A BILL TO BE ENTITLED
AN ACT to conform provisions of north carolina surplus lines insurance laws to the federal nonadmitted and reinsurance reform act of 2010, to streamline applications for commercial purchasers, and to prevent any loss of premium tax revenue to the State.
The General Assembly of North Carolina enacts:
SECTION 1. Article 21 of Chapter 58 of the General Statutes is amended by adding the following new sections to read:
"§ 58‑21‑3.  Cooperative or interstate agreements.
The Commissioner is authorized to enter into a cooperative agreement or interstate agreement or compact to establish additional and alternative nationwide uniform eligibility requirements that shall be applicable to nonadmitted insurers domiciled in another state or territory of the United States.
"§ 58‑21‑4.  Nonadmitted and Reinsurance Reform Act duties.
(a)	For the purposes of carrying out the provisions of the Nonadmitted and Reinsurance Reform Act of 2010, the Commissioner is authorized to utilize the national insurance producer database of the NAIC, or any other equivalent uniform national database, for the licensure of an individual or an entity as a surplus lines producer and for renewal of such license.
(b)	In order to assist in the performance of the Commissioner's duties, under the Nonadmitted and Reinsurance Reform Act of 2010, the Commissioner may contract with nongovernmental entities, including the NAIC or any affiliates or subsidiaries that the NAIC oversees, to perform any ministerial functions, including the collection of fees, related to producer licensing that the Commissioner and the nongovernmental entity may deem to be appropriate."
SECTION 2.  G.S. 58‑21‑10 reads as rewritten:
"§ 58‑21‑10.  Definitions.
As used in this Article:
(1)	"Admitted insurer" means an insurer licensed to engage in the business of insurance in this State.
(1a)	"Affiliate" means, with respect to an insured, any entity that controls, is controlled by, or is under common control with the insured.
(1b)	"Affiliated group" means any group of entities that are all affiliated.
(2)	"Capital", as used in the financial requirements of G.S. 58‑21‑20, means funds paid in for stock or other evidence of ownership.
(2a)	"Control" means an entity that has "control" over another entity if either of the following occurs:
a.	The entity directly or indirectly or acting through one or more other persons owns, controls, or has the power to vote twenty‑five percent (25%) or more of any class of voting securities of the other entity.
b.	The entity controls in any manner the election of a majority of the directors or trustees of the other entity.
(3)	"Eligible surplus lines insurer" means a nonadmitted insurer with which a surplus lines licensee may place surplus lines insurance under G.S. 58‑21‑20.
(4)	"Export" means to place surplus lines insurance with a nonadmitted insurer.
(5)	"Nonadmitted insurer" means an insurer not licensed to do an insurance business in this State. "Nonadmitted insurer" includes insurance exchanges authorized under the laws of various states. "Nonadmitted insurer" does not include a risk retention group, as defined in G.S. 58‑22‑10(10).
(6)	"Producing broker" means an agent or broker licensed under Article 33 of this Chapter who deals directly with the party seeking insurance and who may also be a surplus lines licensee.
(6a)	"Reciprocal state" means a state that has enacted provisions substantially similar to the following:
a.	G.S. 58‑21‑85, 58‑21‑95(5), 58‑21‑75(10), 58‑21‑35(7b), and 58‑28‑5(b).
b.	The allocation schedule and reporting form contained in G.S. 58‑21‑85.
(7)	"Surplus", as used in the financial requirements of G.S. 58‑21‑20, means funds over and above liabilities and capital of the company for the protection of policyholders.
(8)	"Surplus lines insurance" means any insurance in this State of risks resident, located, or to be performed in this State, permitted to be placed through a surplus lines licensee with a nonadmitted insurer eligible to accept such insurance, other than reinsurance, commercial aircraft insurance, wet marine and transportation insurance, insurance independently procured pursuant to G.S. 58‑28‑5, life and accident or health insurance, and annuities.
(9)	"Surplus lines licensee" means a person licensed under G.S. 58‑21‑65 to place insurance on risks resident, located, or to be performed in this State with nonadmitted insurers eligible to accept such insurance.
