SR 959 codifies many of the provisions of Regulation 2174, which was issued by the Department of Insurance (DOI) over two years ago in an effort to strengthen the surplus fine market. The impact of 2174 has been impressive. Because of 2174, hundreds of less than reputable non-admitted insurance companies head-quartered in countries far beyond the reach of our judicial system and regulatory authorities, are prohibited from taking another dollar from unsuspecting California insurance consumers. Regulation 2174 also, established strict guidelines which must be met before any non-admitted company could do business in this state. These advances have been made, permanent through SB 959.

On December 2, 1994 the DOI issued a letter to the SLA indicating the procedures that need to be taken during the transition from Regulation 2174.1 to SB 959. This letter was circulated to all SLA members as Bulletin 671. In summary the DOI made available the option. for currently listed non-admitted insurers to renew under Regulation 2174.1 prior to 12/31/94 AND have the same renewal packet reviewed under SB 959. The advantage of this option was that it minimized the work for the non-admitted insurer and avoided a possible lapse in the non-admitted insurer's eligibility due to the transition to SB 959. AR renewal packets had to be filed with the DOI no later than 12/31/94 for it to be eligible.

Some other highlights of SB 959 (which are all detailed in the recently issued SLA Bulletin 672) are as follows:

• CONSUMER DISCLOSURE STATEMENT: This statement now includes a toll free number for the DOI. In addition it must now be printed in English and the language principally used by the broker and the non-admitted insurer to advertise, solicit or negotiate the sale and purchase of the surplus line insurance.
• LIST OF ELIGIBLE SURPLUS LINE INSURERS: Among the criteria to be an approved non-admitted insurer, which are substantially the same as the criteria under 2174,1, are the following:
  • Capital and surplus that together total at least $15 million. The Commissioner may consider the eligibility of any surplus line insurer that does not have the minimum capital and surplus of $15 million.
  • Alien non-admitted companies must have at least $5.4 million in a irrevocable trust account in a qualified United States financial institution.

• GAP EXEMPTION: Insurance may be placed with unapproved nonadmitted insurers if all of the following conditions are met:
  • The use, of multiple insurers is necessary to obtain coverage for 100% of the risk.
  • At least 80% of the risk is placed with admitted insurers or insurers that appear on the list of eligible non-admitted insurers.
  • The placing surplus line broker submits to the commissioner copies of all documentation relied upon by the surplus line broker which states that the financial reputation of the unlisted insurer is adequate to safeguard the interests of the insured under the policy.
  • The insured has aggregate annual premiums for all risks, other than workers' compensation or health coverage, no less than $100,000.
  • Insurance may not be placed with any unlisted insurer that has for any reason been objected to by the commissioner, removed from the list or denied placement on the list.

• FORM A FILING REQUIREMENT: Surplus line brokers are permitted to make placement with any insurer appearing on the list of eligible surplus line insurers. The Form A filing required under 2174.1 will no longer be required when making a placement with an insurer on the list.
  • SL- 1: The SL-1 has been revised to capture information regarding placements made with Gap Exemption insurers.

Additionally SB 959 has eliminated the provision within AB 865 which causes AB 865 to cease being a law in 1995 (commonly referred to as a sunset provision). AB 865, which became law in 1994 was designed to achieve (and has achieved) many critical goals in relation to this State's surplus line insurance market including:

• Providing the insurance commissioner with an invaluable resource of line insurance market information, at no cost to the California taxpayer.
• Allowing the DOI to dedicate its resources to more pressing enforcement issues.
• Improving the business environment in California.
• Improving relations between business and government.

The passage of SB 959 makes the listed gains a permanent fixture in this state and once again California can be a model when it comes to surplus fines legislation and regulation. It is important that every surplus line broker become intimately familiar with the provisions of SB 959. Please read SLA Bulletins 671 and 672 for a more detailed explanation of this very important law.

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