Following is the status of the current proposed legislation which will affect the surplus line business in California.

Emergency Regulation 2174:
This was approved by the office of Administrative Law on June 12. It goes into effect immediately. Shortly after Emergency Regulation 2174 was approved by the OAL, the DOI started the process for Permanent Regulation 2174. The permanent regulation is essentially the same as them emergency version, however, there are two notable differences. First, the Permanent regulation applies to all non-admitted carriers. Second, there is a rate and form filing provision in the regulation.

Since the announcement of the specifics of the permanent regulation, there has been a considerable amount of opposition to the rate and form filing requirement. The DOI hearings on the permanent regulation has highlighted this concern. Hopefully, the testimony presented to the Department on this issue will sway them to delete this provision from the permanent regulation. In short, the regulation requires the filing of certain financial documents by non-admitteds. Additionally, it requires that certain criteria be met in terms of capital and surplus and trust accounts. However, it appears by the wording of the regulation that this applies only to new non-admitted insurers, that have not been used for California placements.

Assembly Bill No. 2445: Originally this bill required the submission of any private, passenger automobile application to the California Automobile Assigned Risk Plan (CAARP), prior to submitting it to the non-admitted market. The CAARP requirement has been dropped, however. Before any personal lines automotive risk can be placed with a non-admitted insurer, the insurer must meet certain criteria. Among the criteria:

• The non-admitted insurer must maintain a trust account in California of no less than $2,000,000.
• The Surplus fine broker shall establish and maintain on behalf of each insurer a separate trust account into which each month's gross, collected premiums shall be paid. This is to include IBNR and in no case is it to equal an amount less than 50% of the premium written during the preceding calendar quarter. This has passed the Assembly, however, the author has decided not to continue with this bill and has therefore removed it from any further consideration.

Assembly Bill No. 3530:
Originally this bill proposed to significantly increase the bond requirement for a surplus line broker from $50,000 to $500,000. Because of the immediate and loud outcry from the SLA and its membership, as well as evidence pointing to an extremely negative impact to the non-admitted market, this provision was dropped.

Assembly Bill No. 3577:
This bill has been dramatically revised since its proposal, In it current form the bill would require that a policy be delivered to the insured within 90 days of coverage.

This has passed the Assembly, however, the time to submit it to the Senate has elapsed and as a result this bill has been dropped.

Assembly Bill No. 2608:
Several changes have been made to this bill which would require certain conditions to be met before the placement of insurance in the non-admitted market. Among the changes:

• Elimination of the "white lists
• The three declination rule is established as the definition of a diligent search.
• Elimination of the sworn affidavit.

This has passed the Assembly and is now in the Senate.

Senate Bill No. 1145:
This bill would require written notice to the insured that they are entering the non-admitted market. Discussions have been going on for well over a year between the SLA, DOI, and the author (Senator Johnson) to come up with language which would meet the concerns of the DOI and yet not unduly impede placing legitimate risks in the non-admitted market. The compromise would require the insured's signature on a disclosure statement which lists some of the differences between admitted and non-admitted insurers. The one major concession the SLA was able to achieve was that industrial insureds (those with more than 25 employees and incur more than $25,000 in annual premiums, or have an insurance manager or insurance consultant) would not need to supply a signature on this disclosure.

This bill has been signed into law and will take effect January 1, 1993.

Senate Sub-Committee on Non-Admitted Insurers
In addition to the activities related to specific pieces of legislation or regulations, the SLA was asked to make a formal presentation to the Senate Sub-Committee on Non-Admitted Insurers. The sub-committee, chaired by Senator Johnston, held its first hearing on June 15. In representing the SLA, I reminded the sub-committee and those in attendance that for over 50 years the non-admitted market has functioned extremely well. Unfortunately, in the past few years certain segments of our market, which account for a small fraction of the total, have created problems which have tarnished all of us. We, the legitimate brokers, have also been harmed by the dishonest and illegal practices of those who take advantage of those new personal line buyers entering the non-admitted market in record numbers.

The response, unfortunately, by Sacramento has been piecemeal legislation. A more efficient way to deal with the problem, as Commissioner Garamendi alluded to in his opening remarks to the sub-committee that same day, is an overhaul of the existing surplus line section of the insurance code. We agree with that assessment. The SLA has taken the initiative by modifying the NAIC's Model Surplus Line Law for California. At the hearing, the SLA submitted to the sub-committee its modified version of the model law.

The surplus line market is going through a period of dramatic change in California. The SLA is expending an inordinate amount of time and energy to keep abreast of these changes. It will be vital in the coming months for the entire membership to ensure that their concerns are heard not only at the SLA, but also in Sacramento.

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