H.F. _____ DIVISION I 1 SURPLUS LINES INSURANCE MULTISTATE COMPLIANCE COMPACT 2 Section 1. NEW SECTION . 515I.1 Surplus lines insurance 3 multistate compliance compact. 4 The surplus lines insurance multistate compliance compact 5 is entered into and enacted into law with all jurisdictions 6 legally joining therein, in the form substantially as follows: 7 1. Article I —— Findings and declaration of purpose. 8 a. The state of Iowa and the other states that are parties 9 to this compact find all of the following: 10 (1) With regard to nonadmitted insurance policies with 11 risk exposures located in multiple states, the 111th United 12 States Congress, has stipulated in the federal Nonadmitted 13 and Reinsurance Reform Act of 2010, Tit. V, subtit. B, of the 14 federal Dodd-Frank Wall Street Reform and Consumer Protection 15 Act, the following: 16 (a) The placement of nonadmitted insurance shall be subject 17 to the statutory and regulatory requirements solely of the 18 insured’s home state. 19 (b) Any law, regulation, provision, or action of any state 20 that applies or purports to apply to nonadmitted insurance sold 21 to, solicited by, or negotiated with an insured whose home 22 state is another state shall be preempted with respect to such 23 application, except that any state law, rule, or regulation 24 that restricts the placement of workers’ compensation insurance 25 or excess insurance for self-funded workers’ compensation plans 26 with a nonadmitted insurer shall not be preempted. 27 (2) In compliance with the federal Nonadmitted and 28 Reinsurance Reform Act of 2010, Tit. V, subtit. B, of the 29 federal Dodd-Frank Wall Street Reform and Consumer Protection 30 Act, no state other than the home state of an insured may 31 require any premium tax payment for nonadmitted insurance, 32 and no state other than an insured’s home state may require a 33 surplus lines broker to be licensed in order to sell, solicit, 34 or negotiate nonadmitted insurance with respect to such 35 -1- LSB 2659YC (10) 84 av/nh 1/ 39

H.F. _____ insured. 1 (3) The federal Nonadmitted and Reinsurance Reform Act of 2 2010, Tit. V, subtit. B, of the federal Dodd-Frank Wall Street 3 Reform and Consumer Protection Act, intends that the states 4 may enter into a compact or otherwise establish procedures 5 to allocate among the states the premium taxes paid to an 6 insured’s home state, and that each state adopt nationwide 7 uniform requirements, forms, and procedures, such as an 8 interstate compact, that provide for the reporting, payment, 9 collection, and allocation of premium taxes for nonadmitted 10 insurance. 11 (4) After the expiration of the two-year period beginning 12 on the date of the enactment of the federal Nonadmitted and 13 Reinsurance Reform Act of 2010, Tit. V, subtit. B, of the 14 federal Dodd-Frank Wall Street Reform and Consumer Protection 15 Act, a state shall not collect any fees relating to licensing 16 of an individual or entity as a surplus lines licensee in 17 the state unless the state has in effect at such time laws 18 or regulations that provide for participation by the state 19 in the national insurance producer database of the national 20 association of insurance commissioners, or any other equivalent 21 uniform national database, for the licensure of surplus lines 22 licensees and the renewal of such licenses. 23 (5) A need exists for a system of regulation that will 24 provide for surplus lines insurance to be placed with reputable 25 and financially sound nonadmitted insurers, and that will 26 permit orderly access to surplus lines insurance in this state 27 and encourage insurers to make new and innovative types of 28 insurance available to consumers in this state. 29 (6) Protecting the revenue of this state and other 30 compacting states may be accomplished by facilitating the 31 payment and collection of premium tax on nonadmitted insurance 32 and providing for allocation of premium tax for nonadmitted 33 insurance of multistate risks among the states in accordance 34 with uniform allocation formulas. 35 -2- LSB 2659YC (10) 84 av/nh 2/ 39

H.F. _____ (7) The efficiency of the surplus lines market may be 1 improved by eliminating duplicative and inconsistent tax and 2 regulatory requirements among the states, and by promoting and 3 protecting the interests of surplus lines licensees who assist 4 such insureds and nonadmitted insurers, thereby ensuring the 5 continued availability of nonadmitted insurance to consumers. 6 (8) Regulatory compliance with respect to nonadmitted 7 insurance placements may be streamlined by providing for 8 exclusive single-state regulatory compliance for nonadmitted 9 insurance of multistate risks, thereby providing certainty 10 regarding such compliance to all persons who have an interest 11 in such transactions, including but not limited to insureds, 12 regulators, surplus lines licensees, other insurance producers, 13 and surplus lines insurers. 14 (9) Coordination of regulatory resources and expertise 15 between state insurance departments and other state agencies, 16 as well as state surplus lines stamping offices, with respect 17 to nonadmitted insurance will be improved. 18 b. The general purposes of this compact are all of the 19 following: 20 (1) To implement the express provisions of the federal 21 Nonadmitted and Reinsurance Reform Act of 2010 in Tit. V, 22 subtit. B, of the federal Dodd-Frank Wall Street Reform and 23 Consumer Protection Act. 24 (2) To protect the premium tax revenues of the compacting 25 states through facilitating the payment and collection of 26 premium tax on nonadmitted insurance; and to protect the 27 interests of the compacting states by supporting the continued 28 availability of such insurance to consumers and to provide 29 for allocation of premium tax for nonadmitted insurance of 30 multistate risks among the states in accordance with uniform 31 allocation formulas to be developed, adopted, and implemented 32 by the commission. 33 (3) To streamline and improve the efficiency of the surplus 34 lines market by eliminating duplicative and inconsistent tax 35 -3- LSB 2659YC (10) 84 av/nh 3/ 39

H.F. _____ and regulatory requirements among the states and promote and 1 protect the interest of surplus lines licensees who assist 2 such insureds and surplus lines insurers, thereby ensuring the 3 continued availability of surplus lines insurance to consumers. 4 (4) To streamline regulatory compliance with respect to 5 nonadmitted insurance placements by providing for exclusive 6 single-state regulatory compliance for nonadmitted insurance 7 of multistate risks, in accordance with rules to be adopted 8 by the commission, thereby providing certainty regarding 9 such compliance to all persons who have an interest in 10 such transactions, including but not limited to insureds, 11 regulators, surplus lines licensees, other insurance producers, 12 and surplus lines insurers. 13 (5) To establish a clearinghouse for receipt and 14 dissemination of premium tax and clearinghouse transaction 15 data related to nonadmitted insurance of multistate risks, in 16 accordance with rules to be adopted by the commission. 17 (6) To improve coordination of regulatory resources and 18 expertise between state insurance departments and other state 19 agencies, as well as state surplus lines stamping offices, with 20 respect to nonadmitted insurance. 21 (7) To adopt uniform rules to provide for premium 22 tax payment, reporting, allocation, data collection and 23 dissemination for nonadmitted insurance of multistate risks and 24 single-state risks, in accordance with rules to be adopted by 25 the commission, thereby promoting the overall efficiency of the 26 nonadmitted insurance market. 27 (8) To adopt uniform mandatory rules with respect to 28 regulatory compliance requirements for all of the following: 29 (a) Foreign insurer eligibility requirements. 30 (b) Surplus lines policyholder notices. 31 (9) To establish the surplus lines insurance multistate 32 compliance compact commission. 33 (10) To coordinate reporting of clearinghouse transaction 34 data on nonadmitted insurance of multistate risks among 35 -4- LSB 2659YC (10) 84 av/nh 4/ 39

