SENATE CORPORATIONS AND TRANSPORTATION COMMITTEE SUBSTITUTE FOR

SENATE BILL 250

50th legislature - STATE OF NEW MEXICO - first session, 2011

AN ACT

RELATING TO SURPLUS LINES INSURANCE; ENACTING AND ENTERING INTO THE SURPLUS LINES INSURANCE MULTISTATE COMPLIANCE COMPACT; LIMITING THE REGULATION OF NONADMITTED INSURERS TO CONFORM TO FEDERAL LAW; PROVIDING FOR THE ALLOCATION OF PREMIUMS; AMENDING AND ENACTING SECTIONS OF THE NEW MEXICO INSURANCE CODE.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. [NEW MATERIAL] SURPLUS LINES INSURANCE MULTISTATE COMPLIANCE COMPACT ENTERED INTO.--The "Surplus Lines Insurance Multistate Compliance Compact" is enacted into law and entered into with all other jurisdictions legally joining therein in the form substantially as follows:

"SURPLUS LINES INSURANCE MULTISTATE COMPLIANCE COMPACT

ARTICLE 1

PURPOSE

     The purposes of the Surplus Lines Insurance Multistate Compliance Compact are to:

          A. implement the express provisions of the federal act;

          B. protect the premium tax revenues of the compacting states through facilitating the payment and collection of premium tax on non-admitted insurance;

          C. protect the interests of the compacting states by supporting the continued availability of such insurance to consumers;

          D. provide for allocation of premium tax for non-admitted insurance of multistate risks among the states in accordance with uniform allocation formulas to be developed, adopted and implemented by the commission;

          E. streamline and improve the efficiency of the surplus lines market by eliminating duplicative and inconsistent tax and regulatory requirements among the states;

          F. promote and protect the interest of surplus lines licensees who assist insureds and surplus lines insurers, thereby ensuring the continued availability of surplus lines insurance to consumers;

          G. streamline regulatory compliance with respect to non-admitted insurance placements by providing for exclusive single-state regulatory compliance for non-admitted insurance of multistate risks, in accordance with rules to be adopted by the commission, thereby providing certainty regarding such compliance to all persons who have an interest in such transactions, including, but not limited to, insureds, regulators, surplus lines licensees, other insurance producers and surplus lines insurers;

          H. establish a clearinghouse for receipt and dissemination of premium tax and clearinghouse transaction data related to non-admitted insurance of multistate risks, in accordance with rules to be adopted by the commission;

          I. improve coordination of regulatory resources and expertise between state insurance departments and other state agencies, as well as state surplus lines stamping offices, with respect to non-admitted insurance;

          J. adopt uniform rules to provide for premium tax payment, reporting, allocation, data collection and dissemination for non-admitted insurance of multistate risks and single-state risks, thereby promoting the overall efficiency of the non-admitted insurance market;

          K. adopt uniform mandatory rules with respect to regulatory compliance requirements for:

                (1) foreign insurer eligibility requirements; and

                (2) surplus lines policyholder notices;

          L. establish the surplus lines insurance multistate compliance compact commission;

          M. coordinate reporting of clearinghouse transaction data on non-admitted insurance of multistate risks among compacting states and contracting states; and

          N. perform these and such other related functions as may be consistent with the purposes of this compact.

ARTICLE 2

DEFINITIONS

     As used in the Surplus Lines Insurance Multistate Compliance Compact:

          A. "affiliate" means, with respect to an insured, any entity that controls, is controlled by or is under common control with the insured;

          B. "allocation formula" means the uniform methods promulgated by the commission by which insured risk exposures will be apportioned to each state for the purpose of calculating premium taxes due;

          C. "bylaws" means those bylaws established by the commission for its governance or for directing or controlling the commission's actions or conduct;

          D. "clearinghouse" means the commission's operations involving the acceptance, processing and dissemination, among the compacting states, contracting states, surplus lines licensees, insureds and other persons, of premium tax and clearinghouse transaction data for non-admitted insurance of multistate risks, in accordance with this compact and rules to be adopted by the commission;

          E. "clearinghouse transaction data" means the information regarding non-admitted insurance of multistate risks required to be reported, accepted, collected, processed and disseminated by surplus lines licensees for surplus lines insurance and insureds for independently procured insurance under this compact and rules to be adopted by the commission. Clearinghouse transaction data includes information related to single-state risks if a state elects to have the clearinghouse collect taxes on single-state risks for such state;

          F. "compacting state" means any state that has enacted this compact and that has not withdrawn or been terminated pursuant to Article 14 of this compact;

          G. "commission" means the surplus lines insurance multistate compliance compact commission;

          H. "commissioner" means the chief insurance regulatory official of a state, including, but not limited to, commissioner, superintendent, director or administrator or their designees;

          I. "contracting state" means any state that has not enacted this compact but has entered into a written contract with the commission to use the services of and fully participate in the clearinghouse;

          J. "control" means:

                (1) directly, indirectly or acting through one or more other persons, owning, controlling or having the power to vote twenty-five percent or more of any class of voting securities of another entity; or

                (2) controlling in any manner the election of a majority of the directors or trustees of another entity;

          K. "federal act" means the federal Nonadmitted and Reinsurance Reform Act of 2009, which is 30 Title V, Subtitle B of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act;

          L. "home state" means

                (1) with respect to an insured:

                     (a) the state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal residence; or

                     (b) if one hundred percent of the insured risk is located out of the state referred to in Subparagraph (a) of this paragraph, the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated; or

                (2) if more than one insured from an affiliated group are named insureds on a single non-admitted insurance contract, "home state" means the home state, as determined pursuant to Paragraph (1) of this subsection, of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract;

          M. "independently procured insurance" means insurance procured by an insured directly from a surplus lines insurer or other non-admitted insurer as permitted by the laws of the home state;

          N. "insurer eligibility requirements" means the criteria, forms and procedures established to qualify as a surplus lines insurer under the law of the home state; provided that such criteria, forms and procedures are consistent with the express provisions of the federal act on and after July 21, 2011;

          O. "member" means the person chosen by a compacting state as its representative to the commission; provided that each compacting state shall be limited to one vote;

          P. "multistate risk" means a risk with insured exposures in more than one state;

          Q. "non-compacting state" means a state that has not adopted this compact;

          R. "non-admitted insurance" means surplus lines insurance and independently procured insurance;

          S. "non-admitted insurer" means an insurer that is not authorized or admitted to transact the business of insurance under the law of the home state;

          T. "policyholder notice" means the disclosure notice or stamp that is required to be furnished to the applicant or policyholder in connection with a surplus lines insurance placement;

          U. "premium tax" means, with respect to non-admitted insurance, any tax, fee, assessment or other charge imposed by a government entity, directly or indirectly based on any payment made as consideration for such insurance, including premium deposits, assessments, registration fees and any other compensation given in consideration for a contract of insurance;

          V. "principal place of business" means, with respect to determining the home state of the insured, the state where the insured maintains its headquarters and where the insured's high-level officers direct, control and coordinate the business activities of the insured;

          W. "purchasing group" means any group formed pursuant to the federal Liability Risk Retention Act, 15 U.S.C. 65, that has as one of its purposes the purchase of liability insurance on a group basis; that purchases such insurance only for its group members and only to cover their similar or related liability exposure; that is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar or common business, trade, product, services, premises or operations; and that is domiciled in any state;

          X. "rule" means a statement of general or particular applicability and future effect promulgated by the commission designed to implement, interpret or prescribe law or policy or describing the organization, procedure or practice requirements of the commission that shall have the force and effect of law in the compacting states;

          Y. "single-state risk" means a risk with insured exposures in only one state;

          Z. "state" means any state, district or territory of the United States of America;

          AA. "state transaction documentation" means the information required under the laws of the home state to be filed by surplus lines licensees, in order to report surplus lines insurance and verify compliance with surplus lines laws, and by insureds in order to report independently procured insurance;

          BB. "surplus lines insurance" means insurance procured by a surplus lines licensee from a surplus lines insurer or other non-admitted insurer as permitted under the law of the home state; for purposes of this compact, "surplus lines insurance" also means excess lines insurance as may be defined by applicable state law;

          CC. "surplus lines insurer" means a non-admitted insurer eligible under the law of the home state to accept business from a surplus lines licensee; for purposes of this compact, "surplus lines insurer" also means an insurer that is permitted to write surplus lines insurance under the laws of the state where the insurer is domiciled; and

          DD. "surplus lines licensee" means an individual, firm or corporation licensed under the law of the home state to place surplus lines insurance.