(10)	"Wet marine and transportation insurance" means:
a.	Insurance upon vessels, crafts, hulls and of interests therein or with relation thereto;
b.	Insurance of marine builder's risks, marine war risks and contracts of marine protection and indemnity insurance;
c.	Insurance of freights and disbursements pertaining to a subject of insurance coming within this subsection; and
d.	Insurance of personal property and interests therein, in the course of exportation from or importation into any country, or in the course of transportation coastwise or on inland waters including transportation by land, water, or air from point of origin to final destination, in connection with any and all risks or perils of navigation, transit or transportation, and while being prepared for and while awaiting shipment, and during any delays, transshipment, or reshipment incident thereto."
SECTION 3.  Article 21 of Chapter 58 of the General Statutes is amended by adding a new section to read:
"§ 58‑21‑11.  Home state.
(a)	Except as provided in subsection (b) of this section, the term "home state" means, with respect to an insured, either of the following:
(1)	The state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal residence.
(2)	If one hundred percent (100%) of the insured risk is located out of the state referred to in subdivision (1) of this subsection, the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated.
(b) 	Affiliated Groups. – If two or more insureds from an affiliated group are named insureds on a single nonadmitted insurance contract, the term "home state" means the home state, as determined pursuant to subsection (a) of this section, of the member of the affiliated group that has the largest percentage of premium attributed to it under that insurance contract."
SECTION 4.  G.S. 58‑21‑15 reads as rewritten:
"§ 58‑21‑15.  Placement of surplus lines insurance.
Surplus lines may be placed by a surplus lines licensee if all of the following apply:(1)	Each insurer is an eligible surplus lines insurer.
(1a)	Each insurer is authorized to write the kind of insurance in its domiciliary jurisdiction.
(2)	The full amount or kind of insurance cannot be obtained from insurers who are admitted to do business in this State. Such full amount or kind of insurance may be procured from eligible surplus lines insurers, provided that a diligent search is made among the insurers who are admitted to transact and are actually writing the particular kind and class of insurance in this State.
(3)	All other requirements of this Article are met."
SECTION 5.  Article 21 of Chapter 58 of the General Statutes is amended by adding the following new sections to read: 
"§ 58‑21‑16.  Streamlined application for commercial purchasers.
(a)	A surplus lines licensee seeking to procure or place nonadmitted insurance in this State for an exempt commercial purchaser shall not be required to satisfy any requirement under G.S. 58‑21‑15 to make a due diligence search to determine whether the full amount or type of insurance sought by such exempt commercial purchaser can be obtained from admitted insurers if all of the following apply:
(1)	The licensee procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that such insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight.
(2)	The exempt commercial purchaser has subsequently requested in writing the licensee to procure or place such insurance from a nonadmitted insurer.
(b)	As used in this section, the following definitions apply:
(1)	"Exempt commercial purchaser" means any person purchasing commercial insurance that, at the time of placement, meets all of the following requirements:
a.	The person employs or retains a qualified risk manager to negotiate insurance coverage.
b.	The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars ($100,000) in the immediately preceding 12 months.
c.	The person meets at least one of the following criteria:
1.	The person possesses a net worth in excess of twenty million dollars ($20,000,000), as such amount is adjusted pursuant to subsection (c) of this section.
2.	The person generates annual revenues in excess of fifty million dollars ($50,000,000), as such amount is adjusted pursuant to subsection (c) of this section.
3.	The person employs more than 500 full‑time or full‑time equivalent employees per individual insured or is a member of an affiliated group employing more than 1,000 employees in the aggregate.
4.	The person is a not‑for‑profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars ($30,000,000), as such amount is adjusted pursuant to subsection (c) of this section.
5.	The person is a municipality with a population in excess of 50,000 persons.
(2)	"Qualified risk manager" means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:
a.	Is an employee of, or third party consultant retained by, the commercial policyholder.
b.	Provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance.
c.	Has one of the following:
1.	A bachelor's degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the Commissioner to demonstrate minimum competence in risk management and one of the following:
I.	Three years of experience in risk financing, claims, administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance. 
II.	One of the following designations:
A.	Chartered Property and Casualty Underwriter (CPCU) issued by the American Institute for CPCU/Insurance Institute of America.