H.F. _____ compacting states and contracting states. 1 (11) To perform these and such other related functions 2 as may be consistent with the purposes of the surplus lines 3 insurance multistate compliance compact. 4 2. Article II —— Definitions. 5 For purposes of this compact, the following definitions 6 shall apply: 7 a. “Admitted insurer” means an insurer that is licensed or 8 authorized to transact the business of insurance under the law 9 of the home state. For purposes of this compact, “admitted 10 insurer” shall not include a domestic surplus lines insurer as 11 may be defined by applicable state law. 12 b. “Affiliate” means with respect to an insured, any entity 13 that controls, is controlled by, or is under common control 14 with the insured. 15 c. “Allocation formula” means the uniform methods 16 promulgated by the commission by which insured risk exposures 17 will be apportioned to each state for the purpose of 18 calculating premium taxes due. 19 d. “Bylaws” means those bylaws established by the commission 20 for its governance, or for directing or controlling the 21 commission’s actions or conduct. 22 e. “Clearinghouse” means the commission’s operations 23 involving the acceptance, processing, and dissemination, among 24 the compacting states, contracting states, surplus lines 25 licensees, insureds, and other persons, of premium tax and 26 clearinghouse transaction data for nonadmitted insurance of 27 multistate risks, in accordance with this compact and rules to 28 be adopted by the commission. 29 f. “Clearinghouse transaction data” means the information 30 regarding nonadmitted insurance of multistate risks required to 31 be reported, accepted, collected, processed, and disseminated 32 by surplus lines licensees for surplus lines insurance 33 and insureds for independently procured insurance under 34 this compact and rules to be adopted by the commission. 35 -5- LSB 2659YC (10) 84 av/nh 5/ 39

H.F. _____ “Clearinghouse transaction data” includes information related to 1 single-state risks if a state elects to have the clearinghouse 2 collect taxes on single-state risks for such state. 3 g. “Commission” means the surplus lines insurance multistate 4 compliance compact commission established by this compact. 5 h. “Commissioner” means the Iowa commissioner of insurance. 6 i. “Compacting state” means any state which has enacted 7 this compact legislation and which has not withdrawn pursuant 8 to article XIV, paragraph “a” , or been terminated pursuant to 9 article XIV, paragraph “b” . 10 j. “Contracting state” means any state which has not 11 enacted this compact legislation but has entered into a written 12 contract with the commission to utilize the services of and 13 fully participate in the clearinghouse. 14 k. “Control” means an entity has “control” over another 15 entity if: 16 (1) The entity directly or indirectly, or acting through one 17 or more other persons owns, controls, or has the power to vote 18 twenty-five percent or more of any class of voting securities 19 of the other entity. 20 (2) The entity controls in any manner the election of a 21 majority of the directors or trustees of the other entity. 22 l. “Home state” means the following: 23 (1) In general. Except as provided in subparagraph (2), the 24 term “home state” means, with respect to an insured, either of 25 the following: 26 (a) The state in which an insured maintains its principal 27 place of business or, in the case of an individual, the 28 individual’s principal residence. 29 (b) If one hundred percent of the insured risk is located 30 out of the state referred to in subparagraph division (a), the 31 state to which the greatest percentage of the insured’s taxable 32 premium for that insurance contract is allocated. 33 (2) Affiliated groups. If more than one insured from an 34 affiliated group are named insureds on a single nonadmitted 35 -6- LSB 2659YC (10) 84 av/nh 6/ 39

H.F. _____ insurance contract, the term “home state” means the home state, 1 as determined pursuant to subparagraph (1), of the member of 2 the affiliated group that has the largest percentage of premium 3 attributed to it under such insurance contract. 4 m. “Independently procured insurance” means insurance 5 procured by an insured directly from a surplus lines insurer or 6 other nonadmitted insurer as permitted by the laws of the home 7 state. 8 n. “Insurer eligibility requirements” means the criteria, 9 forms, and procedures established to qualify as a surplus lines 10 insurer under the law of the home state provided that such 11 criteria, forms, and procedures are consistent with the express 12 provisions of the federal Nonadmitted and Reinsurance Reform 13 Act in Tit. V, subtit. B, of the federal Dodd-Frank Wall Street 14 Reform and Consumer Protection Act, on and after July 21, 2011. 15 o. “Member” means the person or persons chosen by a 16 compacting state as its representative or representatives to 17 the commission provided that each compacting state shall be 18 limited to one vote. 19 p. “Multistate risk” means a risk with insured exposures in 20 more than one state. 21 q. “Nonadmitted insurance” means surplus lines insurance and 22 independently procured insurance. 23 r. “Nonadmitted insurer” means an insurer that is not 24 authorized or admitted to transact the business of insurance 25 under the law of the home state. 26 s. “Noncompacting state” means any state which has not 27 adopted this compact. 28 t. “Policyholder notice” means the disclosure notice or 29 stamp that is required to be furnished to the applicant or 30 policyholder in connection with a surplus lines insurance 31 placement. 32 u. “Premium tax” means with respect to nonadmitted 33 insurance, any tax, fee, assessment, or other charge imposed 34 by a government entity directly or indirectly based on any 35 -7- LSB 2659YC (10) 84 av/nh 7/ 39

H.F. _____ payment made as consideration for such insurance, including 1 premium deposits, assessments, registration fees, and any 2 other compensation given in consideration for a contract of 3 insurance. 4 v. “Principal place of business” means with respect to 5 determining the home state of the insured, the state where the 6 insured maintains its headquarters, and where the insured’s 7 high-level officers direct, control, and coordinate the 8 business activities of the insured. 9 w. “Purchasing group” means any group formed pursuant to the 10 federal Liability Risk Retention Act which has as one of its 11 purposes the purchase of liability insurance on a group basis, 12 purchases such insurance only for its group members and only 13 to cover their similar or related liability exposure, and is 14 composed of members whose businesses or activities are similar 15 or related with respect to the liability to which members are 16 exposed by virtue of any related, similar, or common business, 17 trade, product, services, premises, or operations, and is 18 domiciled in any state. 19 x. “Rule” means a statement of general or particular 20 applicability and future effect promulgated by the commission 21 designed to implement, interpret, or prescribe law or policy 22 or describing the organization, procedure, or practice 23 requirements of the commission which shall have the force and 24 effect of law in the compacting states. 25 y. “Single-state risk” means a risk with insured exposures 26 in only one state. 27 z. “State” means any state, district, or territory of the 28 United States of America. 29 aa. “State transaction documentation” means the information 30 required under the laws of the home state to be filed by 31 surplus lines licensees in order to report surplus lines 32 insurance and verify compliance with surplus lines laws, and by 33 insureds in order to report independently procured insurance. 34 ab. “Surplus lines insurance” means insurance procured 35 -8- LSB 2659YC (10) 84 av/nh 8/ 39

H.F. _____ by a surplus lines licensee from a surplus lines insurer or 1 other nonadmitted insurer as permitted under the law of the 2 home state. For purposes of this compact, “surplus lines 3 insurance” also means excess lines insurance as may be defined 4 by applicable state law. 5 ac. “Surplus lines insurer” means a nonadmitted insurer 6 eligible under the law of the home state to accept business 7 from a surplus lines licensee. For purposes of this compact, 8 “surplus lines insurer” also means an insurer which is permitted 9 to write surplus lines insurance under the laws of the state 10 where such insurer is domiciled. 11 ad. “Surplus lines licensee” means an individual, firm, or 12 corporation licensed under the law of the home state to place 13 surplus lines insurance. 14 3. Article III —— Establishment of the commission and venue. 15 a. The compacting states hereby create and establish a joint 16 public agency known as the surplus lines insurance multistate 17 compliance compact commission. 18 b. Pursuant to article IV, the commission shall have the 19 power to adopt mandatory rules which establish exclusive home 20 state authority regarding nonadmitted insurance of multistate 21 risks, allocation formulas, clearinghouse transaction data, 22 a clearinghouse for receipt and distribution of allocated 23 premium tax and clearinghouse transaction data, and uniform 24 rulemaking procedures and rules for the purpose of financing, 25 administering, operating, and enforcing compliance with the 26 provisions of this compact, its bylaws, and rules. 27 c. Pursuant to article IV, the commission shall have 28 the power to adopt mandatory rules establishing foreign 29 insurer eligibility requirements and a concise and objective 30 policyholder notice regarding the nature of a surplus lines 31 placement. 32 d. The commission is a body corporate and politic, and an 33 instrumentality of the compacting states. 34 e. The commission is solely responsible for its liabilities 35 -9- LSB 2659YC (10) 84 av/nh 9/ 39