ARTICLE 3

ESTABLISHMENT OF THE COMMISSION AND VENUE

          A. The compacting states hereby create and establish a joint public agency known as the "surplus lines insurance multistate compliance compact commission".

          B. Pursuant to Article 4 of this compact, the commission shall have the power to adopt mandatory rules that establish exclusive home state authority regarding non-admitted insurance of multistate risks, allocation formulas, clearinghouse transaction data, a clearinghouse for receipt and distribution of allocated premium tax and clearinghouse transaction data and uniform rulemaking procedures and rules for the purpose of financing, administering, operating and enforcing compliance with the provisions of this compact, its bylaws and rules.

          C. Pursuant to Article 4 of this compact, the commission shall have the power to adopt mandatory rules establishing foreign insurer eligibility requirements and a concise and objective policyholder notice regarding the nature of a surplus lines placement.

          D. The commission is a body corporate and politic and an instrumentality of the compacting states.

          E. The commission is solely responsible for its liabilities, except as otherwise specifically provided in this compact.

          F. Venue is proper and judicial proceedings by or against the commission shall be brought solely and exclusively in a court of competent jurisdiction where the principal office of the commission is located. The commission may waive venue and jurisdictional defenses to the extent it adopts or consents to participate in alternative dispute resolution proceedings.

ARTICLE 4

AUTHORITY TO ESTABLISH MANDATORY RULES

     The commission shall adopt mandatory rules that establish:

          A. allocation formulas for each type of non-admitted insurance coverage, which allocation formulas shall be used by each compacting state and contracting state in acquiring premium tax and clearinghouse transaction data from surplus lines licensees and insureds for reporting to the clearinghouse created by the commission. Such allocation formulas shall be established with input from surplus lines licensees and be based upon readily available data with simplicity and uniformity for the surplus lines licensee as a material consideration;

          B. uniform clearinghouse transaction data reporting requirements for all information reported to the clearinghouse;

          C. methods by which compacting states and contracting states require surplus lines licensees and insureds to pay premium tax and to report clearinghouse transaction data to the clearinghouse, including, but not limited to, processing clearinghouse transaction data through state stamping and service offices, state insurance departments or other state- designated agencies or entities;

          D. that non-admitted insurance of multistate risks shall be subject to all of the regulatory compliance requirements of the home state exclusively as follows:

                (1) home state regulatory compliance requirements applicable to surplus lines insurance shall include, but not be limited to:

                     (a) persons required to be licensed to sell, solicit or negotiate surplus lines insurance;

                     (b) insurer eligibility requirements or other approved non-admitted insurer requirements;

                     (c) diligent search; and

                     (d) state transaction documentation and clearinghouse transaction data regarding the payment of premium tax as set forth in this compact and rules to be adopted by the commission; and

                (2) home state regulatory compliance requirements applicable to independently procured insurance placements shall include, but not be limited to, providing state transaction documentation and clearinghouse transaction data regarding the payment of premium tax as set forth in this compact and rules to be adopted by the commission;

          E. that each compacting state and contracting state may charge its own rate of taxation on the premium allocated to such state based on the applicable allocation formula; provided that the state establishes one single rate of taxation applicable to all non-admitted insurance transactions and no other tax, fee assessment or other charge by any governmental or quasi-governmental agency be permitted; and provided further that stamping office fees may be charged as a separate, additional cost unless such fees are incorporated into a state's single rate of taxation;

          F. that any change in the rate of taxation by any compacting state or contracting state be restricted to changes made prospectively on not less than ninety days' advance notice to the commission;

          G. that each compacting state and contracting state shall require premium tax payments either annually, semiannually or quarterly, using one or more of the following dates only: March 1, June 1, September 1 and December 1;

          H. that each compacting state and contracting state prohibit any other state agency or political subdivision from requiring surplus lines licensees to provide clearinghouse transaction data and state transaction documentation other than to the insurance department or tax officials of the home state or one single designated agent thereof;

          I. the obligation of the home state by itself, through a designated agent, surplus lines stamping or service office, to collect clearinghouse transaction data from surplus lines licensees and from insureds for independently procured insurance, where applicable, for reporting to the clearinghouse;

          J. a method for the clearinghouse to periodically report to compacting states, contracting states, surplus lines licensees and insureds who independently procure insurance all premium taxes owed to each of the compacting states and contracting states, the dates upon which payment of such premium taxes are due and a method to pay them through the clearinghouse;

          K. that each surplus lines licensee is required to be licensed only in the home state of each insured for whom surplus lines insurance has been procured;

          L. that a policy considered to be surplus lines insurance in the insured's home state shall be considered surplus lines insurance in all compacting states and contracting states and taxed as a surplus lines transaction in all states to which a portion of the risk is allocated. Each compacting state and contracting state shall require each surplus lines licensee to pay every other compacting state and contracting state premium taxes on each multistate risk through the clearinghouse at the tax rate charged on surplus lines transactions in other compacting states and contracting states on the portion of the risk in each compacting state and contracting state as determined by the applicable uniform allocation formula adopted by the commission. A policy considered to be independently procured insurance in the insured's home state shall be considered independently procured insurance in all compacting states and contracting states. Each compacting state and contracting state shall require the insured to pay every other compacting state and contracting state the independently procured insurance premium tax on each multistate risk through the clearinghouse pursuant to the uniform allocation formula adopted by the commission;

          M. uniform foreign insurer eligibility requirements as authorized by the federal act;

          N. a uniform policyholder notice; and

          O. uniform treatment of purchasing group surplus lines insurance placements.

ARTICLE 5

POWERS OF THE COMMISSION

The commission shall have the power to:

          A. promulgate rules and operating procedures, pursuant to Article 8 of this compact, that shall have the force and effect of law and shall be binding in the compacting states to the extent and in the manner provided in this compact; provided that, except as necessary for promulgating rules to fulfill the purposes of this compact, the commission shall not have authority to otherwise regulate insurance in the compacting states;

          B. bring and prosecute legal proceedings or actions in the name of the commission; provided that the standing of any state insurance department to sue or be sued under applicable law shall not be affected;

          C. issue subpoenas requiring the attendance and testimony of witnesses and the production of evidence; provided, however, that the commission not be empowered to demand or subpoena records or data from non-admitted insurers;

          D. establish and maintain offices, including the creation of a clearinghouse, for the receipt of premium tax and clearinghouse transaction data regarding non-admitted insurance of multistate risks and single-state risks for states that elect to require surplus lines licensees to pay premium tax on single state risks through the clearinghouse and tax reporting forms;

          E. purchase and maintain insurance and bonds;

          F. borrow, accept or contract for services of personnel, including, but not limited to, employees of a compacting state or stamping office, pursuant to an open, transparent, objective competitive process and procedure adopted by the commission;

          G. hire employees, professionals or specialists and elect or appoint officers and to:

                (1) fix their compensation, define their duties and give them appropriate authority to carry out the purposes of this compact; and

                (2) determine their qualifications, pursuant to an open, transparent, objective competitive process and procedure adopted by the commission;