B.	Associate in Risk Management (ARM) issued by the American Institute for CPCU/Insurance Institute of America. 
C.	Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education & Research.
D.	RIMS Fellow (RF) issued by the Global Risk Management Institute.
E.	A designation, certification, or license determined by the Commissioner to demonstrate minimum competency in risk management.
2.	Seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and  has any one of the designations specified in sub‑sub‑sub‑sub‑subdivisions A. through E. of sub‑sub‑sub‑subdivision II. of this sub‑subdivision.
3.	Ten years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance.
4.	A graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the Commissioner to demonstrate minimum competence in risk management.
(c)	Effective on the fifth January 1 occurring after the date of the enactment of this section and each fifth January 1 occurring thereafter, the dollar amounts in sub‑sub‑subdivisions (b)(1)c.1. 2, 3,  and 4 of this section shall be adjusted to reflect the percentage change for such five‑year period in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the U.S. Department of Labor.
"§ 58‑21‑17. Placement with alien insurers.
Nothing in this Article prohibits a surplus lines licensee from placing surplus lines insurance with, or procuring surplus lines insurance from, a nonadmitted insurer domiciled outside the United States that is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the NAIC."
SECTION 6.  G.S. 58‑21‑20(a) reads as rewritten:
"(a)	A surplus lines licensee shall not place coverage with a nonadmitted insurer unless, at the time of placement, the surplus lines licensee has determined that the nonadmitted insurer satisfies the following:
(1)	Has established satisfactory evidence of good repute and financial integrity.(2)	Qualifies under one of the following subdivisions:
a.	Has capital and surplus or its equivalent under the laws of its domiciliary jurisdiction, which equals the greater of either:
1.	This State's minimum capital and surplus requirements under G.S. 58‑7‑75.
2.	Fifteen million dollars ($15,000,000).
The requirements of this sub‑subdivision may be satisfied by an insurer's possessing less than the minimum capital and surplus upon an affirmative finding of acceptability by the Commissioner. The finding shall be based upon such factors as quality of management, capital and surplus of any parent company, company underwriting profit and investment income trends, market availability, and company record and reputation within the industry. In no event shall the Commissioner make an affirmative finding of acceptability when the nonadmitted insurer's capital and surplus is less than four million five hundred thousand dollars ($4,500,000).
b.	In the case of any Lloyd's plans or other similar group of insurers, which consists of unincorporated individual insurers, or a combination of both unincorporated and incorporated insurers, maintains a trust fund in an amount of not less than one hundred million dollars ($100,000,000) as security to the full amount thereof for all policyholders and creditors in the United States of each member of the group, and the trust shall likewise comply with the terms and conditions established in subdivision (2)a. of this section for alien insurers.
c.	In the case of an "insurance exchange" created by the laws of individual states, maintain capital and surplus, or the substantial equivalent thereof, of not less than seventy‑five million dollars ($75,000,000) in the aggregate. For insurance exchanges which maintain funds in an amount of not less than fifteen million dollars ($15,000,000) for the protection of all insurance exchange policyholders, each individual syndicate shall maintain minimum capital and surplus, or the substantial equivalent thereof, of not less than five million dollars ($5,000,000). If the insurance exchange does not maintain funds in an amount of not less than fifteen million dollars ($15,000,000) for the protection of all insurance exchange policyholders, each individual syndicate shall meet the minimum capital and surplus requirements of subdivision (2)a. of this section.
d.	In the case of a group of incorporated insurers under common administration, which has continuously transacted an insurance business outside the United States for at least three years immediately before this time, and which submits to this State's authority to examine its books and records and bears the expense of the examination, and maintains an aggregate policyholders' surplus of not less than ten billion dollars ($10,000,000,000), and maintains in trust a surplus of not less than one hundred million dollars ($100,000,000) for the benefit of United States surplus lines policyholders of any member of the group, and each insurer maintains capital and surplus of not less than twenty‑five million dollars ($25,000,000) per company.
