82R9141 TJS-F
	By: Eiland	H.B. No. 2698

	A BILL TO BE ENTITLED
	AN ACT
	relating to surplus lines insurance.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1.  Section 981.001(c), Insurance Code, is amended
	to read as follows:
	(c)  To regulate and tax surplus lines insurance placed in
	accordance with this chapter within the meaning and intent of 15
	U.S.C. Section 1011 and the Nonadmitted and Reinsurance Reform Act
	of 2010, contained in the Dodd-Frank Wall Street Reform and
	Consumer Protection Act (Pub. L. No. 111-203), this chapter
	provides an orderly method for the residents of this state and
	nonresidents whose insured is domiciled in this state to effect
	insurance with eligible surplus lines insurers through qualified,
	licensed, and supervised surplus lines agents in this state, if
	coverage is not available from authorized and regulated insurers
	engaged in business in this state, under reasonable and practical
	safeguards.
	SECTION 2.  Section 981.002, Insurance Code, is amended to
	read as follows:
	Sec. 981.002.  DEFINITIONS. In this chapter:
	(1)  "Admitted insurer" means an insurer that holds a
	certificate of authority in this state and that is authorized to
	engage in the business of insurance.
	(2)  "Affiliate" means, with respect to an insured, a
	person that controls, is controlled by, or is under common control
	with the insured.
	(3)  "Affiliated group" means a group of entities whose
	members are affiliated.
	(4)  "Control" means, with respect to determining the
	home state of an affiliated entity:
	(A)  to directly or indirectly, acting through one
	or more persons, own, control, or hold the power to vote at least 25
	percent of any class of voting security of the affiliated entity; or
	(B)  to control in any manner the election of the
	majority of directors or trustees of the affiliated entity.
	(5)  "Eligible surplus lines insurer" means an insurer
	that is not an authorized insurer, but that is eligible under
	Subchapter B, in which surplus lines insurance is placed or may be
	placed under this chapter.
	(6)  "Home state" means:
	(A)  for an insured:
	(i)  the state in which the insured resides,
	if the insured is an individual;
	(ii)  the state in which an insured that is
	not an individual maintains its principal place of business; or
	(iii)  if 100 percent of the insured risk is
	located outside of the state in which the insured resides or
	maintains its principal place of business, as applicable, the state
	to which the greatest percentage of the insured's taxable premium
	for the insurance contract that covers the risk is allocated; or
	(B)  for an affiliated group, the home state of
	the member, as determined under Paragraph (A), that has the largest
	percentage of premium attributed to it under the insurance
	contract.
	(7) [(2)]  "Stamping office" means the Surplus Lines
	Stamping Office of Texas.
	(8) [(3)]  "Surplus lines agent" means an agent
	licensed under Subchapter E to procure an insurance contract from a
	surplus lines insurer.
	(9) [(4)]  "Surplus lines insurance" means insurance
	coverage:
	(A)  for a subject that is resident, located, or
	to be performed in this state; and
	(B)  that may be placed, in accordance with this
	chapter, with an eligible surplus lines insurer.
	SECTION 3.  Section 981.003, Insurance Code, is amended to
	read as follows:
	Sec. 981.003.  APPLICABILITY OF CHAPTER. This chapter
	applies to insurance:
	(1)  of a subject that is resident, located, or to be
	performed in this state; [and]
	(2)  that is obtained, continued, or renewed through:
	(A)  negotiations or an application wholly or
	partly occurring or made within or from within this state; or
	(B)  premiums wholly or partly remitted directly
	or indirectly from within this state; and
	(3)  that is issued to an insured whose home state is
	this state.
	SECTION 4.  Subchapter A, Chapter 981, Insurance Code, is
	amended by adding Sections 981.0031 and 981.0032 to read as
	follows:
	Sec. 981.0031.  EXEMPT COMMERCIAL PURCHASER DEFINED. (a)
	For purposes of this chapter, "exempt commercial purchaser" means a
	person who purchases commercial insurance and, at the time of
	placement:
	(1)  employs or retains a qualified risk manager to
	negotiate insurance coverage;
	(2)  has paid aggregate nationwide commercial property
	and casualty insurance premiums of more than $100,000 in the
	immediately preceding 12 months; and
	(3)  meets at least one of the following criteria:
	(A)  has a net worth of more than $20 million;
	(B)  generates annual revenue of more than $50
	million;
	(C)  employs more than 500 full-time or full-time
	equivalent employees per individual insured, or is a member of an
	affiliated group that employs more than 1,000 employees in
	aggregate;
	(D)  is a nonprofit organization or public entity
	generating annual budgeted expenditures of at least $30 million; or
	(E)  is a municipality with a population of more
	than 50,000.