          H. establish the commission's personnel policies and programs relating to conflicts of interest, rates of compensation and qualifications of personnel and other related personnel matters;

          I. accept appropriate donations and grants of money, equipment, supplies, materials and services and to receive, use and dispose of the same; provided that at all times the commission shall avoid any appearance of impropriety or conflict of interest;

          J. lease, purchase, accept appropriate gifts or donations of, or otherwise to own, hold, improve or use, any property, real, personal or mixed; provided that at all times the commission shall avoid any appearance of impropriety or conflict of interest;

          K. sell, convey, mortgage, pledge, lease, exchange, abandon or otherwise dispose of any property, real, personal or mixed;

          L. provide for tax audit rules and procedures for the compacting states with respect to the allocation of premium taxes, including:

                (1) minimum audit standards and sampling methods;

                (2) review of internal controls;

                (3) cooperation and sharing of audit responsibilities between compacting states;

                (4) handling of refunds or credits due to overpayments or improper allocation of premium taxes;

                (5) taxpayer records to be reviewed, including a minimum retention period; and

                (6) authority of compacting states to review, challenge or re-audit taxpayer records;

          M. enforce compliance by compacting states and contracting states with rules;

          N. provide for dispute resolution among compacting states and contracting states;

          O. advise compacting states and contracting states on tax-related issues relating to insurers, insureds, surplus lines licensees, agents or brokers domiciled or doing business in non-compacting states, consistent with the purposes of this compact;

          P. make available advice and training to those personnel in state stamping offices, state insurance departments or other state departments for recordkeeping, tax compliance and tax allocations and be a resource for state insurance departments and other state departments;

          Q. establish a budget and make expenditures;

          R. borrow money;

          S. appoint and oversee committees, including advisory committees composed of members, state insurance regulators, state legislators or their representatives, insurance industry and consumer representatives and such other interested persons as may be designated in this compact and the bylaws;

          T. establish an executive committee pursuant to Subsection B of Article 6 of this compact;

          U. establish an operations committee pursuant to Subsection C of Article 6 of this compact;

          V. enter into contracts with contracting states so that contracting states can utilize the services of and fully participate in the clearinghouse subject to the terms and conditions set forth in such contracts;

          W. adopt and use a corporate seal; and

          X. perform other functions as may be necessary or appropriate to achieve the purposes of this compact consistent with the state regulation of the business of insurance.

ARTICLE 6

ORGANIZATION OF THE COMMISSION

          A. The following provisions shall govern commission membership, voting and bylaws:

                (1) each compacting state shall have and be limited to one member. Each state shall determine the qualifications and the method by which it selects a member and set forth the selection process in the enabling provision of the legislation that enacts this compact. In the absence of such a provision, the member shall be appointed by the governor of the compacting state. Any member may be removed or suspended from office as provided by the law of the state from which the member shall be appointed. Any vacancy occurring in the commission shall be filled in accordance with the laws of the compacting state wherein the vacancy exists;

                (2) each member shall be entitled to one vote and shall otherwise have an opportunity to participate in the governance of the commission in accordance with the bylaws;

                (3) the commission shall, by a majority vote of the members, prescribe bylaws to govern its conduct as may be necessary or appropriate to carry out the purposes and exercise the powers of the compact, including, but not limited to:

                     (a) establishing the fiscal year of the commission;

                     (b) providing reasonable procedures for holding meetings of the commission, the executive committee and the operations committee;

                     (c) providing reasonable standards and procedures: 1) for the establishment and meetings of committees; and 2) governing any general or specific delegation of any authority or function of the commission;

                     (d) providing reasonable procedures for calling and conducting meetings of the commission that consist of a majority of commission members, ensuring reasonable advance notice of each meeting and providing for the right of citizens to attend each meeting with enumerated exceptions designed to protect the public's interest, the privacy of individuals and insurers and surplus lines licensees' proprietary information, including trade secrets. The commission may meet privately only after a majority of the entire membership votes to close a meeting in whole or in part. As soon as practicable, the commission must make public: 1) a copy of the vote to close the meeting, revealing the vote of each member with no proxy votes allowed; and 2) votes taken during the meeting;

                     (e) establishing the titles, duties and authority and reasonable procedures for the election of the officers of the commission;

                     (f) providing reasonable standards and procedures for the establishment of the personnel policies and programs of the commission. Notwithstanding any civil service or other similar laws of any compacting state, the bylaws shall exclusively govern the personnel policies and programs of the commission;

                     (g) promulgating a code of ethics to address permissible and prohibited activities of commission members and employees; and

                     (h) providing a mechanism for winding up the operations of the commission and the equitable disposition of any surplus funds that may exist after the termination of the compact and after the payment or reserving of all of its debts and obligations; and

                (4) the commission shall publish its bylaws in a convenient form and file a copy thereof and a copy of any amendment thereto with the appropriate agency or officer in each of the compacting states.

          B. An executive committee of the commission shall be established.

                (1) All actions of the executive committee, including compliance and enforcement, are subject to the review and ratification of the commission as provided in the bylaws.

                (2) The executive committee shall have no more than fifteen nor less than seven members, provided that, if there are fewer than fifteen compacting states, the executive committee shall have one member for each state. Each member shall be entitled to one vote. Members of the executive committee shall serve for a term of one year.

                (3) The executive committee shall have authority and duties as may be set forth in the bylaws, including, but not limited to:

                     (a) managing the affairs of the commission in a manner consistent with the bylaws and purposes of the commission;

                     (b) acting on behalf of the commission, with the exception of rulemaking, during periods when the commission is not in session;

                     (c) establishing and overseeing an organizational structure within, and appropriate procedures for the commission to provide for the creation of, rules and operating procedures;

                     (d) overseeing the day-to-day activities of the administration of the compact, including the activities of the operations committee and compliance with and enforcement of the provisions of the compact; and

                     (e) planning, implementing and coordinating communications and activities with other state, federal and local government organizations in order to advance the goals of the commission.

                (4) The commission shall annually elect officers from the executive committee, with each officer having such authority and duties as may be specified in the bylaws.

                (5) The executive committee may, subject to the approval of the commission, appoint or retain an executive director for a period, upon terms and conditions and for a compensation as the commission may deem appropriate, and who shall:

                     (a) serve as secretary to the commission but not be a member of the commission; and

                     (b) hire and supervise other persons as may be authorized by the commission.

          C. An operations committee shall be established.

                (1) All actions of the operations committee are subject to the review and oversight of the commission and the executive committee and shall be approved by the commission.

                (2) The executive committee shall accept the determinations and recommendations of the operations committee unless good cause is shown why such determinations and recommendations should not be approved.

                (3) Any disputes as to whether good cause exists to reject any determination or recommendation of the operations committee shall be resolved by the majority vote of the commission.

                (4) The operations committee shall have no more than fifteen nor less than seven members, provided that, if there are fewer than fifteen compacting states, the operations committee shall have one member for each state. Each member shall be entitled to one vote. Members of the operations committee shall serve for a term and shall be established as set forth in the bylaws.

                (5) The operations committee shall have responsibility for:

                     (a) evaluating technology requirements for the clearinghouse, assessing existing systems used by state regulatory agencies and state stamping offices to maximize the efficiency and successful integration of the clearinghouse technology systems with state and state stamping office technology platforms and to minimize costs to the states, state stamping offices and the clearinghouse;

                     (b) making recommendations to the executive committee based on its analysis and determination of the clearinghouse technology requirements and compatibility with existing state and state stamping office systems;

                     (c) evaluating the most suitable proposals for adoption as mandatory rules, assessing proposals for ease of integration by states and likelihood of successful implementation and reporting to the executive committee its determinations and recommendations; and

                     (d) such other duties and responsibilities as are delegated to it by the bylaws, the executive committee or the commission.