(3)	Has caused to be provided to the Commissioner a copy of its current annual statement certified by such insurer; such statement to be provided no more than two months, and for alien insurers six months, after the close of the period reported upon and that is either:
a.	Filed with and approved by the regulatory authority in the domicile of the nonadmitted insurer; or
b.	Certified by an accounting or auditing firm licensed in the jurisdiction of the insurer's domicile; or
c.	In the case of an insurance exchange, the statement may be an aggregate combined statement of all underwriting syndicates operating during the period reported."
SECTION 7.  G.S. 58‑21‑35(a) reads as rewritten:
"§ 58‑21‑35.  Duty to file and retain reports.
(a)	Within 30 days after the placing of any surplus lines insurance, the surplus lines licensee shall file with the Commissioner a report in a format prescribed by the Commissioner regarding the insurance and including the following information:
(1)	The name of the insured.
(2)	The identity of the insurer or insurers.
(3)	A description of the subject and location of the risk.
(4)	The amount of premium charged for the insurance.
(5)	The amount of premium tax for the insurance.
(6)	The policy period.
(7)	The policy number.
(7a)	An acknowledged statement that the surplus lines licensee has complied with G.S. 58‑21‑15 or G.S. 58‑21‑16, whichever is applicable.
(8)	The name, address, telephone number, facsimile telephone number, and electronic mail address of the licensee, as applicable.
(9)	Any other relevant information the Commissioner may reasonably require.
(b)	The licensee shall complete and retain a copy of the report in paper or electronic form as required by the Commissioner. The report required by this section and the quarterly report required by G.S. 58‑21‑80 shall be completed on a standardized form or forms prescribed by the Commissioner and are not public records under G.S. 132‑1 or G.S. 58‑2‑100."
SECTION 8.  G.S. 58‑21‑65(a) reads as rewritten:
"(a)	For insureds whose home state is this State, no agent or broker licensed by the Commissioner shall procure any contract of surplus lines insurance with any nonadmitted insurer, unless he possesses a current surplus lines insurance license issued by the Commissioner."
SECTION 9.  G.S. 58‑21‑85 reads as rewritten:
"§ 58‑21‑85.  Surplus lines tax.
(a)	 In addition to the full amount of gross premiums charged by the insurer for the insurance, every person licensed under this Article shall collect and pay to the Commissioner a sum equal to five percent (5%) of the gross premiums charged, less any return premiums, for surplus lines insurance provided by the licensee pursuant to the license. Where the insurance covers properties, risks, or exposures located or to be performed both in and out of this State, the sum payable shall be computed based on (i) an amount equal to five percent (5%) on that portion of the gross premiums allocated to this State pursuant to subsection (f) of this section, plus (ii) an amount equal to the portion of the premiums allocated to other states or territories on the basis of the tax rates and fees applicable to properties, risks, or exposures located or to be performed outside of this State pursuant to subsection (f) of this section, less (iii) the amount of gross premiums allocated to this State and returned to the insured. The tax on any portion of the premium unearned at termination of insurance having been credited by the State to the licensee shall be returned to the policyholder directly by the surplus lines licensee or through the producing broker, if any. The surplus lines licensee is prohibited from rebating, for any reason, any part of the tax. The Commissioner is authorized to participate in the clearinghouse established through the NAIC Nonadmitted Insurance Multi‑State Agreement, or any successor agreement, for the purpose of collecting and disbursing to reciprocal states any funds collected pursuant to clause (ii) above applicable to properties, risks, or exposures located or to be performed outside of this State. To the extent that other states where portions of the properties, risks, or exposures reside have failed to enter into a compact or reciprocal allocation procedure with this State, the net premium tax collected shall be retained by this State.
(b)	At the same time that he files his quarterly report as set forth in G.S. 58‑21‑80, each surplus lines licensee shall pay the premium receipts tax due for the period covered by the report.
(c)	This section does not apply to risks of State government agencies nor to risks of local government risk pools created and operating under Article 23 of this Chapter.
(d)	The surplus lines licensee placing the insurance and claiming the exemption in subsection (c) of this section shall affirmatively show in writing to the Commissioner that the risk qualifies for the exemption.
