the Commissioner in any investigation of fraudulent or illegal activity as requested, and shall keep confidential any communications between the Commissioner and the SLA regarding such activity and shall not disclose such communications to anyone, including the person subject to the investigation, except as directed by the Commissioner.

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5. DUTIES UNDER SECTION 1780.56(a)(5)9
   - PREMIUM TAX INFORMATION COLLECTION AND REPORTING

   The information received, reviewed, and recorded by the SLA under Part I above shall be available to the Commissioner for purposes of ensuring that surplus line taxes are fully and accurately reported and paid. 
   
   The SLA shall maintain a dialog with the Commissioner concerning additional ways in which the SLA might expand its services to the Commissioner in relation to premium tax return preparation, tax auditing, and tax collection.

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6. DUTIES UNDER SECTION 1780.56(a)(6)10
   - COMMENTING ON PROPOSED LEGISLATION OR REGULATIONS

   The SLA, through its Legislative Committee, shall respond to any request by the Commissioner for comments on any proposed legislation or regulation affecting the placement of insurance pursuant to the surplus line law.

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7. DUTIES UNDER SECTION 1780.56(a)(7)11
   - EDUCATIONAL AND INFORMATION DISSEMINATION ACTIVITIES

   The SLA shall continue to provide information and instruction to its membership and other interested persons concerned by broadening its communication capabilities, presenting seminars, educating the industry and consumers in surplus line laws and regulations, assisting with the regulatory compliance questions, and disseminating, in a timely matter, updated and current information relative to the surplus line industry.  
   
   The SLA shall continue disseminating information relative to surplus line issues through bulletins on topics of interest to its membership and through a quarterly newsletter.  The SLA shall continue to offer its facilities and mailing list as a convenient and cost effective means of distributing documents and informational items relevant to the transaction of surplus line insurance at the Commissioners request. 
   
   The SLA shall keep the Commissioner advised of all educational activities in which it engages and shall provide such other educational activities as may reasonably be requested by the Commissioner.

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8. DUTIES UNDER SECTION 1780.56(a)(8)12
   - COMMUNICATING WITH ORGANIZATIONS OF ADMITTED INSURERS

   The SLA shall, as necessary and appropriate in the furtherance of its duties as delegated and actively supervised by the Commissioner under Section 1780.50 et seq., communicate with and respond to questions or comments from organizations of admitted insurers regarding surplus line insurance.

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9. DUTIES UNDER SECTION 1780.56(a)(9)13
   - ADDITIONAL FUNCTIONS AGREED BETWEEN THE COMMISSIONER AND THE SLA

   The SLA welcomes suggestions by the Commissioner of additional functions that would assist the Commissioner in providing effective and cost-efficient surplus line regulation.  The SLA shall meet periodically with the Commissioner and the Commissioners staff on a schedule to be mutually agreed upon to consider modifications to this Plan.  Through a verbal agreement with the Commissioners staff, the SLA will maintain broker filings for a period of 10-years after they are received by the SLA.  Records older than 10-years may be destroyed.

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10. EXAMINATION UNDER SECTION 1780.58

    The SLA shall undergo an examination of its organization, including the reasonableness of its costs as provided in Insurance Code Section 1780.58.  The audit date of the initial examination was March 30, 1994. 
    
    The examination may be made by independent auditors retained for that purpose by the Commissioner.  The reasonable cost of the examination shall be paid to the Commissioner or, if the Commissioner retains independent auditors for that purpose, directly to the independent auditors, by the SLA upon presentation by the Commissioner, or by the independent auditors, of a detailed account of the cost.

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11. Confidentiality Agreement

    All SLA employees shall sign a confidentiality agreement and shall commit to upholding the Insurance Code and the terms of this Plan.

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12. ADDENDUM TO THE PLAN OF OPERATION
    - AS OF JUNE 11, 2001

    Effective July 16, 2001, the SLAs Financial Department will receive from the California Department of Insurance (CDI) all initial, renewal and update regulatory filings from non-admitted insurers.   A copy of the check in payment of the filing fee, if submitted with the insurers filing, will also be included.  The SLA will be responsible for performing a review of each filing to ascertain its completeness.  However, the SLA will not be responsible for determining the adequacy of the filing fee nor will the SLA be responsible for following up on missing filing fee(s).  It will also be the CDIs responsibility to send the acknowledgement letter to the insurers for filings received.
    