	(b)  Not later than January 1, 2015, and once every five
	years thereafter, the commission shall by rule adjust the amounts
	provided by Subsection (a) to reflect the percent change in the
	Consumer Price Index for All Urban Consumers published by the
	Bureau of Labor Statistics of the United States Department of Labor
	for the five-year period immediately preceding January 1 of the
	year of adjustment.
	Sec. 981.0032.  QUALIFIED RISK MANAGER DEFINED. (a)  For
	purposes of this chapter, "qualified risk manager" means a person
	who:
	(1)  is an employee of, or third-party consultant
	retained by, a commercial policyholder;
	(2)  provides skilled services in loss prevention, loss
	reduction, or risk and insurance coverage analysis and the purchase
	of insurance; and
	(3)  satisfies the requirements of this section.
	(b)  A qualified risk manager must have:
	(1)  a bachelor's or advanced degree from an accredited
	college or university in risk management, business administration,
	finance, economics, or another field determined by the commissioner
	to demonstrate competence in risk management and:
	(A)  at least three years of experience in risk
	financing, claims administration, loss prevention, risk and
	insurance analysis, or purchasing of commercial lines of insurance;
	or
	(B)  a designation:
	(i)  as a Chartered Property and Casualty
	Underwriter (CPCU), issued by the American Institute for
	CPCU/Insurance Institute of America;
	(ii)  as an Associate in Risk Management
	(ARM) issued by the American Institute for CPCU/Insurance Institute
	of America;
	(iii)  as a Certified Risk Manager (CRM)
	issued by the National Alliance for Insurance Education and
	Research;
	(iv)  as a RIMS Fellow (RF) issued by the
	Global Risk Management Institute; or
	(v)  that is determined by the commissioner
	or the state insurance regulatory official or agency of another
	state to demonstrate minimum competence in risk management;
	(2)  at least seven years of experience in risk
	financing, claims administration, loss prevention, risk and
	insurance analysis, or purchasing of commercial lines of insurance
	and one of the designations described by Subdivision (1)(B);
	(3)  at least 10 years of experience in risk financing,
	claims administration, loss prevention, risk and insurance
	analysis, or purchasing commercial lines of insurance; or
	(4)  a graduate degree from an accredited college or
	university in risk management, business administration, finance,
	economics, or another field determined by the commissioner or the
	state insurance regulatory official or agency of another state to
	demonstrate competence in risk management.
	SECTION 5.  Section 981.004, Insurance Code, is amended by
	adding Subsection (c) to read as follows:
	(c)  Subsection (a) does not apply to insurance for an exempt
	commercial purchaser if:
	(1)  the agent placing the insurance discloses to the
	exempt commercial purchaser that:
	(A)  comparable insurance may be available from
	the admitted market that is subject to more regulatory oversight
	than the nonadmitted market; and
	(B)  a policy purchased in the admitted market may
	provide greater protection than the surplus lines insurance policy;
	and
	(2)  after receiving the notice described by
	Subdivision (1), the exempt commercial purchaser requests in
	writing that the agent procure or place the insurance from a
	nonadmitted insurer.
	SECTION 6.  Subchapter A, Chapter 981, Insurance Code, is
	amended by adding Sections 981.010 and 981.011 to read as follows:
	Sec. 981.010.  FAILURE TO PAY PENALTY. A person engages in
	the unauthorized business of insurance if the person issues a
	policy of surplus lines insurance and, at the time the policy is
	issued, the person or the person's agent has failed to pay a
	statutory penalty imposed on the person or the person's agent.
	Sec. 981.011.  FAILURE TO PAY PREMIUM TAX. A person engages
	in the unauthorized business of insurance if the person issues a
	policy of surplus lines insurance and, at the time the policy is
	issued, the person has not paid premium tax the person is obligated
	to pay.
