HOUSE BILL 2112 (LAWS 2011, CH. 136)

NEW REQUIREMENTS FOR SURPLUS LINES BROKERS AND INDUSTRIAL INSUREDS

Effective July 21, 2011, House Bill 2112 (Laws 2011, Ch. 136) changed requirements for surplus lines brokers and industrial insureds.  The following summarizes some of the changes.  Surplus lines brokers and industrial insureds should also review HB 2112.
HB 2112 established the following new due dates for filing transactions and tax reports:

ARS §§ 20-401.07, 20-415
HB 2112 establishes that Arizona is the "home state" for an insurance policy when ANY of the following three circumstances applies:

  1. The insured's principal place of business is in Arizona and at least some of the property or risk covered by the insurance procured from an unauthorized insurer is located in Arizona.
  2. The insured's principal place of business is outside Arizona and both,
    • None of the property or risk covered by the insurance procured from an unauthorized insurer is located in the state where the insured's principal place of business is located, AND
    • Arizona is where the greatest percentage of the insured's taxable premium is allocated for the insurance contract.
  3. More than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract and the member of the affiliated group with the largest percentage of premium attributed to it under the insurance contract has its principal place of business in Arizona.  ARS § 20-401(6).

At this time, Arizona is not participating in the Nonadmitted Insurance Multistate Agreement.  HB 2112 specifies that if the director of insurance does not enter into a mulitstate agreement or compact (such as the Nonadmitted Insurance Multistate Agreement), "…any statements or taxes otherwise payable to a clearinghouse shall be filed with the director or with a voluntary organization of surplus lines brokers with which the director has contracted to accept reports.  ARS § 20-416.01. Therefore, for transactions effective from and after July 21, 2011:

HB 2112 changed the tax allocable to Arizona for multistate transactions.  From and after July 21, 2011, when Arizona is the home state, you must report the transaction to Arizona and pay tax on 100% of the premiums to Arizona, even when only a portion of the property or risk covered by the insurance policy is located within Arizona.
HB 2112 prohibits a person from acting as surplus lines broker on behalf of an insured whose home state is Arizona unless the person is licensed in Arizona as a surplus lines broker.  ARS § 20-411(A).
HB 2112 revised the definitions of "industrial insured" and "qualified risk manager" to be consistent with the definitions of "exempt commercial purchaser" and "qualified risk manager" in the Nonadmitted and Reinsurance Reform Act of 2010 (which is part of H.R. 4173 -- Dodd-Frank Wall Street Reform and Consumer Protection Act). Insureds --

If an insured no longer qualifies as an industrial insured or a risk manager as a qualified risk manager, the insured must still accurately complete and file Form E-II.  However, it must immediately cease procuring insurance directly from unauthorized insurers and must use an Arizona-licensed surplus lines broker to procure insurance from an unauthorized insurer.


IMPORTANT!  Industrial insureds --  Form E-II must only be used for insurance you purchased from unauthorized insurers from and after July 21, 2011.  For insurance you purchased from unauthorized insurers prior to July 21, 2011, you must instead complete and submit Form E-IndIns, which is due March 1, 2012..
Questions:  E-mail Scott Greenberg (sgreenberg@azinsurance.gov)
Quick Links:

Industrial Insured Premium Receipts Tax Report (Form E-IndIns) for transactions prior to July 21, 2011.