    The SLAs duties under the document review process will include, but are not limited to, the following:

    1. Sort the four sets of documents filed by each company and ensure each set contains the same copies of documents.
    2. Distribute the four sets to the appropriate CDI/SLA staff as follows:
       1. Original copies - Carol Friar. The SLA will continue to hold these originals until the CDI Financial Analysis Division (LA) has signed off on the SLAs security summary report.
       2. One set for the San Francisco public files. This will be mailed to Legal to the attention of Carol Friar.
       3. One set for the Los Angeles public files. This will be mailed to the Financial Analysis Division in Los Angeles.
       4. One set will be retained at the SLA.
    3. Determine whether documents filed are in compliance with the requirements of CIC Section 1765.1.
    4. Notify the company and/or filing broker in writing of any deficient filing(s).
    5. Make two additional follow-ups on deficient filings within 30 days from the date of receipt by the SLA.
    6. Refer any non-response or inadequate response after the 30^th day to Dennis Ward, Chief, Licensing Services Division.
    7. As agreed with Claire Felarca (San Francisco Investigation Bureau), pick-up days for documents are Tuesday and Thursday afternoons.

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1.             Policy number
2.             Name of insured
3.             Type of coverage
4.             Premium
5.             Policy effective date and expiration date
6.             Insurer code and each insurers percentage of participation
7.             Type of business and its respective SIC code
8.             Zip code of the insureds address
9.             Whether the policy is new or renewal

1.             Policy number
2.             Name of insured
3.             Effective date of endorsement
4.             Premium for the endorsement (if any)
5.             Whether the endorsement is a policy cancellation

1.             Policy number
2.             Name of insured
3.             Type of coverage
4.             Policy effective date and expiration date
5.             Insurer code and each insurers percentage of participation
6.             Zip code of the insureds address
 

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• Sl-1 Is Missing.
• SL-1 Form Was Incomplete.
• SL-2 Is Missing.
• SL-2 Form Was Incomplete.
• Section 6 Of The SL-2 Form Was Incomplete.
• Section 7(B) Of The SL-2 Form Was Incomplete.
• Admitted Company Names Are Incomplete On SL-2 Form.
• Admitted Company Name On SL-2 Not Listed In Admitted Book.
• Listed Admitted Insurers On SL-2 Not Licensed To Write Business.
• SL-1/SL-2 Forms Required For Endorsements Extending The Policy Term.
• SL-1/SL-2 Forms Are Not Legible.
• Late Policy Filing Submitted With No Explanation.
   

• Policy/Certificate Appears To Be Placed In An Admitted Company.
• Policy/Certificate Number Is Missing.
• Policy/Certificate Term Of Coverage Is Missing.
• Incomplete Policy Or Binder.
• Name Of Insured Is Not Shown Or Is Not Legible.
• Non-Fileable Coverage.
• Risk and Insured are Out of State.
• Taxes Are Not Shown On Or In Policy/Certificate.
• Premium Is Not Broken Down According To Coverage.
• Renewal Has No Record Of Previous Policy Filed.
• Risk Purchasing Group Name Is Not Shown.
• Risk Purchasing Group Name Is Not On List Under Company.
• Endorsement Has No Record Of Policy Being Filed.
• Endorsement Date Does Not Fall Within Policy Term.
• Cancellation Endorsement Effective Date Is Missing.
• Endorsement Does Not Show Tax.
• Duplicate Policy Filed By Same Broker.
• Duplicate Policy Filed By Different Brokers.
• Duplicate Endorsement Filed By Same Broker.
• Duplicate Endorsement Filed By Different Brokers.
• No Specific Tag Wording.  Must Be Typed Manually.
   

• Incorrect SL-1 Form Submitted.
• Incorrect SL-2 Form Submitted.
• Incorrect SL-1 And SL-2 Forms Submitted.
• SL-1 Form With Original Signature.
• SL-2 Form With Original Signature.
• Late Policy Filing Submitted With An Explanation.

• C.A.A.R.P. Declination is Missing.
• Insurer Not In Compliance with GAP Provisions.
• Company Not Approved for Use on LESLI List.
• Company Objected by California Dept. of Insurance.
• Security Information is Not Provided.
• Security List Does Not Show Group Breakdown.
• Security Company Share of Risk Does Not Equal Share on Cover Note.
• Security Agreement is Broken Down by Coverage, but Percentage of
• Participation Was Not Provided.
• Lloyds Syndicate Numbers Not Shown.

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At the general directions of the California Department of Insurance - Financial Analysis Division, the SLA shall prepare foreign security summary reports, based on financial documents forwarded by the Commissioner or otherwise received by the SLA in accordance with the Plan of Operation, in a mutually agreed format consisting of, but not limited to, the following sections:

This section contains a brief history of the company, including formation, type of company, ownership, pooling information or 100% reinsurance agreement (if applicable), affiliated transactions and relationships, name and management changes (if applicable), A. M. Bests and Standard & Poors most current ratings, as well as any other major changes that are relevant to the current review and analysis.

This section also includes a summary of the overall size and composition of the companys capital structure, disclosing any surplus notes or any other special surplus funds included in the capital structure.
 