H.F. _____ except as otherwise specifically provided in this compact. 1 f. Venue is proper and judicial proceedings by or against 2 the commission shall be brought solely and exclusively in a 3 court of competent jurisdiction where the principal office of 4 the commission is located. The commission may waive venue and 5 jurisdictional defenses to the extent it adopts or consents to 6 participate in alternative dispute resolution proceedings. 7 4. Article IV —— Authority to establish mandatory rules. 8 The commission shall adopt mandatory rules which establish 9 all of the following: 10 a. Allocation formulas for each type of nonadmitted 11 insurance coverage, which allocation formulas must be used 12 by each compacting state and contracting state in acquiring 13 premium tax and clearinghouse transaction data from surplus 14 lines licensees and insureds for reporting to the clearinghouse 15 created by the commission. Such allocation formulas shall 16 be established with input from surplus lines licensees and 17 be based upon readily available data with simplicity and 18 uniformity for the surplus lines licensee as a material 19 consideration. 20 b. Uniform clearinghouse transaction data reporting 21 requirements for all information reported to the clearinghouse. 22 c. Methods by which compacting states and contracting 23 states require surplus lines licensees and insureds to pay 24 premium tax and to report clearinghouse transaction data to 25 the clearinghouse, including but not limited to processing 26 clearinghouse transaction data through state stamping and 27 service offices, state insurance departments, or other 28 state-designated agencies or entities. 29 d. (1) That nonadmitted insurance of multistate risks shall 30 be subject to all of the regulatory compliance requirements of 31 the home state exclusively. Home state regulatory compliance 32 requirements applicable to surplus lines insurance shall 33 include but not be limited to the following: 34 (a) Persons required to be licensed to sell, solicit, or 35 -10- LSB 2659YC (10) 84 av/nh 10/ 39

H.F. _____ negotiate surplus lines insurance. 1 (b) Insurer eligibility requirements or other approved 2 nonadmitted insurer requirements. 3 (c) Diligent search. 4 (d) State transaction documentation and clearinghouse 5 transaction data regarding the payment of premium tax as 6 set forth in this compact and rules to be adopted by the 7 commission. 8 (2) Home state regulatory compliance requirements 9 applicable to independently procured insurance placements shall 10 include but not be limited to providing state transaction 11 documentation and clearinghouse transaction data regarding the 12 payment of premium tax as set forth in this compact and rules 13 to be adopted by the commission. 14 e. That each compacting state and contracting state may 15 charge its own rate of taxation on the premium allocated 16 to such state based on the applicable allocation formula 17 provided that the state establishes one single rate of taxation 18 applicable to all nonadmitted insurance transactions and no 19 other tax, fee assessment, or other charge by any governmental 20 or quasi-governmental agency is permitted. Notwithstanding the 21 foregoing, stamping office fees may be charged as a separate, 22 additional cost unless such fees are incorporated into a 23 state’s single rate of taxation. 24 f. That any change in the rate of taxation by any compacting 25 state or contracting state is restricted to changes made 26 prospectively on not less than ninety days advance notice to 27 the compact commission. 28 g. That each compacting state and contracting state shall 29 require premium tax payments either annually, semiannually, or 30 quarterly utilizing one or more of the following dates only: 31 March 1, June 1, September 1, and December 1. 32 h. That each compacting state and contracting state prohibit 33 any other state agency or political subdivision from requiring 34 surplus lines licensees to provide clearinghouse transaction 35 -11- LSB 2659YC (10) 84 av/nh 11/ 39

H.F. _____ data and state transaction documentation other than to the 1 insurance department or tax officials of the home state or one 2 single designated agent thereof. 3 i. The obligation of the home state by itself, through 4 a designated agent, surplus lines stamping or service 5 office, to collect clearinghouse transaction data from 6 surplus lines licensees and from insureds for independently 7 procured insurance, where applicable, for reporting to the 8 clearinghouse. 9 j. A method for the clearinghouse to periodically report to 10 compacting states, contracting states, surplus lines licensees, 11 and insureds who independently procure insurance, all premium 12 taxes owed to each of the compacting states and contracting 13 states, the dates upon which payment of such premium taxes are 14 due, and a method to pay the taxes through the clearinghouse. 15 k. That each surplus lines licensee is required to be 16 licensed only in the home state of each insured for whom 17 surplus lines insurance has been procured. 18 l. That a policy considered to be surplus lines insurance 19 in the insured’s home state shall be considered surplus lines 20 insurance in all compacting states and contracting states, and 21 taxed as a surplus lines transaction in all states to which a 22 portion of the risk is allocated. Each compacting state and 23 contracting state shall require each surplus lines licensee 24 to pay to every other compacting state and contracting state 25 premium taxes on each multistate risk through the clearinghouse 26 at such tax rate charged on surplus lines transactions in such 27 other compacting states and contracting states on the portion 28 of the risk in each such compacting state and contracting 29 state as determined by the applicable uniform allocation 30 formula adopted by the commission. A policy considered to be 31 independently procured insurance in the insured’s home state 32 shall be considered independently procured insurance in all 33 compacting states and contracting states. Each compacting 34 state and contracting state shall require the insured to 35 -12- LSB 2659YC (10) 84 av/nh 12/ 39

H.F. _____ pay every other compacting state and contracting state the 1 independently procured insurance premium tax on each multistate 2 risk through the clearinghouse pursuant to the uniform 3 allocation formula adopted by the commission. 4 m. Uniform foreign insurer eligibility requirements as 5 authorized by the federal Nonadmitted and Reinsurance Reform 6 Act of 2010, Tit. V, subtit. B, of the federal Dodd-Frank Wall 7 Street Reform and Consumer Protection Act. 8 n. A uniform policyholder notice. 9 o. Uniform treatment of purchasing group surplus lines 10 insurance placements. 11 5. Article V —— Powers of the commission. 12 The commission shall have the following powers: 13 a. To promulgate rules and operating procedures, pursuant to 14 article VIII of this compact, which shall have the force and 15 effect of law and shall be binding in the compacting states to 16 the extent and in the manner provided in this compact. 17 b. To bring and prosecute legal proceedings or actions in 18 the name of the commission, provided that the standing of any 19 state insurance department to sue or be sued under applicable 20 law shall not be affected. 21 c. To issue subpoenas requiring the attendance and testimony 22 of witnesses and the production of evidence, provided however, 23 the commission is not empowered to demand or subpoena records 24 or data from nonadmitted insurers. 25 d. To establish and maintain offices including the 26 creation of a clearinghouse for the receipt of premium tax and 27 clearinghouse transaction data regarding nonadmitted insurance 28 of multistate risks, single-state risks for states which elect 29 to require surplus lines licensees to pay premium tax on single 30 state risks through the clearinghouse, and tax reporting forms. 31 e. To purchase and maintain insurance and bonds. 32 f. To borrow, accept, or contract for services of personnel, 33 including but not limited to employees of a compacting state or 34 stamping office, pursuant to an open, transparent, objective 35 -13- LSB 2659YC (10) 84 av/nh 13/ 39

H.F. _____ competitive process and procedure adopted by the commission. 1 g. To hire employees, professionals, or specialists, and 2 elect or appoint officers, and to fix their compensation, 3 define their duties and give them appropriate authority 4 to carry out the purposes of the compact, and determine 5 their qualifications, pursuant to an open, transparent, 6 objective competitive process and procedure adopted by the 7 commission, and to establish the commission’s personnel 8 policies and programs relating to conflicts of interest, rates 9 of compensation, and qualifications of personnel, and other 10 related personnel matters. 11 h. To accept any and all appropriate donations and grants 12 of money, equipment, supplies, materials, and services, and to 13 receive, utilize, and dispose of the same, provided that at all 14 times the commission shall avoid any appearance of impropriety 15 or conflict of interest. 16 i. To lease, purchase, accept appropriate gifts or 17 donations of, or otherwise to own, hold, improve, or use, any 18 property, real, personal, or mixed, provided that at all times 19 the commission shall avoid any appearance of impropriety or 20 conflict of interest. 21 j. To sell, convey, mortgage, pledge, lease, exchange, 22 abandon, or otherwise dispose of any property real, personal, 23 or mixed. 24 k. To provide for tax audit rules and procedures for the 25 compacting states with respect to the allocation of premium 26 taxes including all of the following: 27 (1) Minimum audit standards, including sampling methods. 28 (2) Review of internal controls. 29 (3) Cooperation and sharing of audit responsibilities 30 between compacting states. 31 (4) Handling of refunds or credits due to overpayments or 32 improper allocation of premium taxes. 33 (5) Taxpayer records to be reviewed including a minimum 34 retention period. 35 -14- LSB 2659YC (10) 84 av/nh 14/ 39