                (6) All members of the operations committee shall be individuals who have extensive experience or employment in the surplus lines insurance business, including, but not limited to, executives and attorneys employed by surplus lines insurers, surplus line licensees, law firms, state insurance departments or state stamping offices. Operations committee representatives from compacting states that use the services of a state stamping office shall appoint the chief operating officer or a senior manager of the state stamping office to the operations committee.

          D. A legislative committee composed of state legislators or their designees shall be established to monitor the operations of and make recommendations to the commission and the executive committee; provided that the manner of selection and term of any legislative committee member shall be as set forth in the bylaws. Prior to the adoption by the commission of any uniform standard, revision to the bylaws, annual budget or other significant matter as may be provided in the bylaws, the executive committee shall consult with, and report to, the legislative committee.

          E. The commission may establish additional advisory committees as its bylaws may provide for the carrying out of its functions.

          F. The commission shall maintain its corporate books and records in accordance with the bylaws.

          G. The members, officers, executive director, employees and representatives of the commission, the executive committee and any other committee of the commission shall be immune from suit and liability, either personally or in their official capacity, for any claim for damage to, or loss of, property, personal injury or other civil liability caused by or arising out of any actual or alleged act, error or omission that occurred, or that the person against whom the claim is made had a reasonable basis for believing occurred, within the scope of commission employment, duties or responsibilities; provided that nothing in this subsection shall be construed to protect any person from suit or liability for any damage, loss, injury or liability caused by the intentional or willful or wanton misconduct of that person.

          H. The commission shall defend any member, officer, executive director, employee or representative of the commission, the executive committee or any other committee of the commission in any civil action seeking to impose liability arising out of any actual or alleged act, error or omission that occurred within the scope of commission employment, duties or responsibilities, or that the person against whom the claim is made had a reasonable basis for believing occurred within the scope of commission employment, duties or responsibilities; provided that nothing herein shall be construed to prohibit that person from retaining separate counsel; and provided further that the actual or alleged act, error or omission did

not result from that person's intentional or willful or wanton misconduct.

          I. The commission shall indemnify and hold harmless any member, officer, executive director, employee or representative of the commission, executive committee or any other committee of the commission for the amount of any settlement or judgment obtained against that person arising out of an actual or alleged act, error or omission that occurred within the scope of commission employment, duties or responsibilities, or that person had a reasonable basis for believing occurred within the scope of commission employment, duties or responsibilities; provided that the actual or alleged act, error or omission did not result from the intentional or willful or wanton misconduct of that person.

ARTICLE 7

MEETINGS AND ACTS OF THE COMMISSION

          A. The commission shall meet and take such actions as are consistent with the provisions of this compact and the bylaws.

          B. Each member of the commission shall have the right and power to cast a vote to which that compacting state is entitled and to participate in the business and affairs of the commission. A member shall vote in person or by such other means as provided in the bylaws. The bylaws may provide for members' participation in meetings by telephone or other means of communication.

          C. The commission shall meet at least once during each calendar year. Additional meetings shall be held as set forth in the bylaws.

          D. Public notice shall be given of all meetings, and all meetings shall be open to the public, except as set forth in the rules or otherwise provided in the compact.

          E. The commission shall promulgate rules concerning its meetings consistent with the principles contained in the federal Government in the Sunshine Act, 4 U.S.C. Section 552b, as may be amended.

           F. The commission and its committees may close a meeting, or portion thereof, when they determine by majority vote that an open meeting would be likely to:

                (1) relate solely to the commission's internal personnel practices and procedures;

                (2) disclose matters specifically exempted from disclosure by federal and state statute;

                (3) disclose trade secrets or commercial or financial information that is privileged or confidential;

                (4) involve accusing a person of a crime or involve formally censuring a person;

                (5) disclose information of a personal nature when disclosure would constitute a clearly unwarranted invasion of personal privacy;

                (6) disclose investigative records compiled for law enforcement purposes; or

                (7) specifically relate to the commission's issuance of a subpoena or its participation in a civil action or other legal proceeding.

          G. For a meeting, or portion of a meeting, closed pursuant to this provision, the commission's legal counsel or designee shall certify that the meeting may be closed and shall reference each relevant exemptive provision. The commission shall keep minutes that shall fully and clearly describe all matters discussed in a meeting and shall provide a full and accurate summary of actions taken, and the reasons therefor, including a description of the views expressed and the record of a roll call vote. All documents considered in connection with an action shall be identified in the minutes. All minutes and documents of a closed meeting shall remain under seal, subject to release by a majority vote of the commission.

ARTICLE 8

RULEMAKING FUNCTIONS OF THE COMMISSION

          A. The commission shall promulgate reasonable

rules in order to effectively and efficiently achieve the purposes of this compact; provided that, in the event the commission exercises its rulemaking authority in a manner that is beyond the scope of the purposes of this compact or the powers that it grants, such an action by the commission shall be invalid and have no force or effect.

          B. Rules shall be made pursuant to a rulemaking

process that substantially conforms to the 1981 Model State Administrative Procedure Act, Uniform Laws Annotated, Vol. 15, p.1 (2000) as amended, as may be appropriate to the operations of the commission.

          C. All rules shall become effective as of the date specified in each rule.

          D. Not later than thirty days after a rule is promulgated, a person may file a petition for judicial review of the rule; provided that the filing of the petition shall not stay or otherwise prevent the rule from becoming effective unless the court finds that the petitioner has a substantial likelihood of success. The court shall give deference to the actions of the commission consistent with applicable law and shall not find the rule to be unlawful if the rule represents a reasonable exercise of the commission's authority.

ARTICLE 9

COMMISSION RECORDS AND ENFORCEMENT

          A. The commission shall promulgate rules establishing conditions and procedures for public inspection and copying of its information and official records, except for information and records involving the privacy of individuals, insurers, insureds or surplus lines licensee trade secrets. State transaction documentation and clearinghouse transaction data collected by the clearinghouse shall be used for only those purposes expressed in or reasonably implied under the provisions of this compact, and the commission shall afford this data the broadest protections as permitted by any applicable law for proprietary information, trade secrets or personal data. The commission may promulgate additional rules under which it may make available to federal and state agencies, including law enforcement agencies, records and information otherwise exempt from disclosure and may enter into agreements with such agencies to receive or exchange information or records subject to nondisclosure and confidentiality provisions.

          B. Except as to privileged records, data and information, the laws of a compacting state pertaining to confidentiality or nondisclosure shall not relieve any compacting state member of the duty to disclose any relevant records, data or information to the commission; provided that disclosure to the commission shall not be deemed to waive or otherwise affect any confidentiality requirement; and provided further that, except as otherwise expressly provided in this compact, the commission shall not be subject to the compacting state's laws pertaining to confidentiality and nondisclosure with respect to records, data and information in its possession. Confidential information of the commission shall remain confidential after such information is provided to a member, and the commission shall maintain the confidentiality of information provided by a member that is confidential under that member's state law.

          C. The commission shall monitor compacting states for compliance with duly adopted bylaws and rules. The commission shall notify a non-complying compacting state in writing of its noncompliance with commission bylaws or rules. If a non-complying compacting state fails to remedy its noncompliance within the time specified in the notice of noncompliance, the compacting state shall be deemed to be in default as set forth in Article 14 of this compact.

ARTICLE 10

DISPUTE RESOLUTION

          A. Before a member may bring an action in a court of competent jurisdiction for violation of a provision, standard or requirement of the compact, the commission shall attempt, upon the request of a member, to resolve disputes or other issues that are subject to this compact and that may arise between two or more compacting states, contracting states or non-compacting states, and the commission shall promulgate a rule providing alternative dispute resolution procedures for such disputes.

          B. The commission shall also provide alternative dispute resolution procedures to resolve disputes between insureds or surplus lines licensees concerning a tax calculation or allocation or related issues that are the subject of this compact.