This section contains a brief overview of the companys operations based on material provided by the company and other external sources of information available from the major rating agencies such as A.M. Best's and Standard and Poors.  This section also includes the companys business plan in California, the three major lines of business written for the year, the states where the company is licensed and the states where the company operates as a surplus line carrier, affiliated transactions and relationships relating to the companys operations, and any substantial shifts in the geographical area, kinds of business written, or volume.

In addition, this section includes total written premiums nationwide and total premiums for the major lines of business written in California as compared to total premiums processed by the SLA from broker filings.  This section also reflects any material changes or concerns relevant to the companys operations (i.e. failures in any of the NAIC-IRIS overall tests, adverse findings by its auditors and findings by regulatory examination).  If applicable, the analysis may include any apparent violations of California Insurance Code (CIC) Section 703, unusual affiliated transactions and agreements, or a summary of facts that may raise concerns as to the integrity or stability of the company.
 

This section contains a brief discussion of the companys exposures to environmental and asbestos risks, interest rate risks, foreign exchange risks, industry specialization risks, and concentration of credit risks or other risks that may have an impact on the companys operations or solvency.
 

This section of the analysis considers the overall disposition of the companys assets, its liquidity, portfolio diversification and investment performance, and any other major or notable increases in non-invested assets.

Analysis of the assets includes a summary of the companys significant assets, noting any major shift in the asset mix, notable decrease in invested assets, size of investment in subsidiary and affiliates relative to the companys capital and total investment.  This section also identifies those assets that do not qualify under the asset standard requirements of CIC Section 1765.1(a)(2)(A).  Non-qualifying assets are reflected as a deduction from the companys surplus.  Other asset risks are also discussed even though the assets may meet the standards of CIC Section 1765.1.
 

This section contains a review of the companys aggregate loss reserves, based primarily on the companys statement of actuarial opinion, noting the qualification of the actuary as well as whether the actuary has issued an adverse or qualified opinion.  Other risk factors that will be noted in this section include the size of the companys reserves (noting any significant changes in the level of reserves in relation to premium volumes), loss reserve leverage, one and two year loss reserve developments, exposure to asbestos or pollution, and any unusual values for the NAIC IRIS reserve ratios.

This section also reflects any adjustments to surplus for discounting of loss reserves (other than tabular discounting of reserves for workers compensation) which is not permitted in California.  In addition, this section notes reserves for unearned premiums that are relatively low in comparison to net premiums written, as well as sizable payables to affiliates, contingent liabilities, and/or any other large liability accounts.
 

This section contains an analysis of operating performance including an assessment of the companys overall performance which incorporates the effect of underwriting results, investment returns including capital gains and losses, and other revenue and expenses.  The analysis of underwriting performance includes evaluating the profitability test ratios, and a comparison of the companys loss ratio, expense ratio, and combined ratio to the NAIC acceptable benchmarks.

Other factors considered include changes (mainly decreases) in the companys surplus of more than ten per cent, unusual dividend policies, one-time event effects on income or surplus, and risk-based capital ratios that compare the companys surplus to its authorized control level capital.
 

This section reviews the overall exposure of the company to its reinsurers, noting any reinsurers that may pose a risk to the companys solvency.  If requested or deemed appropriate, the analysis may include a review of certain reinsurance contracts, noting items that may not be in compliance with Chapter 22 of the NAIC Accounting Practice and Procedures Manual.  Other factors considered are the size and age of the company's reinsurance recoverable (if available).  Adjustments will be made to surplus for unsecured reinsurance recoverable from unauthorized reinsurers under CIC Section 922.6, as well as recoverable from reinsurers who are in run-off, receivership, liquidation, or other regulatory supervision.
 

This section summarizes the adjustments made to the companys surplus as a result of deductions to assets and/or increases to liabilities based on the above analysis, review of the companys financial statements, and other related information.
 

This section reflects a summary of recent events affecting the companys solvency and provides a summary of the companys most recent quarterly financial data, if available.  Previous adjustments to surplus are also modified if necessary to reflect more recent financial information.
 

This section provides a recommendation to the Commissioner regarding the suitability of the company for eligibility to operate as a surplus line carrier in California and the rationale for the recommendation.
 

The above analytical procedures involved in reviewing a surplus line carrier are not all-inclusive.  The review may involve other procedures and methods not listed in the preceding paragraphs that may be applicable to a specific situation or occurrence.

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At the general directions of the California Department of Insurance - Financial Analysis Division, the SLA shall prepare alien security summary reports, based on financial documents forwarded by the Commissioner or otherwise received by the SLA in accordance with the Plan of Operation, in a mutually agreed format consisting of, but not limited to, the following sections:
 

This section contains a brief history of the company, including formation, type of company, ownership, name and management changes (if applicable), current developments about the company or its affiliates, and any other major changes that are relevant to the current review and analysis.  Also, if available, this section will include a description of affiliated transactions and relationships as well as the A.M. Bests and Standard & Poors most current ratings.