(e)	If a surplus lines policy procured through a surplus lines licensee covers properties, risks, or exposures only partially located or to be performed in this State, the tax due shall be computed on the portions of the premiums that are attributable to the properties, risks, or exposures located or to be performed in this State. In determining the amount of premiums taxable in this State, all premiums written, procured, or received in this State shall be considered written on properties, risks, or exposures located or to be performed in this State, except premiums that are properly allocated or apportioned and reported as taxable premiums of a reciprocal state. In no event shall the tax payable to this State be less than the tax due pursuant to subsection (f) of this section; provided, however, if the amount of tax due under this provision is less than fifty dollars ($50.00) in any jurisdiction, it shall be payable in the jurisdiction in which the statement required in G.S. 58‑21‑35(a)(7a) is filed.
The Commissioner shall, at least annually, furnish to the insurance regulator of a reciprocal state a copy of all filings reporting an allocation of taxes as required by this subsection.
(f)	In determining the amount of gross premiums taxable in this State for a placement of surplus lines insurance covering properties, risks, or exposures only partially located or to be performed in this State, the tax due shall be computed on the portions of the premiums that are attributable to properties, risks, or exposures located or to be performed in this State and that relates to the kinds of insurance being placed as determined by reference to an allocation schedule, which shall be adopted by the Commissioner in a rule.
(g)	If a policy covers more than one of the following classifications:
(1)	For any portion of the coverage identified by a classification on the allocation schedule, the tax shall be computed by using the allocation schedule for the corresponding portion of the premium.
(2)	For any portion of the coverage not identified by a classification on the allocation schedule, the tax shall be computed by using an alternative equitable method of allocation for the property or risk.
(3)	For any portion of the coverage where the premium is indivisible, the tax shall be computed by using the method of allocation that pertains to the classification describing the predominant coverage.
(h)	If the information provided by the surplus lines licensee is insufficient to substantiate the method of allocation used by the surplus lines licensee, or if the Commissioner determines that the licensee's method is incorrect, the Commissioner shall determine the equitable and appropriate amount of tax due to this State as follows:
(1)	By the use of the allocation schedule where the risk is appropriately identified in the schedule.
(2)	Where the allocation schedule does not identify a classification appropriate to the coverage, the Commissioner may give significant weight to documented evidence of the underwriting bases and other criteria used by the insurer. The Commissioner may also consider other available information to the extent sufficient and relevant, including the percentage of the insured's physical assets in this State, the percentage of the insured's sales in this State, the percentage of income or resources derived from this State, and the amount of premium tax paid to another jurisdiction for the policy.
(i)	For the purposes of carrying out the Nonadmitted and Reinsurance Reform Act of 2010, the Commissioner is authorized to enter the NAIC Nonadmitted Insurance Multi‑State Agreement in order to facilitate the collection, allocation, and disbursement of premium taxes attributable to the placement of nonadmitted insurance; provide for uniform methods of allocation and reporting among nonadmitted insurance risk classifications; and share information among states relating to nonadmitted insurance premium taxes."
SECTION 10.  G.S. 58‑28‑5(b) reads as rewritten:
"(b)	Any person in this State may directly procure or directly renew insurance with an eligible surplus lines insurer, as defined in G.S. 58‑21‑10(3), without the involvement of an agent, broker, or surplus lines licensee, on a risk located or to be performed, in whole or in part, in this State. The person shall, within 30 days after the date the insurance is procured or renewed, file a written report with the Commissioner on forms prescribed by the Commissioner. The report must contain the name and address of the insured; name and address of the insurer; the subject of insurance; a general description of the coverage; the amount of premium currently charged; and any additional information requested by the Commissioner. The report must also contain an affidavit of the insured that states that the full amount or kind of insurance cannot be obtained from insurers that are licensed to do business in this State; and that the insured has made a diligent search among the insurers that are licensed to transact and are actually writing the particular kind and class of insurance in this State. Gross premiums charged for the insurance, less any return premiums, are subject to a tax at the rate of five percent (5%). At the time of filing the report required by this subsection, the insured shall pay the tax to the Commissioner. All of the provisions in Article 21 of this Chapter relating to apportionment of premium taxes when there are multistate risks apply to the payment of the premium tax in this subsection. The Commissioner has the powers specified in G.S. 58‑21‑90 with respect to the tax levied by this subsection."
SECTION 11.  This act becomes effective June 1, 2011.