H.F. _____ (6) Authority of compacting states to review, challenge, or 1 reaudit taxpayer records. 2 l. To enforce compliance by compacting states and 3 contracting states with rules and bylaws pursuant to the 4 authority set forth in article XIV. 5 m. To provide for dispute resolution among compacting states 6 and contracting states. 7 n. To advise compacting states and contracting states on 8 tax-related issues relating to insurers, insureds, surplus 9 lines licensees, agents, or brokers domiciled or doing business 10 in noncompacting states, consistent with the purposes of this 11 compact. 12 o. To make available advice and training to those personnel 13 in state stamping offices, state insurance departments or 14 other state departments for record keeping, tax compliance, 15 and tax allocations, and to be a resource for state insurance 16 departments and other state departments. 17 p. To establish a budget and make expenditures. 18 q. To borrow money. 19 r. To appoint and oversee committees, including advisory 20 committees comprised of members, state insurance regulators, 21 state legislators or their representatives, insurance industry 22 and consumer representatives, and such other interested persons 23 as may be designated in this compact and the bylaws. 24 s. To establish an executive committee of not less than 25 seven nor more than fifteen representatives, which shall 26 include officers elected by the commission and such other 27 representatives as provided for herein and determined by the 28 bylaws. Representatives of the executive committee shall serve 29 a one-year term. Representatives of the executive committee 30 shall be entitled to one vote each. The executive committee 31 shall have the power to act on behalf of the commission, with 32 the exception of rulemaking, during periods when the commission 33 is not in session. The executive committee shall oversee the 34 day-to-day activities of the administration of the compact, 35 -15- LSB 2659YC (10) 84 av/nh 15/ 39

H.F. _____ including the activities of the operations committee created 1 under this article and compliance and enforcement of the 2 provisions of the compact, its bylaws, and rules, and such 3 other duties as provided herein and as deemed necessary. 4 t. To establish an operations committee of not less than 5 seven and not more than fifteen representatives to provide 6 analysis, advice, determinations, and recommendations regarding 7 technology, software, and systems integration to be acquired by 8 the commission and to provide analysis, advice, determinations, 9 and recommendations regarding the establishment of mandatory 10 rules to be adopted by the commission. 11 u. To enter into contracts with contracting states so 12 that contracting states can utilize the services of and fully 13 participate in the clearinghouse subject to the terms and 14 conditions set forth in such contracts. 15 v. To adopt and use a corporate seal. 16 w. To perform such other functions as may be necessary or 17 appropriate to achieve the purposes of this compact consistent 18 with the state regulation of the business of insurance. 19 6. Article VI —— Organization of the commission. 20 a. Membership, voting, and bylaws. 21 (1) Each compacting state shall have and be limited to one 22 member. Each state shall determine the qualifications and the 23 method by which it selects a member and set forth the selection 24 process in the enabling provision of the legislation which 25 enacts this compact. In the absence of such a provision, the 26 member shall be appointed by the governor of such compacting 27 state. Any member may be removed or suspended from office as 28 provided by the law of the state from which the member shall 29 be appointed. Any vacancy occurring in the commission shall 30 be filled in accordance with the laws of the compacting state 31 wherein the vacancy exists. 32 (2) Each member shall be entitled to one vote and shall 33 otherwise have an opportunity to participate in the governance 34 of the commission in accordance with the bylaws. 35 -16- LSB 2659YC (10) 84 av/nh 16/ 39

H.F. _____ (3) The commission shall, by a majority vote of the members, 1 prescribe bylaws to govern its conduct as may be necessary 2 or appropriate to carry out the purposes and exercise the 3 powers of the compact including but not limited to all of the 4 following: 5 (a) Establishing the fiscal year of the commission. 6 (b) Providing reasonable procedures for holding meetings 7 of the commission, the executive committee, and the operations 8 committee. 9 (c) Providing reasonable standards and procedures for all 10 of the following: 11 (i) The establishment and meetings of committees. 12 (ii) Governing any general or specific delegation of any 13 authority or function of the commission. 14 (d) Providing reasonable procedures for calling and 15 conducting meetings of the commission that consist of a 16 majority of commission members, ensuring reasonable advance 17 notice of each such meeting and providing for the right of 18 citizens to attend each such meeting with enumerated exceptions 19 designed to protect the public’s interest, the privacy of 20 individuals, and insurers’ and surplus lines licensees’ 21 proprietary information, including trade secrets. The 22 commission may meet in camera only after a majority of the 23 entire membership votes to close a meeting in whole or in part. 24 As soon as practicable, the commission shall make public a copy 25 of the vote to close the meeting revealing the vote of each 26 member with no proxy votes allowed, and votes taken during such 27 meeting. 28 (e) Establishing the titles, duties, and authority and 29 reasonable procedures for the election of the officers of the 30 commission. 31 (f) Providing reasonable standards and procedures for the 32 establishment of the personnel policies and programs of the 33 commission. Notwithstanding any civil service or other similar 34 laws of any compacting state, the bylaws shall exclusively 35 -17- LSB 2659YC (10) 84 av/nh 17/ 39

H.F. _____ govern the personnel policies and programs of the commission. 1 (g) Promulgating a code of ethics to address permissible and 2 prohibited activities of commission members and employees. 3 (h) Providing a mechanism for winding up the operations of 4 the commission and the equitable disposition of any surplus 5 funds that may exist after the termination of the compact after 6 the payment or reserving of all of its debts and obligations. 7 (4) The commission shall publish its bylaws in a convenient 8 form and file a copy thereof and a copy of any amendment 9 thereto, with the appropriate agency or officer in each of the 10 compacting states. 11 b. Executive committee, personnel, and chairperson. 12 (1) An executive committee of the commission shall be 13 established. All actions of the executive committee, including 14 compliance and enforcement, are subject to the review and 15 ratification of the commission as provided in the bylaws. 16 (2) The executive committee shall have no more than fifteen 17 representatives, or one for each state if there are less than 18 fifteen compacting states, who shall serve for a term and shall 19 be established in accordance with the bylaws. 20 (3) The executive committee shall have such authority and 21 duties as may be set forth in the bylaws, including but not 22 limited to all of the following: 23 (a) Managing the affairs of the commission in a manner 24 consistent with the bylaws and purposes of the commission. 25 (b) Establishing and overseeing an organizational structure 26 within, and appropriate procedures for the commission to 27 provide for the creation of rules and operating procedures. 28 (c) Overseeing the offices of the commission. 29 (d) Planning, implementing, and coordinating communications 30 and activities with other state, federal, and local government 31 organizations in order to advance the goals of the commission. 32 (4) The commission shall annually elect officers from 33 the executive committee, with each having such authority and 34 duties, as may be specified in the bylaws. 35 -18- LSB 2659YC (10) 84 av/nh 18/ 39

H.F. _____ (5) The executive committee may, subject to the approval 1 of the commission, appoint or retain an executive director 2 for such period, upon such terms and conditions and for such 3 compensation as the commission may deem appropriate. The 4 executive director shall serve as secretary to the commission, 5 but shall not be a member of the commission. The executive 6 director shall hire and supervise such other persons as may be 7 authorized by the commission. 8 c. Operations committee. 9 (1) An operations committee shall be established. All 10 actions of the operations committee are subject to the review 11 and oversight of the commission and the executive committee and 12 must be approved by the commission. The executive committee 13 shall accept the determinations and recommendations of the 14 operations committee unless good cause is shown why such 15 determinations and recommendations should not be approved. 16 Any disputes as to whether good cause exists to reject any 17 determination or recommendation of the operations committee 18 shall be resolved by the majority vote of the commission. 19 (2) The operations committee shall have no more than fifteen 20 representatives, or one for each state if there are less than 21 fifteen compacting states, who shall serve for a term and shall 22 be established as set forth in the bylaws. 23 (3) The operations committee shall have responsibility for 24 all of the following: 25 (a) Evaluating technology requirements for the 26 clearinghouse, assessing existing systems used by state 27 regulatory agencies and state stamping offices, to maximize 28 the efficiency and successful integration of the clearinghouse 29 technology systems with state and state stamping office 30 technology platforms and to minimize costs to the states, state 31 stamping offices, and the clearinghouse. 32 (b) Making recommendations to the executive committee 33 based on its analysis and determination of the clearinghouse 34 technology requirements and compatibility with existing state 35 -19- LSB 2659YC (10) 84 av/nh 19/ 39