In addition, this section includes a summary of the overall size and composition of the companys capital structure and any unusual items that may appear in the shareholders equity account.
 

This section contains a brief overview of the companys operations based on material provided by the company and on other external sources of information available from the major rating agencies such as A.M. Best's and Standard and Poors.  This section also includes a brief summary of the companys business plan, the major lines of business written by the company worldwide and in the United States and if available in the states where the company operates as a surplus line carrier, affiliated transactions and relationships relating to the companys operations, and any substantial shifts in the geographical area, kinds of business written, or volume.

In addition, this section includes total written premiums worldwide and in the United States, as well as total premiums processed by the SLA from broker filings in California.  If applicable, this section may also reflect any material changes or concerns relevant to the companys operations, including any adverse findings by its auditors, as well as any unusual IID financial ratio results, any apparent violations of California Insurance Code (CIC) Section 703, unusual affiliated transactions or agreements, or any facts that may raise issues concerning the integrity or stability of the company.
 

This section contains a brief discussion of the companys exposures to environmental and asbestos risks, interest rate risks, foreign exchange risks, industry specialization risks, and concentration of credit risks or other risks that may have an impact on the companys operations or solvency.
 

This section contains a brief statement indicating whether or not the alien insurer has met the trust fund requirement of CIC Section 1765.1(b)(1) for alien insurers.  It also includes the composition of the trusteed assets.
 

This section of the analysis considers the overall disposition of the companys assets, its liquidity, portfolio diversification, and investment performance, and any other major or notable increase in non-invested assets.

Analysis of the assets includes a summary of the companys significant assets, noting any major shift in the asset mix, notable decrease in invested assets, negative cash flow from operations, and size of investment in subsidiary and affiliates relative to the companys capital and total investment.  This section also identifies those assets that are not considered admitted assets under NAIC guidelines and any assets that do not qualify under the asset standard requirements of CIC Section 1765.1(a)(2)(A).  Non-qualifying assets are reflected as a deduction from the companys surplus.  Other asset risks are also discussed even though the assets may meet the standards of CIC Section 1765.1.
 

This section contains a review of the companys aggregate technical reserves based primarily on the companys statement of actuarial opinion, noting the qualification of the actuary as well as whether the actuary has issued an adverse or qualified opinion.  Other risk factors noted in this section include the size of the companys reserves (noting any significant changes in the level of reserves in relation to premium volumes), loss reserve leverage, as well as the one- and two-year loss reserve developments calculated by the SLA based on the loss triangulation furnished by the company.

This section also reflects any adjustments to surplus for discounting of loss reserves (other than tabular discounting of reserves for workers compensation) which is not permitted in California.  In addition, this section notes reserves for unearned premiums that are relatively low in comparison to net premium written, as well as sizable payables to affiliates, contingent liabilities, and any other large liability accounts.
 

This section contains an analysis of the companys operating performance, incorporating the effect of underwriting results, investment returns including capital gains and losses, and other revenue and expenses.  The analysis of underwriting performance includes evaluating the profitability test ratios and comparing the companys loss ratio, expense ratio, and combined ratio to the NAIC acceptable benchmarks.

Other factors considered include changes in the companys surplus of more than 10%, unusual dividend policies, and any one-time event effects on income or surplus.
 

This section reviews the overall exposure of the company to its reinsurers, noting any reinsurers that may pose a risk to the companys solvency.  If requested or deemed appropriate, the analysis may include a review of certain reinsurance contracts highlighting items that may not be in compliance with Chapter 22 of the NAIC Accounting Practice and Procedures Manual.  Other factors considered are the size and age of the companys reinsurance recoverable (if available).  Adjustments will be made to surplus for unsecured reinsurance recoverable from unauthorized reinsurers under CIC Section 922.6, as well as recoverable from reinsurers who are in run-off, receivership, liquidation, or other regulatory supervision.
 

This section summarizes the adjustments made to the companys surplus as a result of deductions to assets and/or increases to liabilities based on the above analysis and review of the companys financial statements and other related information.
 

This section contains a summary of recent events affecting the companys solvency and provides a summary of the companys most recent quarterly financial data, if available.  Previous adjustments to surplus are also modified if necessary to reflect more recent financial information.
 

This section provides a recommendation to the Commissioner regarding the suitability of the company for eligibility to operate as a surplus line carrier in California and the rationale for the recommendation based on the above analysis and review of the company.
 

The above analytical procedures for reviewing a surplus line carrier are not all- inclusive. The review may involve other procedures and methods not listed in the preceding paragraphs that may be applicable to a specific situation or occurrence.

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