99-6

July 6, 1999

Re: ______________ – Application for Approval to Establish a Corporation

to Engage in Business as a Premium Finance Agency

Dear M __________:

This relates to the referenced application dated September 18, 1998.

We have not accepted your application for filing for the reason that, as discussed below, the operations you propose to conduct do not constitute the business of a premium finance agency.

“Premium finance agency” is defined in Section 18560 of the Financial Code as a corporation organized to do a business that is limited to that set forth in Chapter 8 (commencing with Section 18560), Division 7 of the Financial Code (the “Insurance Premium Finance Law” or “IPF Law”). The business set forth in the Insurance Premium Finance Law is “premium financing,” which is defined in Section 18563 of the IPF Law as follows:

“18563. As used in this chapter, ‘premium financing’ means the activities of a company engaging in the business of advancing money directly or indirectly to an insurer or producer at the request of an insured pursuant to the terms of a premium finance agreement, wherein the insured has assigned the unearned premiums, accrued dividends or loss payments as security for such advancement in payment of premiums on insurance contracts only, and does not include the financing of insurance contract premiums purchased in connection with the financing of goods and services. The amount of such advancement in payment of premiums must bear a reasonable relationship to the premium or premiums being financed.” (Emphasis added.)

A business must satisfy each prong of the five pronged test set forth in Section 18563 to qualify as the business of “premium financing.” That is, the business must involve (1) the advancement of money, (2) to an insurer or producer, (3) at the request of an insured, (4) in payment of premiums on insurance contracts, (5) pursuant to a premium finance agreement.

Your proposed business of advancing premiums on bail bonds would fall within the first four prongs of this test. However, it would not satisfy the fifth prong of the test, because premium payments would not be advanced pursuant to a “premium finance agreement.”

Section 18564 defines “premium finance agreement” as follows:

“18564. As used in this chapter, ‘premium finance agreement’ means a loan contract, note, agreement or obligation by which an insured agrees to pay to a company in installments the principal amount advanced by the company to an insurer or producer in payment of (sic) premium on an insurance contract or contracts, plus charges, with the assignment as security therefor of the unearned premiums, accrued dividends or loss payments, the final installment due date of the agreement not to extend beyond the term of the insurance contract included in the agreement having the latest expiration date.” (Emphasis added.)

Like the definition of “premium financing”, the definition of “premium finance agreement” sets forth a number of factors, each of which must be present for a “premium finance agreement” to exist.

By letter of May 25, 1999, you sent me a copy of the installment note pursuant to which ___________ Finance, Inc. proposes to finance bail bond premiums. The installment note fails to satisfy two of the factors that set forth in Section 18564. Specifically, it does not provide for assignment as security for payment of the note the unearned premiums on the bail bond financed. In addition, you advised me that the due date of the final payment on the note may extend beyond the term of the bond.

Accordingly, the installment note is not a premium finance agreement as defined in Section 18564, and, as a result, ___________ Finance, Inc. does not propose to engage in the premium financing business within the meaning of Section 18563 of the IPF Law.

Since we have not accepted your application for filing, we are returning with this letter your check for the filing fee of $400.00.

This agency administers, among other laws, the Insurance Premium Finance Law. We express no view as to whether your proposed operations may require licensing, permitting or authorization under any law, state or federal, other than the Insurance Premium Finance Law.

If you have any questions concerning this matter, please feel free to contact me at (415) 263-8512.

Very truly yours,

JAN LYNN OWEN
Acting Commissioner of Financial Institutions

By

THOMAS M. LOUGHRAN
Senior Counsel

TML:lca
Enclosure