[First Reprint]

SENATE, No. 1872

 

STATE OF NEW JERSEY

 

INTRODUCED MARCH 10, 1997

 

 

By Senator CARDINALE

 

 

An Act concerning insurance exchanges approved as eligible surplus lines insurers and amending P.L.1960, c.32 and 1amending and supplementing1 P.L.1984, c.101

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. Section 11 of P.L.1960, c.32 (C.17:22-6.45) is amended to read as follows:

    11. No surplus lines agent shall place any coverage with any unauthorized insurer which is not then an eligible surplus lines insurer as provided for under this section. No unauthorized insurer shall be or become an eligible surplus lines insurer unless made eligible by the commissioner in accordance with the following conditions:

    (a) Eligibility of the insurer must be requested in writing by a licensed surplus lines agent;

    (b) The insurer must be currently an authorized insurer in the state or country of its domicile as to the kind or kinds of insurance proposed to be so placed, and must have been such an insurer for not less than one full year preceding; or must be the subsidiary of an admitted insurer or of an already eligible surplus lines insurer that has been so admitted or eligible for a period of not less than one full year preceding;

    (c) Before granting eligibility the requesting surplus lines agent or the insurer shall furnish the commissioner with duly authenticated copies of its current annual financial statement, one in the language and monetary values of the country of the insurer, and the other in the English language and with all monetary values therein expressed in United States dollars, at the current exchange rate shown in the statement, and with such additional information relative to the insurer as the commissioner may require;

    (d) The insurer shall establish satisfactory evidence of financial integrity, and:

    (1) Have capital and surplus, or its equivalent under the laws of its domiciliary jurisdiction, which is not less than twice the amount of minimum capital and surplus required for like admitted insurers or $15,000,000, whichever is greater; except that unauthorized insurers already eligible under this act shall have at least $10,000,000 by December 31, 1996; at least $12,500,000 by December 31, 1997; and $15,000,000 by December 31, 1998. In addition, an alien insurer shall maintain in the United States, as the sole security requirement to qualify for eligibility in this State, an irrevocable trust fund in a state or federally chartered bank in an amount not less than $2,500,000 for the protection of all of its policyholders in the United States; provided, however, that an alien insurer eligible for surplus lines may be required to deposit securities in New Jersey in an amount deemed appropriate by the commissioner as a condition of maintaining its eligibility status. The trust fund shall consist of cash, securities, letters of credit, or of investments of substantially the same character and quality as those which are eligible investments for the capital and statutory reserves of admitted insurers authorized to write like kinds of insurance in this State. The trust fund shall not be included in any calculation of capital and surplus or its equivalent and shall have an expiration date which at no time shall be less than five years. In lieu of the above capital and surplus requirements, and trust fund amount, any Lloyd's or other similar group of alien insurers, which group includes unincorporated individual insurers shall maintain a trust fund of not less than $50,000,000.00 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 hereinabove set forth. The credit for reinsurance requirements of sections 2 and 3 of P.L.1993, c.243 (C.17:51B-2 and 17:51B-3) shall not apply to an eligible alien surplus lines insurer that appears on the quarterly listing prepared by the International Insurers Department (IID) of the National Association of Insurance Commissioners and that provides the commissioner annually with a copy of such insurer's current Schedule R filing and such other information concerning ceded reinsurance that the International Insurers Department or the commissioner may from time to time require. Any insurance exchange created by the laws of an individual state may be approved by the commissioner as an eligible insurer under the provisions of this section, and shall maintain capital and surplus, or the substantial equivalent thereof, of not less than $35,000,000.00 in the aggregate. For insurance exchanges which maintain funds in an amount acceptable to the commissioner for the protection of all insurance exchange policyholders, each individual syndicate, except those syndicates which have elected and qualify for S corporation status pursuant to subsection (a) of section 1362 of the federal Internal Revenue Code of 1986, 26 U.S.C.§1362, shall maintain minimum capital and surplus, or the substantial equivalent thereof, of not less than $2,000,000.00. Any syndicate which has elected and qualified for S corporation status pursuant to subsection (a) of section 1362 of the federal Internal Revenue Code of 1986, 26 U.S.C.§1362, need not maintain the minimum capital and surplus required under the provisions of this section and the failure of any such syndicate to meet these minimum requirements shall not render the exchange ineligible for approval under this section; except that so long as such syndicate fails to maintain the minimum capital and surplus required under the provisions of this section, such syndicate shall not transact the business of insurance in this State and shall not be approved by the commissioner as an eligible insurer under the provisions of this section. In the event the insurance exchange does not maintain funds in an amount acceptable to the commissioner for the protection of all insurance exchange policyholders, each individual syndicate shall have capital and surplus, or its equivalent under the laws of its domiciliary jurisdiction, which is not less than twice the amount of minimum capital and surplus required for like admitted insurers [. No insurance exchange approved as an eligible insurer by the commissioner shall be a member of the New Jersey Surplus Lines Insurance Guaranty Fund created pursuant to P.L.1984, c.101 (C.17:22-6.70 et seq.) nor shall any claim against an exchange be deemed to be a covered claim pursuant to the provision of that act]; and