	SECTION 7.  Section 981.058, Insurance Code, is amended to
	read as follows:
	Sec. 981.058.  ALIEN INSURERS: TRUST FUND REQUIREMENT. An
	[In addition to meeting the minimum capital and surplus
	requirements prescribed by Section 981.057, an] alien surplus lines
	insurer must be listed on the Quarterly Listing of Alien Insurers
	maintained by the International Insurers Department, National
	Association of Insurance Commissioners [provide evidence that:
	[(1)     the insurer maintains in the United States an
	irrevocable trust fund in a Federal Reserve System member bank in an
	amount of at least $5.4 million for the protection of all its
	policyholders in the United States; and
	[(2)  the trust fund consists of:
	[(A)  cash;
	[(B)  securities;
	[(C)  letters of credit; or
	[(D)     investments of substantially the same
	character and quality as those that are eligible investments for
	the capital and statutory reserves of an insurer authorized to
	write similar kinds and classes of insurance in this state].
	SECTION 8.  Section 981.105, Insurance Code, is amended by
	amending Subsection (a) and adding Subsections (c) and (d) to read
	as follows:
	(a)  Except as provided by Subsection (c), not [Not] later
	than the 60th day after the later of the effective date or the issue
	date of new or renewal surplus lines insurance, a surplus lines
	agent shall file with the stamping office:
	(1)  a copy of the policy issued; or
	(2)  if the policy has not been issued, a copy of the
	certificate, cover note, or other confirmation of insurance
	delivered to the insured.
	(c)  Not later than the 60th day after the later of the
	effective date or the issue date of new or renewal surplus lines
	insurance involving an exempt commercial purchaser, if due
	diligence has not been conducted, a surplus lines agent shall file
	with the stamping office, in a form prescribed by the commissioner
	by rule:
	(1)  proof that the surplus lines agent procuring or
	placing the surplus lines insurance has complied with Section
	981.004(c)(1);
	(2)  a copy of the exempt commercial purchaser's
	written request, submitted in accordance with Section
	981.004(c)(2);
	(3)  a written disclosure of the identity of the
	insured's qualified risk manager; and
	(4)  an attestation by the insured that:
	(A)  the insured has paid aggregate nationwide
	commercial property and casualty insurance premiums of at least
	$100,000 in the immediately preceding 12 months; and
	(B)  the purchaser is an exempt commercial
	purchaser as defined by Section 981.0031, and that includes a
	description of the criteria specified by Section 981.0031(a)(3)
	under which the purchaser qualifies as an exempt commercial
	purchaser.
	(d)  The commissioner by rule may promulgate a form to be
	used to meet the requirements of Subsection (c).
	SECTION 9.  The following sections of the Insurance Code are
	repealed:
	(1)  Section 981.052;
	(2)  Section 981.053;
	(3)  Section 981.055;
	(4)  Section 981.056;
	(5)  Section 981.060;
	(6)  Section 981.061; and
	(7)  Section 981.062.
	SECTION 10.  (a) Notwithstanding Section 981.058, Insurance
	Code, as amended by this Act, an alien surplus lines insurer that
	was an eligible surplus lines insurer under Section 981.058,
	Insurance Code, as it existed immediately before the effective date
	of this Act, continues to be an eligible surplus lines insurer until
	January 1, 2013.
	(b)  An alien insurer described by Subsection (a) of this
	section may apply for an extension of eligibility. The
	commissioner may extend eligibility under this section until
	January 1, 2015, if the commissioner determines that the insurer is
	making a good faith effort to be listed on the Quarterly Listing of
	Alien Insurers maintained by the International Insurers
	Department, National Association of Insurance Commissioners, as
	required by Section 981.058, Insurance Code, as amended by this
	Act, and that the interests of the insurer's policyholders are
	otherwise adequately protected.
	SECTION 11.  This Act takes effect immediately if it
	receives a vote of two-thirds of all the members elected to each
	house, as provided by Section 39, Article III, Texas Constitution.
	If this Act does not receive the vote necessary for immediate
	effect, this Act takes effect September 1, 2011.