H.F. _____ and state stamping office systems. 1 (c) Evaluating the most suitable proposals for adoption 2 as mandatory rules, assessing such proposals for ease 3 of integration by states and likelihood of successful 4 implementation, to report to the executive committee its 5 determinations and recommendations. 6 (d) Such other duties and responsibilities as are 7 delegated to it by the bylaws, the executive committee, or the 8 commission. 9 (4) All representatives of the operations committee shall 10 be individuals who have extensive experience or employment 11 in the surplus lines insurance business including but not 12 limited to executives and attorneys employed by surplus lines 13 insurers, surplus lines licensees, law firms, state insurance 14 departments, and state stamping offices. Operations committee 15 representatives from compacting states which utilize the 16 services of a state stamping office shall appoint the chief 17 operating officer or a senior manager of the state stamping 18 office to the operations committee. 19 d. Legislative and advisory committees. 20 (1) A legislative committee comprised of state legislators 21 or their designees shall be established to monitor the 22 operations of and make recommendations to the commission, 23 including the executive committee, provided that the manner of 24 selection and term of any legislative committee member shall 25 be as set forth in the bylaws. Prior to the adoption by the 26 commission of any uniform standard, revision to the bylaws, 27 annual budget, or other significant matter as may be provided 28 in the bylaws, the executive committee shall consult with and 29 report to the legislative committee. 30 (2) The commission may establish additional advisory 31 committees as its bylaws may provide for the carrying out of 32 its functions. 33 e. Corporate records of the commission. The commission 34 shall maintain its corporate books and records in accordance 35 -20- LSB 2659YC (10) 84 av/nh 20/ 39

H.F. _____ with the bylaws. 1 f. Qualified immunity, defense, and indemnification. 2 (1) The members, officers, executive director, employees, 3 and representatives of the commission, the executive committee, 4 and any other committee of the commission shall be immune from 5 suit and liability, either personally or in their official 6 capacity, for any claim for damage to or loss of property, or 7 personal injury or other civil liability, caused by or arising 8 out of any actual or alleged act, error, or omission that 9 occurred, or that the person against whom the claim is made had 10 a reasonable basis for believing occurred within the scope of 11 commission employment, duties, or responsibilities, provided 12 that nothing in this subparagraph shall be construed to protect 13 any such person from suit or liability for any damage, loss, 14 injury, or liability caused by the intentional, or willful or 15 wanton, misconduct of that person. 16 (2) The commission shall defend any member, officer, 17 executive director, employee, or representative of the 18 commission, executive committee, or any other committee of the 19 commission in any civil action seeking to impose liability 20 arising out of any actual or alleged act, error, or omission 21 that occurred within the scope of commission employment, 22 duties, or responsibilities, or that the person against 23 whom the claim is made had a reasonable basis for believing 24 occurred within the scope of commission employment, duties, 25 or responsibilities, provided that nothing herein shall be 26 construed to prohibit that person from retaining that person’s 27 own counsel; and provided further, that the actual or alleged 28 act, error, or omission did not result from that person’s 29 intentional, or willful or wanton, misconduct. 30 (3) The commission shall indemnify and hold harmless 31 any member, officer, executive director, employee, or 32 representative of the commission, executive committee, or 33 any other committee of the commission for the amount of any 34 settlement or judgment obtained against that person arising 35 -21- LSB 2659YC (10) 84 av/nh 21/ 39

H.F. _____ out of any actual or alleged act, error, or omission that 1 occurred within the scope of commission employment, duties, 2 or responsibilities, or that such person had a reasonable 3 basis for believing occurred within the scope of commission 4 employment, duties, or responsibilities, provided that the 5 actual or alleged act, error, or omission did not result from 6 the intentional, or willful or wanton, misconduct of that 7 person. 8 7. Article VII —— Meetings and acts of the commission. 9 a. The commission shall meet and take such actions as are 10 consistent with the provisions of this compact and the bylaws. 11 b. Each member of the commission shall have the right 12 and power to cast a vote to which that compacting state is 13 entitled and to participate in the business and affairs of the 14 commission. A member shall vote in person or by such other 15 means as provided in the bylaws. The bylaws may provide for 16 members’ participation in meetings by telephone or other means 17 of communication. 18 c. The commission shall meet at least once during each 19 calendar year. Additional meetings shall be held as set forth 20 in the bylaws. 21 d. Public notice shall be given of all meetings and all 22 meetings shall be open to the public, except as set forth in 23 the rules or otherwise provided in the compact. 24 e. The commission shall promulgate rules concerning its 25 meetings consistent with the principles contained in the 26 federal Government in the Sunshine Act, 5 U.S.C. § 552b, as may 27 be amended. 28 f. The commission and its committees may close a meeting, or 29 portion thereof, where it determines by majority vote that an 30 open meeting would be likely to do any of the following: 31 (1) Relate solely to the commission’s internal personnel 32 practices and procedures. 33 (2) Disclose matters specifically exempted from disclosure 34 by federal and state statute. 35 -22- LSB 2659YC (10) 84 av/nh 22/ 39

H.F. _____ (3) Disclose trade secrets, or commercial or financial 1 information which is privileged or confidential. 2 (4) Involve accusing a person of a crime, or formally 3 censuring a person. 4 (5) Disclose information of a personal nature where 5 disclosure would constitute a clearly unwarranted invasion of 6 personal privacy. 7 (6) Disclose investigative records compiled for law 8 enforcement purposes. 9 (7) Specifically relate to the commission’s issuance of a 10 subpoena, or its participation in a civil action or other legal 11 proceeding. 12 g. For a meeting, or portion of a meeting, closed pursuant 13 to this article, the commission’s legal counsel or designee 14 shall certify that the meeting may be closed and shall 15 reference each relevant exemptive provision. The commission 16 shall keep minutes which shall fully and clearly describe all 17 matters discussed in a meeting and shall provide a full and 18 accurate summary of actions taken, and the reasons therefor, 19 including a description of the views expressed and the record 20 of a roll call vote. All documents considered in connection 21 with an action shall be identified in such minutes. All 22 minutes and documents of a closed meeting shall remain under 23 seal, subject to release by a majority vote of the commission. 24 8. Article VIII —— Rules and operating procedures —— 25 rulemaking functions of the commission. 26 a. The commission shall promulgate reasonable rules in 27 order to effectively and efficiently achieve the purposes of 28 this compact. Notwithstanding the foregoing, in the event the 29 commission exercises its rulemaking authority in a manner that 30 is beyond the scope of the purposes of this compact, or the 31 powers granted hereunder, then such an action by the commission 32 shall be invalid and have no force or effect. 33 b. Rules shall be made pursuant to a rulemaking process 34 that substantially conforms to the federal 1981 Model State 35 -23- LSB 2659YC (10) 84 av/nh 23/ 39

H.F. _____ Administrative Procedure Act, Uniform Laws Annotated, Vol. 15, 1 p. 1 (2000) as amended, as may be appropriate to the operations 2 of the commission. 3 c. All rules and amendments thereto shall become effective 4 as of the date specified in each rule, operating procedure, or 5 amendment. 6 d. Not later than thirty days after a rule is promulgated, 7 any person may file a petition for judicial review of the rule; 8 provided that the filing of such a petition shall not stay or 9 otherwise prevent the rule from becoming effective unless the 10 court finds that the petitioner has a substantial likelihood of 11 success. The court shall give deference to the actions of the 12 commission consistent with applicable law and shall not find 13 the rule to be unlawful if the rule represents a reasonable 14 exercise of the commission’s authority. 15 9. Article IX —— Commission records and enforcement. 16 a. The commission shall promulgate rules establishing 17 conditions and procedures for public inspection and copying of 18 its information and official records, except such information 19 and records involving the privacy of individuals, insurers, 20 insureds, or surplus lines licensee trade secrets. State 21 transaction documentation and clearinghouse transaction 22 data collected by the clearinghouse shall be used for only 23 those purposes expressed in or reasonably implied under the 24 provisions of this compact and the commission shall afford this 25 data the broadest protections as permitted by any applicable 26 law for proprietary information, trade secrets, or personal 27 data. The commission may promulgate additional rules under 28 which it may make available to federal and state agencies, 29 including law enforcement agencies, records and information 30 otherwise exempt from disclosure, and may enter into agreements 31 with such agencies to receive or exchange information 32 or records subject to nondisclosure and confidentiality 33 provisions. 34 b. Except as to privileged records, data, and information, 35 -24- LSB 2659YC (10) 84 av/nh 24/ 39