    (2) Have caused to be provided to the commissioner a copy of its current annual statement certified by the insurer, which, relative to the period reported upon, is no more than 18 months old, and which is either: (A) filed with and approved by the regulatory authority in the domicile of the unauthorized insurer; or (B) certified by an accounting or auditing firm licensed in the jurisdiction of the insurer's domicile. In the case of an insurance exchange, the statement may be an aggregate combined statement of all underwriting syndicates operating during the period reported upon;

    (e) The condition or methods of operation of the insurer must not be such as would render its operation hazardous to the public or its policyholders in this State;

    (f) The insurer must be of good reputation as to the providing of service to its policyholders and the payment of losses and claims;

    (g) No insurer shall be eligible the management of which is found by the commissioner to be incompetent or untrustworthy, or so lacking in insurance company managerial experience as to make the proposed operation hazardous to the insurance-buying public; or which the commissioner has good reason to believe is affiliated directly or indirectly through ownership, control, reinsurance transactions or other insurance or business relations, with any person or persons whose business operations are or have been detrimental to policyholders, stockholders, investors, creditors or to the public;

    (h) No insurer shall be eligible the voting control or ownership of which is held in whole or substantial part by any government or governmental agency, or which is operated for or by any such government or agency. Membership in a mutual insurer, or subscribership in a reciprocal insurer, or ownership of stock of an insurer by the alien property custodian or similar official of the United States, or supervision of an insurer by public insurance supervisory authority shall not be deemed to be an ownership, control, or operation of the insurer for the purposes of this subsection;

    (i) The insurer shall constitute, by a duly executed instrument filed with the department, the commissioner and his successor in office its true and lawful attorney, upon whom all original process in any action or legal proceeding against it may be served, and therein agree that any original process against it which may be served upon the commissioner shall be of the same force and validity as if served on the insurer, and that the authority thereof shall continue in force irrevocable so long as any liability of the insurer remains outstanding in this State.

    The commissioner shall annually publish a list of all currently eligible surplus lines insurers, and shall mail a copy thereof to each licensed surplus lines agent at his office last of record with the commissioner.

    This section shall not be deemed to cast upon the commissioner any duty or responsibility to determine the actual financial condition or claims practices of any unauthorized insurer; and the status of eligibility, if granted by the commissioner, shall indicate only that the insurer appears to be sound financially and to have satisfactory claims practices, and that the commissioner has no credible evidence to the contrary.

    Where it appears that any particular insurance risk which is eligible for export, but insurance coverage thereon, in whole or in part, is not procurable from the eligible surplus lines insurers, then the surplus lines agent may file a supplemental affidavit stating such facts and advising the commissioner that such part of the risk as shall be unprocurable, as aforesaid, is being placed with named unauthorized insurers, in the amounts and percentages set forth in the affidavit. Such named unauthorized insurer shall, however, before accepting any risk in this State, deposit with the commissioner United States government bonds in an amount acceptable to the commissioner, which shall be held by said commissioner for the benefit of New Jersey policyholders only and the surplus lines agent shall procure from such unauthorized insurer and file with the commissioner a certified copy of its current annual statement of financial condition. If such deposit is made and the statement reveals, including both capital and surplus, net assets of at least $5,000,000 consisting of at least $1,500,000 liquid assets, then the surplus lines agent may proceed to consummate the contract of insurance. Whenever any insurance risk or any part thereof is placed with an unauthorized insurer, as provided herein, the policy, binder or cover note shall bear conspicuously on its face in boldface type the following notation:

    "All or some of the insurers participating in this risk have not been admitted to transact business in the State of New Jersey, nor have they been approved as a surplus lines insurer by the insurance commissioner of this State. The placing of such insurance by a duly licensed surplus lines agent in this State shall not be construed as approval of such insurer by the insurance commissioner of the State of New Jersey. Such insurance is not covered by the New Jersey Property-Liability Insurance Guaranty Association or the New Jersey Surplus Lines Insurance Guaranty Fund." All other provisions of this Title , except the provisions of P.L.1984, c.101 (C.17:22-6.70 et seq.), shall apply to such placement the same as if such risks were placed with an eligible surplus lines insurer.