          C. Any alternative dispute resolution procedures shall be used in circumstances in which a dispute arises as to which state constitutes the home state.

ARTICLE 11

REVIEW OF COMMISSION DECISIONS

          A. Not later than thirty days after the commission has given notice of a rule or allocation formula, a third party filer or compacting state may appeal the determination to a review panel appointed by the commission. The commission shall promulgate rules to establish procedures for appointing review panels and provide for notice and hearing. An allegation that the commission, in making compliance or tax determinations, acted arbitrarily, capriciously or in a manner that is an abuse of discretion or otherwise not in accordance with the law is subject to judicial review in accordance with Subsection F of Article 3 of this compact.

          B. The commission shall have authority to monitor, review and reconsider commission decisions upon a finding that the determinations or allocations do not meet the relevant rule. Where appropriate, the commission may withdraw or modify its determination or allocation after proper notice and hearing, subject to the appeal process in Subsection A of this article.

ARTICLE 12

FINANCE

          A. The commission shall pay or provide for the payment of the reasonable expenses of its establishment and organization. To fund the cost of its initial operations, the commission may accept contributions, grants and other forms of funding from the state stamping offices, compacting states and other sources.

          B. The commission shall collect a fee payable by the insured directly or through a surplus lines licensee on each transaction processed through the compact clearinghouse to cover the cost of the operations and activities of the commission and its staff in a total amount sufficient to cover the commission's annual budget.

          C. The commission's budget for a fiscal year shall not be approved until it has been subject to notice and comment as set forth in Article 8 of this compact.

          D. The commission shall be regarded as performing essential governmental functions in exercising its powers and functions and in carrying out the provisions of this compact. The commission shall not be required to pay taxes or assessments levied by any state or political subdivision thereof upon the property used by the commission in the performance of its duties, or on income or revenue that the commission receives, including any profit from a sale or exchange.

          E. The commission shall keep complete and accurate accounts of all its internal receipts, including grants and donations, and disbursements for all funds under its control. The internal financial accounts of the commission shall be subject to the accounting procedures established under its bylaws. The financial accounts and reports, including the system of internal controls and procedures of the commission, shall be audited annually by an independent certified public accountant. Upon the determination of the commission, but not less frequently than every three years, the review of the independent auditor shall include a management and performance audit of the commission. The commission shall make an annual report to the governor and legislature of the compacting states, which report shall include a report of the independent audit. The commission's internal accounts shall not be confidential, and the materials may be shared with the

commissioner, the controller or the stamping office of any compacting state upon request; provided, however, that work papers related to an internal or independent audit and any information regarding the privacy of individuals and licensees' and insurers' proprietary information, including trade secrets, shall remain confidential.

          F. No compacting state shall have claim to or ownership of any property held by or vested in the commission or to any commission funds held pursuant to the provisions of this compact.

          G. The commission shall not make any political contributions to candidates for elected office, elected officials, political parties or political action committees. The commission shall not engage in lobbying except with respect to changes to this compact.

ARTICLE 13

COMPACTING STATES, EFFECTIVE DATE AND AMENDMENT

          A. Any state is eligible to become a compacting state.

          B. The compact shall become effective and binding upon legislative enactment of the compact into law by two compacting states; provided that the commission shall become effective for purposes of adopting rules and creating the clearinghouse when there are a total of ten compacting states and contracting states or, alternatively, when there are compacting states and contracting states representing greater than forty percent of the surplus lines insurance premium volume based on records of the percentage of surplus lines insurance premium for calendar year 2005 as shown in a study dated February 27, 2007 by Mackin and Company. Thereafter, it shall become effective and binding as to any other compacting state upon enactment of the compact into law by that state; provided that the clearinghouse operations and the duty to report clearinghouse transaction data shall begin on the first January 1 or July 1 following the first anniversary of the commission's effective date. For states that join the compact subsequent to the effective date, a start date for reporting clearinghouse transaction data shall be set by the commission; provided that surplus lines licensees and all other interested parties receive not less than ninety days advance notice.

          C. Amendments to the compact may be proposed by the commission for enactment by the compacting states. No amendment shall become effective and binding upon the commission and the compacting states unless and until all compacting states enact the amendment into law.

ARTICLE 14

WITHDRAWAL, DEFAULT AND TERMINATION

          A. The following provisions govern withdrawal of a state from the commission:

                (1) once effective, the compact shall continue in force and remain binding upon each compacting state; provided that a compacting state may withdraw from the compact by enacting a statute specifically repealing the statute that enacted the compact into law;

                (2) the effective date of withdrawal is the effective date of the repealing statute; provided, however, that the withdrawal shall not apply to any tax or compliance determinations approved on the date the repealing statute becomes effective, except by mutual agreement of the commission and the withdrawing state, unless the approval is rescinded by the commission;

                (3) the member of the withdrawing state shall immediately notify the executive committee of the commission in writing upon the introduction of legislation repealing this compact in the withdrawing state;

                (4) the commission shall notify the other compacting states of the introduction of such legislation within ten days after its receipt of notice thereof;

                (5) the withdrawing state is responsible for all obligations, duties and liabilities incurred through the effective date of withdrawal, including any obligations, the performance of which extend beyond the effective date of withdrawal. To the extent those obligations may have been released or relinquished by mutual agreement of the commission and the withdrawing state, the commission's determinations prior to the effective date of withdrawal shall continue to be effective and be given full force and effect in the withdrawing state, unless formally rescinded by the commission; and

                (6) reinstatement following withdrawal of any compacting state shall occur upon the effective date of the withdrawing state reenacting the compact.

          B. The following provisions govern default by a compacting state:

                (1) if the commission determines that any compacting state has at any time defaulted in the performance of any of its obligations or responsibilities under this compact, the bylaws or duly promulgated rules, then after notice and hearing as set forth in the bylaws, all rights, privileges and benefits conferred by this compact on the defaulting state shall be suspended from the effective date of default as fixed by the commission. The grounds for default include the failure of a compacting state to perform its obligations or responsibilities and other grounds designated in commission rules. The commission shall immediately notify the defaulting state in writing of the defaulting state's suspension pending a cure of the default. The commission shall stipulate the conditions and the time period within which the defaulting state must cure its default. If the defaulting state fails to cure the default within the time period specified by the commission, the defaulting state shall be terminated from the compact and all rights, privileges and benefits conferred by this compact shall be terminated from the effective date of termination;

                (2) decisions of the commission that are issued on the effective date of termination shall remain in force in the defaulting state in the same manner as if the defaulting state had withdrawn voluntarily pursuant to Subsection A of this article; and

                (3) reinstatement following termination of a compacting state requires a reenactment of the compact.

          C. The following provisions govern the dissolution of this compact:

                (1) the compact dissolves effective upon the date of the withdrawal or default of the compacting state that reduces membership in the compact to one compacting state; and

                (2) upon the dissolution of this compact, the compact becomes null and void and shall have no further force or effect, and the business and affairs of the commission shall be terminated and any surplus funds shall be distributed in accordance with the rules and bylaws.

ARTICLE 15

SEVERABILITY AND CONSTRUCTION

          A. The provisions of this compact shall be severable and if any phrase, clause, sentence or provision is deemed unenforceable, the remaining provisions of the compact shall be enforceable.

          B. The provisions of this compact shall be liberally construed to effectuate its purposes.

          C. Throughout this compact the use of the singular shall include the plural and vice versa.

          D. The headings and captions of articles used in this compact are for convenience only and shall be ignored in construing the substantive provisions of this compact.

ARTICLE 16

BINDING EFFECT OF COMPACT AND OTHER LAWS

          A. Nothing in this compact prevents the enforcement of any other law of a compacting state except as provided in Subsection B of this article.