H.F. _____ the laws of any compacting state pertaining to confidentiality 1 or nondisclosure shall not relieve any compacting state 2 member of the duty to disclose any relevant records, data, 3 or information to the commission, provided that disclosure 4 to the commission shall not be deemed to waive or otherwise 5 affect any confidentiality requirement, and further provided 6 that, except as otherwise expressly provided in this compact, 7 the commission shall not be subject to the compacting state’s 8 laws pertaining to confidentiality and nondisclosure with 9 respect to records, data, and information in the commission’s 10 possession. Confidential information of the commission shall 11 remain confidential after such information is provided to any 12 member, and the commission shall maintain the confidentiality 13 of any information provided by a member that is confidential 14 under that member’s state law. 15 c. The commission shall monitor compacting states for 16 compliance with duly adopted bylaws and rules. The commission 17 shall notify any noncomplying compacting state in writing of 18 the state’s noncompliance with commission bylaws or rules. If 19 a noncomplying compacting state fails to remedy the state’s 20 noncompliance within the time specified in the notice of 21 noncompliance, the compacting state shall be deemed to be in 22 default as set forth in article XIV. 23 10. Article X —— Dispute resolution. 24 a. Before a member may bring an action in a court of 25 competent jurisdiction for violation of any provision, 26 standard, or requirement of the compact, the commission shall 27 attempt, upon the request of a member, to resolve any disputes 28 or other issues that are subject to this compact and which 29 may arise between two or more compacting states, contracting 30 states, or noncompacting states, and the commission shall 31 promulgate a rule providing alternative dispute resolution 32 procedures for such disputes. 33 b. The commission shall also provide alternative dispute 34 resolution procedures to resolve any disputes between insureds 35 -25- LSB 2659YC (10) 84 av/nh 25/ 39

H.F. _____ or surplus lines licensees concerning a tax calculation or 1 allocation or related issues which are the subject of this 2 compact. 3 c. Any alternative dispute resolution procedures shall be 4 utilized in circumstances where a dispute arises as to which 5 state constitutes the home state. 6 11. Article XI —— Review of commission decisions. 7 a. Except as necessary for promulgating rules to fulfill 8 the purposes of this compact, the commission shall not have 9 authority to otherwise regulate insurance in the compacting 10 states. 11 b. Not later than thirty days after the commission has 12 given notice of any rule or allocation formula, any third-party 13 filer or compacting state may appeal the determination to a 14 review panel appointed by the commission. The commission 15 shall promulgate rules to establish procedures for appointing 16 such review panels and provide for notice and hearing. An 17 allegation that the commission, in making compliance or tax 18 determinations, acted arbitrarily, capriciously, or in a manner 19 that is an abuse of discretion or otherwise not in accordance 20 with the law, is subject to judicial review in accordance with 21 article III, paragraph “f” . 22 c. The commission shall have authority to monitor, review, 23 and reconsider commission decisions upon a finding that the 24 determinations or allocations do not meet the relevant rule. 25 Where appropriate, the commission may withdraw or modify its 26 determination or allocation after proper notice and hearing, 27 subject to the appeal process in paragraph “b” . 28 12. Article XII —— Finance. 29 a. The commission shall pay or provide for the payment of 30 the reasonable expenses of its establishment and organization. 31 To fund the cost of its initial operations, the commission 32 may accept contributions, grants, and other forms of funding 33 from the state stamping offices, compacting states, and other 34 sources. 35 -26- LSB 2659YC (10) 84 av/nh 26/ 39

H.F. _____ b. The commission shall collect a fee payable by the 1 insured directly or through a surplus lines licensee on each 2 transaction processed through the clearinghouse, to cover the 3 cost of the operations and activities of the commission and its 4 staff in a total amount sufficient to cover the commission’s 5 annual budget. 6 c. The commission’s budget for a fiscal year shall not be 7 approved until it has been subject to notice and comment as set 8 forth in article VIII of this compact. 9 d. The commission shall be regarded as performing essential 10 governmental functions in exercising such powers and functions 11 and in carrying out the provisions of this compact and of any 12 law relating thereto, and shall not be required to pay any 13 taxes or assessments of any character, levied by any state or 14 political subdivision thereof, upon any of the property used 15 by the commission for such purposes, or any income or revenue 16 therefrom, including any profit from a sale or exchange. 17 e. The commission shall keep complete and accurate accounts 18 of all its internal receipts, including grants and donations, 19 and disbursements for all funds under its control. The 20 internal financial accounts of the commission shall be subject 21 to the accounting procedures established under the commission’s 22 bylaws. The financial accounts and reports including the 23 system of internal controls and procedures of the commission 24 shall be audited annually by an independent certified public 25 accountant. Upon the determination of the commission, but 26 not less frequently than every three years, the review of the 27 independent auditor shall include a management and performance 28 audit of the commission. The commission shall make an annual 29 report to the governor and legislature of the compacting 30 states, which shall include a report of the independent audit. 31 The commission’s internal accounts shall not be confidential 32 and such materials may be shared with the commissioner, the 33 controller, or the stamping office of any compacting state upon 34 request, provided, however, that any work papers related to any 35 -27- LSB 2659YC (10) 84 av/nh 27/ 39

H.F. _____ internal or independent audit and any information regarding 1 the privacy of individuals, and licensees’ and insurers’ 2 proprietary information, including trade secrets, shall remain 3 confidential. 4 f. No compacting state shall have any claim to or ownership 5 of any property held by or vested in the commission or to 6 any commission funds held pursuant to the provisions of this 7 compact. 8 g. The commission shall not make any political contributions 9 to candidates for elected office, elected officials, political 10 parties, or political action committees. The commission shall 11 not engage in lobbying except with respect to changes to this 12 compact. 13 13. Article XIII —— Compacting states, effective date, and 14 amendment. 15 a. Any state is eligible to become a compacting state. 16 b. The compact shall become effective and binding upon 17 legislative enactment of the compact into law by two compacting 18 states, provided the commission shall become effective for 19 purposes of adopting rules, and creating the clearinghouse when 20 there are a total of ten compacting states and contracting 21 states or, alternatively, when there are compacting states and 22 contracting states representing greater than forty percent of 23 the surplus lines insurance premium volume based on records of 24 the percentage of surplus lines insurance premium set forth 25 in paragraph “d” . Thereafter, it shall become effective 26 and binding as to any other compacting state upon enactment 27 of the compact into law by that state. Notwithstanding the 28 foregoing, the clearinghouse operations and the duty to report 29 clearinghouse transaction data shall begin on the first January 30 1 or July 1 following the first anniversary of the commission 31 effective date. For states which join the compact subsequent 32 to the effective date, a start date for reporting clearinghouse 33 transaction data shall be set by the commission, provided 34 that surplus lines licensees and all other interested parties 35 -28- LSB 2659YC (10) 84 av/nh 28/ 39

H.F. _____ receive not less than ninety days’ advance notice. 1 c. Amendments to the compact may be proposed by the 2 commission for enactment by the compacting states. No 3 amendment shall become effective and binding upon the 4 commission and the compacting states unless and until all 5 compacting states enact the amendment into law. 6 d. Surplus lines insurance premiums by state: 7 State Premiums Share 8 based on tax paid of total premiums 9 ______________________________________________________________ 10 Alabama 445,746,000 1.47 percent 11 Alaska 89,453,519 0.29 percent 12 Arizona 663,703,267 2.18 percent 13 Arkansas 201,859,750 0.66 percent 14 California 5,622,450,467 18.49 percent 15 Colorado 543,781,333 1.79 percent 16 Connecticut 329,358,800 1.08 percent 17 Delaware 92,835,950 0.31 percent 18 Florida 2,660,908,760 8.75 percent 19 Georgia 895,643,150 2.95 percent 20 Hawaii 232,951,489 0.77 percent 21 Idaho 704,202,255 0.24 percent 22 Illinois 1,016,504,629 3.34 percent 23 Indiana 412,265,320 1.36 percent 24 Iowa 135,130,933 0.44 percent 25 Kansas 160,279,300 0.53 percent 26 Kentucky 167,996,133 0.55 percent 27 Louisiana 853,173,280 2.81 percent 28 Maine 60,111,200 0.20 percent 29 Maryland 434,887,600 1.43 percent 30 Massachusetts 708,640,225 2.33 percent 31 Michigan 703,357,040 2.31 percent 32 Minnesota 393,128,400 1.29 percent 33 Mississippi 263,313,175 0.87 percent 34 Missouri 404,489,860 1.33 percent 35 -29- LSB 2659YC (10) 84 av/nh 29/ 39