(cf: P.L.1996, c.69, s.4)

 

    2. Section 3 of P.L.1984, c.101 (C.17:22-6.72) is amended to read as follows:

    3. As used in this act:

    a. "Association" means the New Jersey Property-Liability Insurance Guaranty Association created pursuant to P.L.1974, c.17 (C.17:30A-1 et seq.).

    b. "Covered claim" means an unpaid claim, including a claim for unearned premiums, which arises out of and is within the coverage, and not in excess of the applicable limits of an insurance policy to which this act applies, and which was issued by a surplus lines insurer which was eligible to transact insurance business in this State at the time the policy was issued and which has been determined to be an insolvent insurer on or after June 1, 1984, if (1) the claimant or policyholder is a resident of this State at the time of the occurrence of the insured event for which a claim has been made, or (2) the property from which the claim arises is permanently located in this State.

    "Covered claim" shall not include any amount due any reinsurer, insurance pool or underwriting association, as subrogation recoveries or otherwise, except that a claim for any such amount, asserted against a person insured under a policy issued by a surplus lines insurer which has become an insolvent insurer, which, if it were not a claim by or for the benefit of a reinsurer, insurer, insurance pool, or underwriting association, would be a "covered claim," may be filed directly with the receiver of the insolvent insurer, but in no event may any such claim be asserted in any legal action against the insured of that insolvent insurer. "Covered claim" shall also not include amounts for interest on unliquidated claims, punitive damages unless covered by the policy, counsel fees for prosecuting suits for claims against the fund, and assessments or charges for failure by an insolvent insurer to have expeditiously settled claims.

    A "covered claim" shall not include a claim filed with the fund after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer unless the claimant demonstrates unusual hardship and the commissioner approves of treatment of the claim as a "covered claim." "Unusual hardship" shall be defined in regulations promulgated by the commissioner. With respect to insurer insolvencies pending as of the effective date of this 1996 amendatory act, a "covered claim" shall not include a claim filed with the fund: (1) more than one year after the effective date of this 1996 amendatory act or (2) the date set by the court for the filing of claims against the liquidator or receiver of the insolvent insurer, whichever date occurs later.

    c. "Fund" means the New Jersey Surplus Lines Insurance Guaranty Fund created pursuant to section 4 of this act.

    d. "Insolvent insurer" means an insurer which was an eligible surplus lines insurer at the time the insurance policy was issued or when the insured event occurred, and which is determined to be insolvent by a court of competent jurisdiction in this State or the state or place in which the surplus lines insurer is domiciled. "Insolvent insurer" does not include an admitted insurer issuing insurance pursuant to section 10 of P.L.1960, c.32 (C.17:22-6.44).

    e. "Member insurer" means an eligible, nonadmitted or surplus lines insurer required to be a member of, and that is subject to, assessments by the fund.

    f. "Net direct written premiums" means direct gross premiums on insurance policies written by a surplus lines insurer to which this act applies, less return premiums thereon and dividends paid or credited to policyholders on that direct business. If a policy issued by a surplus lines insurer covers risks or exposures only partially in this State, the "net direct written premiums" shall be computed, for assessment purposes, on that portion of the premium subject to the premium receipts tax levied in accordance with section 25 of P.L.1960, c.32 (C.17:22-6.59). "Net direct written premiums" do not include premiums on contracts between insurers or reinsurers.

    g. "Surplus lines insurer" means [a] an insurance exchange, including the syndicates thereof, 1approved as an eligible insurer under the provisions of section 11 of P.L. 1960, c. 32 (C. 17:22-6.45),1 or 1a1 nonadmitted insurer approved as an eligible, nonadmitted or unauthorized insurer pursuant to section 11 of P.L.1960, c.32 (C.17:22-6.45) 1,1 at the time the policies were issued against which a covered claim may be filed in accordance with this act.

(cf: P.L.1996, c.156, s.3)


    13. (New section) If a syndicate of an exchange which was approved as an eligible insurer under the provisions of section 11 of P.L. 1960, c. 32 (C. 17:22-6.45) becomes financially impaired or insolvent, any guaranty fund established by or on behalf of the exchange for the protection of all its insurance exchange policyholders shall be primary and the New Jersey Surplus Lines Insurance Guaranty Fund shall be liable only to the extent of any unpaid difference between the amount paid by the guaranty fund established by or on behalf of the exchange and the amount which would otherwise be payable by the New Jersey Surplus Lines Insurance Guaranty Fund as a covered claim.1

 

    1[3.] 4.1 This act shall take effect immediately and shall be retroactive to June 23, 1994.

 

 

                             

Requires insurance exchanges to be members of the New Jersey Surplus Lines Insurance Guaranty Fund.