          B. Decisions of the commission and rules and other requirements of the commission shall constitute the exclusive rule or determination applicable to the compacting states. A law or rule regarding non-admitted insurance of multistate risks that is contrary to rules of the commission is preempted with respect to the following:

                (1) clearinghouse transaction data reporting requirements;

                (2) allocation formulas;

                (3) clearinghouse transaction data collection requirements;

                (4) premium tax payment time frames and rules concerning dissemination of data among the compacting states for non-admitted insurance of multistate risks and single-state risks;

                (5) exclusive compliance with surplus lines law of the home state of the insured;

                (6) rules for reporting to a clearinghouse for receipt and distribution of clearinghouse transaction data related to non-admitted insurance of multistate risks;

                (7) uniform foreign insurers eligibility requirements;

                (8) uniform policyholder notice; and

                (9) uniform treatment of purchasing groups procuring non-admitted insurance.

          C. Except as stated in Subsection B of this article, a rule, uniform standard or other requirement of the commission shall constitute the exclusive provision that a commissioner may apply to compliance or tax determinations; provided, however, that no action taken by the commission shall abrogate or restrict:

                (1) the access of a person to state courts;

                (2) the availability of alternative dispute resolution under Article 10 of this compact;

                (3) remedies available under state law related to breach of contract, tort or other laws not specifically directed to compliance or tax determinations;

                (4) state law relating to the construction of insurance contracts; or

                (5) the authority of the attorney general of the state, including but not limited to maintaining any actions or proceedings, as authorized by law.

          D. All lawful actions of the commission, including all rules promulgated by the commission, are binding upon the compacting states, except as provided in this compact.

          E. All agreements between the commission and the compacting states are binding in accordance with their terms.

          F. Upon the request of a party to a conflict over the meaning or interpretation of commission actions and upon a majority vote of the compacting states, the commission may issue advisory opinions regarding the meaning or interpretation in dispute. This provision may be implemented by rule at the discretion of the commission.

          G. In the event any provision of this compact exceeds the constitutional limits imposed on the legislature of any compacting state, the obligations, duties, powers or jurisdiction sought to be conferred by that provision upon the commission shall be ineffective as to that state and those obligations, duties, powers or jurisdiction shall remain in the compacting state and shall be exercised by the agency thereof to which those obligations, duties, powers or jurisdiction are delegated by law in effect at the time this compact becomes effective."

     SECTION 2. [NEW MATERIAL] SURPLUS LINES INSURANCE MULTISTATE COMPLIANCE COMPACT--STATE REPRESENTATIVE.--New Mexico's member on the surplus lines insurance multistate compliance compact commission shall be the superintendent of insurance or the superintendent's designee.

     SECTION 3. Section 59A-6-5 NMSA 1978 (being Laws 1984, Chapter 127, Section 105, as amended) is amended to read:

     "59A-6-5. DISTRIBUTION OF DIVISION COLLECTIONS.--

          A. All money received by the division for fees, licenses, penalties and taxes shall be paid daily by the superintendent to the state treasurer and credited to the "insurance department suspense fund" except as provided by:

                (1) the Law Enforcement Protection Fund Act;

                (2) Section 59A-6-1.1 NMSA 1978; and

                (3) the Voter Action Act.

          B. The superintendent may authorize refund of money erroneously paid as fees, licenses, penalties or taxes from the insurance department suspense fund under request for refund made within three years after the erroneous payment. In the case of premium taxes erroneously paid or overpaid in accordance with law, refund may also be requested as a credit against premium taxes due in any annual or quarterly premium tax return filed within three years of the erroneous or excess payment.

          C. If required by a compact to which New Mexico has joined pursuant to law, the superintendent shall authorize the allocation of premiums collected pursuant to Section 59A-14-12 NMSA 1978 to other states that have joined the compact pursuant to an allocation formula agreed upon by the compacting states.

          [C.] D. The "insurance operations fund" is created in the state treasury. The fund shall consist of the distributions made to it pursuant to Subsection [D] E of this section. The legislature shall annually appropriate from the fund to the division those amounts necessary for the division to carry out its responsibilities pursuant to the Insurance Code and other laws. Any balance in the fund at the end of a fiscal year greater than one-half of that fiscal year's appropriation shall revert to the general fund.

          [D.] E. At the end of every month, after applicable refunds are made pursuant to Subsection B of this section and after any allocations have been made pursuant to Subsection C of this section, the treasurer shall make the following transfers from the balance remaining in the insurance department suspense fund:

                (1) to the "fire protection fund", that part of the balance derived from property and vehicle insurance business;

                (2) to the insurance operations fund, that part of the balance derived from the fees imposed pursuant to Subsections A and E of Section 59A-6-1 NMSA 1978 other than fees derived from property and vehicle insurance business; and

                (3) to the general fund, the balance remaining in the insurance department suspense fund derived from all other kinds of insurance business."

     SECTION 4. Section 59A-14-1 NMSA 1978 (being Laws 1984, Chapter 127, Section 239, as amended) is amended to read:

     "59A-14-1. SCOPE OF ARTICLE--PURPOSE--NECESSITY FOR REGULATION.--

          A. Chapter 59A, Article 14 NMSA 1978 governs the placing of insurance [of New Mexico risks] where New Mexico is the home state of the insured, through licensed surplus [line] lines brokers, in insurers not otherwise authorized to transact insurance in this state and subject to the conditions for such placing as stated in that article; qualifications, licensing and duties and responsibilities of surplus [line] lines brokers; and other provisions as to such surplus [line] lines business and brokers. As to unauthorized insurers in general, and in respects other than as to surplus [line] lines, refer to Chapter 59A, Article 15 NMSA 1978.

          B. Chapter 59A, Article l4 NMSA 1978 shall not apply as to reinsurance or to the following insurances when placed by general lines agents or surplus [line] lines brokers licensed as such by this state:

                (1) any insurance where New Mexico is not the home state of the insured;

                [(1)] (2) wet marine and transportation insurance, as defined in Section 59A-7-5 NMSA 1978;

                [(2)] (3) insurance [of subjects located, resident or to be performed wholly outside this state or] on vehicles or aircraft owned and principally garaged outside this state;

                [(3)] (4) insurance of property and operations of railroads engaged in interstate commerce;

                [(4)] (5) insurance of aircraft of common carriers, or cargo of such aircraft, or against liability, other than employer's liability, arising out of ownership, maintenance or use of such aircraft;

                [(5)] (6) insurance of automobile bodily injury and property damage liability risks when written in Mexican insurers and covering in Mexico and not in the United States; or

                [(6)] (7) insurance independently procured.

          C. Chapter 59A, Article 14 NMSA 1978 shall be liberally construed and applied to promote its underlying purposes, which include:

                (1) protecting insureds and persons seeking insurance in this state;

                (2) permitting surplus lines insurance to be placed with reputable and financially sound unauthorized insurers, but only pursuant to Chapter 59A, Article 14 NMSA 1978;

                (3) establishing a system of regulation that will permit controlled access to surplus lines insurance in this state; and

                (4) assuring collection of revenues and other amounts due to this state."