H.F. _____ Montana 64,692,873 0.21 percent 1 Nebraska 92,141,167 0.30 percent 2 Nevada 354,271,514 1.17 percent 3 New Hampshire 102,946,250 0.34 percent 4 New Jersey 1,087,994,033 3.58 percent 5 New Mexico 67,608,458 0.22 percent 6 New York 2,768,618,083 9.11 percent 7 North Carolina 514,965,060 1.69 percent 8 North Dakota 36,223,943 0.12 percent 9 Ohio 342,000,000 1.12 percent 10 Oklahoma 319,526,400 1.05 percent 11 Oregon 312,702,150 1.03 percent 12 Pennsylvania 780,666,667 2.57 percent 13 Rhode Island 71,794,067 0.24 percent 14 South Carolina 412,489,825 1.36 percent 15 South Dakota 38,702,120 0.13 percent 16 Tennessee 451,775,240 1.49 percent 17 Texas 3,059,170,454 10.06 percent 18 Utah 142,593,412 0.47 percent 19 Vermont 41,919,433 0.14 percent 20 Virginia 611,530,667 2.01 percent 21 Washington 739,932,050 2.43 percent 22 West Virginia 130,476,250 0.43 percent 23 Wisconsin 248,758,333 0.82 percent 24 Wyoming 40,526,967 0.13 percent 25 Total 30,400,197,251 100.00 percent 26 This data is 2005 calendar year data excerpted from a study 27 dated February 27, 2007, by Mackin & Company. 28 14. Article XIV —— Withdrawal, default, and termination. 29 a. Withdrawal. 30 (1) Once effective, the compact shall continue in force 31 and remain binding upon each and every compacting state, 32 provided that a compacting state may withdraw from the compact 33 by enacting a statute specifically repealing the statute which 34 enacted the compact into law. 35 -30- LSB 2659YC (10) 84 av/nh 30/ 39

H.F. _____ (2) The effective date of withdrawal is the effective date 1 of the repealing statute. However, the withdrawal shall not 2 apply to any tax or compliance determinations approved on the 3 date the repealing statute becomes effective, except by mutual 4 agreement of the commission and the withdrawing state unless 5 the approval is rescinded by the commission. 6 (3) The member of the withdrawing state shall immediately 7 notify the executive committee of the commission in writing 8 upon the introduction of legislation repealing this compact in 9 the withdrawing state. 10 (4) The commission shall notify the other compacting states 11 of the introduction of such legislation within ten days after 12 the commission’s receipt of notice thereof. 13 (5) The withdrawing state is responsible for all 14 obligations, duties, and liabilities incurred through the 15 effective date of withdrawal, including any obligations, the 16 performance of which extend beyond the effective date of 17 withdrawal. To the extent those obligations may have been 18 released or relinquished by mutual agreement of the commission 19 and the withdrawing state, the commission’s determinations 20 prior to the effective date of withdrawal shall continue to be 21 effective and be given full force and effect in the withdrawing 22 state, unless formally rescinded by the commission. 23 (6) Reinstatement following withdrawal of any compacting 24 state shall occur upon the effective date of the withdrawing 25 state reenacting the compact. 26 b. Default. 27 (1) If the commission determines that any compacting 28 state has at any time defaulted in the performance of any 29 of its obligations or responsibilities under this compact, 30 the bylaws, or duly promulgated rules, then after notice and 31 hearing as set forth in the bylaws, all rights, privileges, 32 and benefits conferred by this compact on the defaulting 33 state shall be suspended from the effective date of default 34 as fixed by the commission. The grounds for default include 35 -31- LSB 2659YC (10) 84 av/nh 31/ 39

H.F. _____ but are not limited to failure of a compacting state to 1 perform its obligations or responsibilities, and any other 2 grounds designated in commission rules. The commission shall 3 immediately notify the defaulting state in writing of the 4 defaulting state’s suspension pending a cure of the default. 5 The commission shall stipulate the conditions and the time 6 period within which the defaulting state must cure its default. 7 If the defaulting state fails to cure the default within 8 the time period specified by the commission, the defaulting 9 state shall be terminated from the compact and all rights, 10 privileges, and benefits conferred by this compact shall be 11 terminated from the effective date of termination. 12 (2) Decisions of the commission that are issued on the 13 effective date of termination shall remain in force in the 14 defaulting state in the same manner as if the defaulting state 15 had withdrawn voluntarily pursuant to paragraph “a” of this 16 article. 17 (3) Reinstatement following termination of any compacting 18 state requires a reenactment of the compact. 19 c. Dissolution of compact. 20 (1) The compact dissolves effective upon the date of the 21 withdrawal or default of the compacting state which reduces 22 membership in the compact to one compacting state. 23 (2) Upon the dissolution of this compact, the compact 24 becomes null and void and shall have no further force or 25 effect, and the business and affairs of the commission shall 26 be wound up and any surplus funds shall be distributed in 27 accordance with the rules and bylaws. 28 15. Article XV —— Severability and construction. 29 a. The provisions of this compact shall be severable 30 and if any phrase, clause, sentence, or provision is deemed 31 unenforceable, the remaining provisions of the compact shall 32 be enforceable. 33 b. The provisions of this compact shall be liberally 34 construed to effectuate its purposes. 35 -32- LSB 2659YC (10) 84 av/nh 32/ 39

H.F. _____ c. Throughout this compact the use of the singular shall 1 include the plural and vice versa. 2 d. The headings and captions of articles, subsections, and 3 paragraphs used in this compact are for convenience only and 4 shall be ignored in construing the substantive provisions of 5 this compact. 6 16. Article XVI —— Binding effect of compact and other laws. 7 a. Other laws. 8 (1) Nothing in this compact prevents the enforcement of 9 any other law of a compacting state except as provided in 10 subparagraph (2). 11 (2) Decisions of the commission, and any rules, and any 12 other requirements of the commission shall constitute the 13 exclusive rule or determination applicable to the compacting 14 states. Any law or regulation regarding nonadmitted insurance 15 of multistate risks that is contrary to rules of the commission 16 is preempted with respect to the following: 17 (a) Clearinghouse transaction data reporting requirements. 18 (b) Allocation formulas. 19 (c) Clearinghouse transaction data collection requirements. 20 (d) Premium tax payment time frames and rules concerning 21 dissemination of data among the compacting states for 22 nonadmitted insurance of multistate risks and single-state 23 risks. 24 (e) Exclusive compliance with surplus lines law of the home 25 state of the insured. 26 (f) Rules for reporting to a clearinghouse for receipt 27 and distribution of clearinghouse transaction data related to 28 nonadmitted insurance of multistate risks. 29 (g) Uniform foreign insurers eligibility requirements. 30 (h) Uniform policyholder notice. 31 (i) Uniform treatment of purchasing groups procuring 32 nonadmitted insurance. 33 (3) Except as stated in subparagraph (2), any rule, 34 uniform standard, or other requirement of the commission shall 35 -33- LSB 2659YC (10) 84 av/nh 33/ 39

H.F. _____ constitute the exclusive provision that a commissioner may 1 apply to compliance or tax determinations. Notwithstanding the 2 foregoing, no action taken by the commission shall abrogate or 3 restrict any of the following: 4 (a) The access of any person to state courts. 5 (b) The availability of alternative dispute resolution 6 under article X of this compact. 7 (c) Remedies available under state law related to breach 8 of contract, tort, or other laws not specifically directed to 9 compliance or tax determinations. 10 (d) State law relating to the construction of insurance 11 contracts. 12 (e) The authority of the attorney general of the state, 13 including but not limited to maintaining any actions or 14 proceedings, as authorized by law. 15 b. Binding effect of this compact. 16 (1) All lawful actions of the commission, including all 17 rules promulgated by the commission, are binding upon the 18 compacting states, except as provided herein. 19 (2) All agreements between the commission and the 20 compacting states are binding in accordance with their terms. 21 (3) Upon the request of a party to a conflict over the 22 meaning or interpretation of commission actions, and upon a 23 majority vote of the compacting states, the commission may 24 issue advisory opinions regarding the meaning or interpretation 25 in dispute. This provision may be implemented by rule at the 26 discretion of the commission. 27 (4) In the event any provision of this compact exceeds 28 the constitutional limits imposed on the legislature of 29 any compacting state, the obligations, duties, powers, or 30 jurisdiction sought to be conferred by that provision upon the 31 commission shall be ineffective as to that state and those 32 obligations, duties, powers, or jurisdiction shall remain in 33 the compacting state and shall be exercised by the agency 34 of the compacting state to which those obligations, duties, 35 -34- LSB 2659YC (10) 84 av/nh 34/ 39