     SECTION 5. Section 59A-14-2 NMSA 1978 (being Laws 1991, Chapter 125, Section 12) is amended to read:

     "59A-14-2. DEFINITIONS.--As used in Chapter 59A, Article 14 NMSA 1978:

          A. "affiliate" means, with respect to an insured, any entity that controls, is controlled by or is under common control with the insured;

          B. "affiliated group" means any group of entities that are all affiliated;

          C. "association" means the national association of insurance commissioners or any successor entity;

          D. "control" means that:

                (1) an entity directly or indirectly or acting through one or more other persons owns, controls or has the power to vote twenty-five percent or more of any class of voting securities of another entity; or

                (2) an entity controls in any manner the election of a majority of the directors or trustees of another entity;

          [A.] E. "eligible surplus lines insurer" means a qualified [unauthorized foreign] nonadmitted insurer, approved and listed pursuant to Section 59A-14-4 NMSA 1978, with which a surplus lines broker may place surplus lines insurance;

          F. "exempt commercial purchaser" means any person purchasing commercial insurance that, at the time of placement, meets the following requirements:

                (1) the person employs or retains a qualified risk manager to negotiate insurance coverage;

                (2) 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 twelve months; and

                (3) the person:

                     (a) possesses a net worth in excess of twenty million dollars ($20,000,000), provided that this amount shall be adjusted every five years by rule of the superintendent to account for the percentage change in the consumer price index;

                     (b) generates annual revenues in excess of fifty million dollars ($50,000,000), provided that this amount shall be adjusted every five years by rule of the superintendent to account for the percentage change in the consumer price index;

                     (c) employs more than five hundred full-time or full-time-equivalent employees per insured entity or is a member of an affiliated group employing more than one thousand employees in the aggregate;

                     (d) is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars ($30,000,000), provided that this amount shall be adjusted every five years by rule of the superintendent to account for the percentage change in the consumer price index; or

                     (e) is a municipality with a population in excess of fifty thousand persons;

          [B.] G. "export" means to place insurance with [an unauthorized] a nonadmitted insurer;

          H. "home state" means, with respect to an insured:

                (1) except as provided in Paragraph (3) of this subsection, 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) except as provided in Paragraph (3) of this subsection, if one hundred percent of the insured risk is located out of the state referred to in Paragraph (1) of this subsection, the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated; or

                (3) if more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, "home state" means the home state, as determined pursuant to Paragraph (1) or (2) of this subsection, of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract;

          I. "nonadmitted insurance" means any property and casualty insurance permitted to be placed directly or through a surplus lines broker with an eligible surplus lines insurer;

          J. "nonadmitted insurer" means an insurer not licensed to engage in the business of insurance in New Mexico;

          [C.] K. "producing broker" means the broker or agent dealing directly with the person seeking insurance if the home state of the person seeking insurance is New Mexico;

          L. "professional designation" means:

                (1) a designation as a chartered property and casualty underwriter issued by the American institute for chartered property and casualty underwriters;

                (2) a designation as an associate in risk management issued by the insurance institute of America;

                (3) a designation as a certified risk manager issued by the national alliance for insurance education and research;

                (4) a designation as a RIMS fellow issued by the global risk management institute; or

                (5) any other designation, certification or license determined by the superintendent to demonstrate minimum competency in risk management;

          M. "qualified risk manager" means, with respect to an exempt commercial purchaser, a person who:

                (1) is an employee of, or a third-party consultant retained by, the exempt commercial purchaser;

                (2) provides skilled services in loss prevention, loss reduction, risk and insurance coverage analysis and purchase of insurance; and

                (3) has:

                     (a) 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 superintendent to demonstrate minimum competence in risk management and either: 1) three years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis or purchase of commercial lines of insurance; or 2) a professional designation;

                     (b) a professional designation and at least seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis or purchase of commercial lines of insurance;

                     (c) at least ten years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis or purchase of commercial lines of insurance; or

                     (d) a graduate degree from an accredited college or university in risk management, business administration, finance, economics or any other field determined by the superintendent to demonstrate minimum competence in risk management;

          [D.] N. "surplus lines broker" means an individual, firm or corporation licensed under Chapter 59A, Article 14 NMSA 1978 to place insurance with eligible surplus lines insurers;

          [E.] O. "surplus lines insurance" means any insurance permitted to be exported through a surplus lines broker; [and

          F.] P. "type of insurance" means one of the types of insurance required to be reported in the annual statement that must be filed with the superintendent by authorized insurers; and

          Q. "unauthorized insurer" means a nonadmitted insurer."

     SECTION 6. Section 59A-14-3 NMSA 1978 (being Laws 1991, Chapter 125, Section 13, as amended) is amended to read:

     "59A-14-3. PLACEMENT OF SURPLUS LINES INSURANCE.--No surplus lines insurance for an insured whose home state is New Mexico shall be solicited, negotiated, contracted for, effectuated or otherwise transacted within the meaning of Section 59A-1-13 NMSA 1978, unless:

          A. the insurance is procured through a surplus lines broker;

          B. each [unauthorized] nonadmitted insurer providing such insurance is an eligible surplus lines insurer;

          C. either:

                (1) the full amount or type of insurance cannot be obtained from insurers authorized to do business in this state [The full amount or type of insurance may be procured from eligible surplus lines insurers, provided that] as determined after making a diligent search [has been made] among insurers authorized to transact and actually writing the particular type and class of insurance in this state; or

                (2) the insurance is being procured for an exempt commercial purchaser and:

                     (a) the surplus lines broker procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that the insurance may or may not be available from insurers authorized to do business in this state, which may provide greater protection with more regulatory oversight; and

                     (b) the exempt commercial purchaser has subsequently requested in writing the surplus lines broker to procure or place the insurance from an eligible surplus lines insurer;

          D. the surplus lines broker has taken such reasonable steps to ascertain that the insurer is in sound financial condition as may be required by regulations adopted by the superintendent; and

          E. all other requirements of Chapter 59A, Article 14 NMSA 1978 are met."

     SECTION 7. Section 59A-14-4 NMSA 1978 (being Laws 1991, Chapter 125, Section 14, as amended) is amended to read:

     "59A-14-4. ELIGIBLE SURPLUS LINES INSURERS REQUIRED.--

          A. No person shall export insurance on behalf of an insured whose home state is New Mexico except as authorized by and in accordance with Chapter 59A, Article 14 NMSA 1978.

          B. No surplus lines broker shall transact [any] surplus lines insurance with [any] an insurer other than an eligible surplus lines insurer.

          C. To qualify as an eligible surplus lines insurer, [an unauthorized foreign] a nonadmitted insurer shall file information demonstrating to the superintendent's satisfaction that:

                [(1) the insurer, its officers, owners, key employees and all persons exercising management or control of the insurer are of good repute and financial integrity; and

                (2) the insurer qualifies under one of the following subparagraphs:

                     (a) the insurer shall have capital and surplus, or their equivalent, that equals fifteen million dollars ($15,000,000); provided that unauthorized insurers on the New Mexico list of eligible surplus lines insurers as of the effective date of this section that do not meet the foregoing requirements shall have capital and surplus of ten million dollars ($10,000,000) by December 31, 1991, twelve million five hundred thousand dollars ($12,500,000) by December 31, 1992 and fifteen million dollars ($15,000,000) by December 31, 1993;

                     (b) the requirements of Subparagraph (a) of this paragraph may be satisfied by an insurer possessing less than the capital and surplus upon an affirmative finding of acceptability by the superintendent.]

                (1) the insurer is authorized to write the particular line of business in the state in which it is domiciled and:

                     (a) the insurer has capital and surplus or their equivalent that equals the greater of: 1) fifteen million dollars ($15,000,000); or 2) the minimum capital and surplus required in this state for that particular line of business; or

                     (b) the insurer has capital and surplus less than the amounts required in Subparagraph (a) of this paragraph but the superintendent affirmatively finds that the insurer is acceptable as an eligible surplus lines insurer. 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 and company record and reputation within the industry. In no event shall the superintendent make an affirmative finding of acceptability when the surplus lines insurer's capital and surplus is less than four million five hundred thousand dollars ($4,500,000); [or

                (c)] (2) the insurer is a member of an "insurance exchange", which is an association of syndicates or insurers created by the laws of individual states, and shall maintain capital and surplus, or the equivalent thereof, of not less than fifty million dollars ($50,000,000) in the aggregate. For insurance exchanges that maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall maintain minimum capital and surplus, or the equivalent thereof, of not less than five million dollars ($5,000,000). In the event the insurance exchange does not maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall meet the minimum capital and surplus requirements of Subparagraph (a) of Paragraph (1) of this [paragraph] subsection;              

          [D. In addition to meeting the requirements of Subsection C of this section, an alien insurer shall have in force and on deposit in the United States in a qualified United States financial institution an irrevocable trust account for the exclusive benefit of United States policyholders of not less than two million five hundred thousand dollars ($2,500,000), or any higher amount the superintendent may establish by regulation, consisting exclusively of cash, securities, letters of credit and of investments of the same character and quality, and subject to the same limitations as to percentage of assets that may be invested in each class of assets, as constitute eligible investments for the capital, surplus and statutory reserves of authorized insurers authorized to write like kinds of insurance in this state. Such trust fund, which shall be included in any calculation of capital and surplus or its equivalent, shall have an expiration date that at no time shall be less than five years from the last date on which the insurer accepts surplus lines insurance subject to Chapter 59A, Article 14 NMSA 1978.