H.F. _____ powers, or jurisdiction are delegated by law in effect at the 1 time this compact becomes effective. 2 Sec. 2. EFFECTIVE UPON ENACTMENT. This division of this 3 Act, being deemed of immediate importance, takes effect upon 4 enactment. 5 DIVISION II 6 COORDINATING PROVISIONS 7 Sec. 3. Section 507A.4, subsection 1, Code 2011, is amended 8 to read as follows: 9 1. The lawful transaction of surplus lines insurance as 10 permitted by sections 515.120 through 515.122 chapter 515I . 11 Sec. 4. Section 515E.9, Code 2011, is amended to read as 12 follows: 13 515E.9 Purchasing group restrictions. 14 A purchasing group shall not purchase insurance from an 15 insurer not admitted in this state unless the purchase is 16 effected through a duly licensed agent or broker producer 17 acting pursuant to sections 515.120 through 515.122 chapter 18 515I . 19 Sec. 5. Section 522B.6, subsection 2, paragraph g, Code 20 2011, is amended to read as follows: 21 g. Excess and surplus lines insurance provided by certain 22 nonadmitted insurers pursuant to section 515.120 chapter 515I . 23 Sec. 6. REPEAL. Sections 515.120 through 515.122, Code 24 2011, are repealed. 25 Sec. 7. CONTINGENT EFFECTIVE DATE. The provisions of this 26 division of this Act take effect at such time as the surplus 27 lines insurance multistate compliance compact, as enacted by 28 this Act in chapter 515I, becomes effective and the surplus 29 lines insurance multistate compliance compact commission 30 becomes effective for purposes of adopting rules and creating 31 the clearinghouse. The commissioner of insurance shall notify 32 the Code editor at such time as surplus lines insurance sold in 33 this state will be subject to regulation pursuant to chapter 34 515I on a date certain. 35 -35- LSB 2659YC (10) 84 av/nh 35/ 39

H.F. _____ EXPLANATION 1 This bill creates new Code chapter 515I to enact the surplus 2 lines insurance multistate compliance compact and coordinating 3 provisions. The purpose of the compact is to carry out the 4 intention of the federal Nonadmitted and Reinsurance Reform 5 Act of 2010 of the federal Dodd-Frank Wall Street Reform and 6 Consumer Protection Act that the states establish procedures 7 to allocate the premium taxes paid by insureds for nonadmitted 8 insurance of multistate risks among the states in accordance 9 with uniform allocation formulas, including the reporting, 10 payment, collection, and allocation of those premium taxes. 11 “Nonadmitted insurance” or “surplus lines insurance” is 12 insurance procured from an insurer that is not authorized or 13 admitted to transact the business of insurance under the law of 14 the insured’s home state. 15 The compact provides for the creation and establishment of 16 a joint public agency known as the surplus lines insurance 17 multistate compliance commission. The commission has the 18 power to adopt mandatory rules which establish exclusive 19 home state authority regarding surplus lines insurance, 20 allocation formulas, clearinghouse transaction data, a 21 clearinghouse for receipt and distribution of allocated 22 premium tax and clearinghouse transaction data, and uniform 23 rulemaking procedures and rules for the purpose of financing, 24 administering, operating, and enforcing compliance with the 25 provisions of the compact, its bylaws, and rules. 26 Each compacting state is entitled to one member on the 27 commission. States that do not enact the compact may enter 28 into written contracts with the commission to utilize the 29 services of and fully participate in the clearinghouse which 30 disseminates premium tax and clearinghouse transaction data. 31 The commission is empowered to establish an executive 32 committee of seven to 15 representatives to oversee the 33 administration of the compact and oversee the activities of the 34 operations committee. An operations committee of seven to 15 35 -36- LSB 2659YC (10) 84 av/nh 36/ 39

H.F. _____ commission members is established to provide analysis, advice, 1 determinations, and recommendations regarding technology, 2 software, and systems integration to be acquired by the 3 commission and regarding the establishment of rules to be 4 adopted by the commission. 5 A legislative committee comprised of state legislators or 6 their designees is established to monitor the operations of and 7 make recommendations to the commission. Prior to the adoption 8 of any uniform standard, revision to the bylaws, annual budget, 9 or other significant matter as provided in the bylaws, the 10 executive committee of the commission is required to consult 11 with and report to the legislative committee. The commission 12 may also establish additional advisory committees to assist it 13 in carrying out its functions. 14 The commission is required to meet at least once a year. 15 Rules must be made by the commission pursuant to a rulemaking 16 process that substantially conforms to the federal 1981 Model 17 State Administrative Procedure Act. A person may file a 18 petition for judicial review of a rule. 19 The commission may fund the costs of its initial operations 20 through contributions, grants, and other forms of funding from 21 the states and other sources. The commission must collect 22 a fee payable by the insured on each transaction processed 23 through the clearinghouse to cover the ongoing cost of the 24 operations and activities of the commission and its staff in 25 a total amount sufficient to cover the commission’s annual 26 budget. 27 The commission is required to monitor compacting states for 28 compliance with its bylaws and rules. 29 Any state may join the compact. The compact does not become 30 effective and binding until it is enacted by two compacting 31 states and the commission does not become effective for the 32 purposes of adopting rules and creating the clearinghouse 33 until there are 10 compacting and contracting states, or there 34 are compacting and contracting states that represent greater 35 -37- LSB 2659YC (10) 84 av/nh 37/ 39

H.F. _____ than 40 percent of the total surplus lines insurance premium 1 volume of the states based on records of such premiums as set 2 forth in the compact based on 2005 data excerpted from a 2007 3 study. Thereafter, the compact becomes binding as to any other 4 compacting state upon enactment of the compact by that state. 5 Clearinghouse operations and the duty to report 6 clearinghouse transaction data begin on the first January 1 7 or July 1 following the first anniversary of the commission 8 effective date. For states which join the compact subsequent 9 to the commission effective date, a start date for reporting 10 clearinghouse transaction data shall be set by the commission, 11 provided that surplus lines licensees, and other interested 12 parties receive not less than 90 days’ advance notice of the 13 effective date. Amendments to the compact are not effective 14 and binding upon the commission and the compacting states until 15 all compacting states enact the amendment. 16 A compacting state may withdraw from the compact by enacting 17 a law repealing the statute which enacted the compact. 18 Withdrawal from the compact does not apply to any tax or 19 compliance determinations approved on the date the repealing 20 statute becomes effective except upon mutual agreement of the 21 commission and the withdrawing state. 22 A compacting state that fails to perform its obligations and 23 responsibilities under the compact, its bylaws, and rules shall 24 be suspended from the effective date of default as fixed by the 25 commission. 26 The compact does not prevent the enforcement of other 27 state laws of a compacting state except that any state law or 28 regulation regarding nonadmitted insurance of multistate risks 29 that is contrary to the rules of the commission is preempted 30 with respect to specified matters. 31 New Code chapter 515I, which contains the compact, is 32 effective upon enactment. 33 The bill also contains coordinating provisions. Code 34 sections 515.120 through 515.122, which currently regulate 35 -38- LSB 2659YC (10) 84 av/nh 38/ 39

H.F. _____ the sale of surplus lines insurance in the state, are 1 repealed, as are references to those provisions which are 2 contained elsewhere in the Code. The coordinating provisions 3 are effective at such time as the surplus lines insurance 4 multistate compliance compact becomes effective as to this 5 state and the surplus lines insurance multistate compliance 6 compact commission becomes effective for purposes of adopting 7 rules and creating the clearinghouse. The commissioner of 8 insurance is required to notify the Code editor at such time as 9 surplus lines insurance sold in the state will be subject to 10 regulation pursuant to Code chapter 515I on a date certain. 11 -39- LSB 2659YC (10) 84 av/nh 39/ 39