          E. A Lloyds plan or other similar groups that include incorporated and individual unincorporated insurers shall maintain a trust fund of not less than fifty million dollars ($50,000,000) as security to the full amount thereof for all policyholders and creditors in the United States of each member of the group, and such trust shall likewise comply with the terms and conditions established for alien insurers in Subsection D of this section; provided that the incorporated members of the group shall not engage in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members of the group.

          F. In addition to meeting the requirements in Subsections C through E of this section, an unauthorized insurer shall be qualified as an eligible surplus lines insurer only if:

                (1) the superintendent has determined that the insurer meets the requirements of Chapter 59A, Article 14 NMSA 1978 and has placed the insurer on the most recent list of eligible surplus lines insurers published by the superintendent; and

                (2) as to an alien insurer, the insurer appears on the most recent list of alien insurers published by the non-admitted insurers information office of the national association of insurance commissioners or its substantial equivalent as determined by the superintendent]

                (3) if the insurer is an alien insurer, the insurer is listed on the quarterly listing of alien insurers maintained by the international insurers department of the association; or

                (4) if, pursuant to law, New Mexico has joined a compact for the regulation of surplus lines insurance and the state, through the compact commission, has adopted nationwide uniform eligibility requirements, the insurer is in compliance with those requirements.

          [G.] D. The superintendent shall maintain a list of nonadmitted insurers that qualify as an eligible surplus lines insurer under this section. In addition to the requirements of Subsection C of this section, in order to appear on the list of eligible surplus lines insurers, [an unauthorized] a nonadmitted insurer shall provide to the superintendent a copy of its most current annual statement certified and sworn to by the insurer. The statement shall be provided at the same time it is provided to the insurer's domicile, but in no event more than nine months after the close of the period reported upon, and shall be either:

                (1) filed with and approved by the regulatory authority in the insurer's domicile; or

                (2) certified as correct and in accordance with applicable accounting principles by a public accounting firm licensed in 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.

          [H. Nothing in this section shall create any duty of the superintendent to place or maintain any unauthorized insurer on the list of eligible surplus lines insurers. The superintendent in his discretion may refuse to list or continue to list an insurer for any reason even if the insurer otherwise meets the requirements of this section. No such listing shall]

          E. The listing required by Subsection D of this section shall not be deemed to constitute or evidence the superintendent's approval or guaranty as to the financial condition or business practices of the insurer, and no insurer or other person shall allege orally or in writing that any such listing constitutes or implies the superintendent's approval.

          [I.] F. The superintendent may adopt rules [and regulations] fixing reasonable conditions to be met by insurers for [such] the listing [including but not limited to the requirement of a special deposit pursuant to Section 59A-5-19 NMSA 1978]. For good cause shown, the superintendent may in writing waive the requirements of this section to permit insurance to be placed as to a particular risk and insurer if the insurance is not otherwise reasonably obtainable."

     SECTION 8. Section 59A-14-7 NMSA 1978 (being Laws 1984, Chapter 127, Section 245, as amended by Laws 1999, Chapter 272, Section 19 and also by Laws 1999, Chapter 289, Section 21) is amended to read:

     "59A-14-7. SURPLUS [LINE] LINES BROKER LICENSE REQUIRED--QUALIFICATIONS FOR LICENSE.--

          A. No person shall in New Mexico be, act as or hold out to be a surplus [line] lines broker, or place insurance of risks [resident, located or to be performed in New Mexico in any unauthorized] where New Mexico is the home state of the insured in any nonadmitted insurer on behalf of others and for compensation as an independent contractor in any form, unless licensed as a surplus [line] lines broker under Chapter 59A, Article 14 NMSA 1978.

          B. The superintendent shall, upon due application and payment of the license fee, issue a license as surplus [line] lines broker to a person qualified as follows:

                (1) must be currently licensed as an insurance agent in this state as to the kinds of insurance to be exported under the surplus [line] lines broker license applied for and have had experience or special training or education sufficient in duration and character as such an agent as to render the applicant, in the opinion of the superintendent, reasonably competent to engage in business as a surplus [line] lines broker; and

                (2) if the applicant is a firm or corporation, all individuals to represent it in this state must be licensed agents. Each such individual shall be qualified as for an individual license as surplus [line] lines broker, and an additional license fee shall be paid as to each individual, in excess of one, who is to exercise the surplus [line] lines broker license powers [and

             (3) must file with the application the bond provided for in Section 59A-14-8 NMSA 1978.

         C. Licensing procedure, duration and related matters are as provided in Chapter 59A, Article 11 NMSA 1978, and license fee is as specified in Section 59A-6-1 NMSA 1978]."

    SECTION 9. Section 59A-14-12 NMSA 1978 (being Laws 1984, Chapter 127, Section 250, as amended) is amended to read:

    "59A-14-12. PREMIUM TAX ON SURPLUS [LINE] LINES INSURANCE.--

         A. Within sixty days after expiration of a calendar quarter, the surplus [line] lines broker shall pay to the superintendent for the use of the state [of New Mexico] a tax on gross premiums received, less returned premiums, on surplus [line] lines business where New Mexico is the home state of the insured transacted under the surplus [line] lines broker's license during such calendar quarter as shown by the quarterly statement filed with the superintendent [as provided under] pursuant to Section 59A-14-11 NMSA 1978. The tax shall be at the same rate as is applicable to premiums of authorized insurers under Section 59A-6-2 NMSA 1978.

         B. For purposes of this section, "premiums" shall include any additional amount charged the insured, including policy fees, risk purchasing group fees and inspection fees; but "premiums" shall not include any additional amount charged the insured for local, state or federal tax; regulatory authority fee; or examination fee, if any.

         [C. If a surplus line policy covers risks or exposures only partially in this state the tax payable shall be computed upon the proportion of the premium properly allocable to risks or exposures located in this state.]

         C. The superintendent may require surplus lines brokers and insureds who have independently procured insurance to file tax allocation reports annually detailing the portion of the nonadmitted insurance policy premiums attributable to properties, risks or exposures located in each state.

         D. A penalty of ten percent of the amount of tax originally due, plus one percent of such tax amount for each month or fraction thereof of delinquency after the first thirty days of delinquency, shall be paid by the surplus [line] lines broker for failure to pay the tax in full within sixty days after expiration of the calendar quarter as provided in Subsection A of this section; except that the superintendent may waive or remit the penalty if [he] the superintendent finds that the failure or delay in payment arose from excusable mistake or excusable inadvertence."

    SECTION 10. A new section of Chapter 59A, Article 14 NMSA 1978 is enacted to read:

    "[NEW MATERIAL] NATIONAL DATABASE--PARTICIPATION REQUIRED.--No later than July 21, 2012, the superintendent shall participate in the national insurance producer database of the association, or any other equivalent uniform national database, for the licensure of surplus lines brokers and the renewal of the licenses."

    SECTION 11. APPLICABILITY OF ACT.--The provisions of Sections 3 through 10 of this act are applicable to insurance policies issued on or after July 21, 2011.

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