Wednesday, February 23, 2011

E&S Firms Can List Business in Best's Review

Excess & Surplus Lines carriers, managing general agents and surplus lines brokers can list their business at no charge in the May 2011 edition of Best's Review magazine.

Excess & Surplus Lines carriers and wholesalers can list themselves online. Submissions will be published in the May edition of Best's Review, as space permits. The deadline for submitting a listing is March 18, 2011.

The listing will appear as part of a package on the excess & surplus lines businesses that will include the latest installment of an ongoing series profiling specialty producers and an Issues & Answers special section, Excess & Surplus Lines Showcase 2011.

Tuesday, February 22, 2011

More Than 500 Expected at NAPSLO's Mid-Year

More than 500 people are expected for the 2011 NAPSLO Mid-Year Leadership Forum which gets underway on Wednesday at the Naples Grande Beach Resort.

The meeting gets underway on Wednesday night with the Opening Reception and on Friday programs on leadership issues and an update on legislative actions regarding the implementation of the Non-Admitted and Reinsurance Reform Act are scheduled.

Friday, February 18, 2011

NRRA, Tax Compact Bills Advance in States; NAPSLO Webpage Tracks Progress

A number of bills bringing state laws into compliance with the NonAdmitted Reinsurance Reform Act (NRRA), or approving the states to join a tax compact, have been introduced at the state level and several states have taken action.

On Thursday, in Indiana, the Senate Committee on Financial Institutions and Insurance passed SLIMPACT by a vote of 6 to 3. Emily Campbell of the law firm of Baker & Daniels testified for NAPSLO in favor of SLIMPACT at the hearing. The Insurance Department opposed the legislation.

A complete list of all of the states and the status of bills introduced regarding legislative changes or the tax compact can be viewed on the NAPSLO website under the New Surplus Lines Law section.

So far this year, in addition to the committee approval in Indiana, bills favoring SLIMPACT in Kentucky and a tax compact in general in North Dakota have passed each state's House of Representatives and are under consideration by the Senate. A bill favoring the Nonadmitted Insurance Multistate Agreement (NIMA) in South Dakota has passed both houses and been sent to the Governor.

The NRRA was passed last July and goes into effect on July 21, 2011. The Surplus Lines modernization provisions will make access for insurance consumers to the Surplus Lines market quicker, more efficient and the payment of Surplus Lines premium taxes to the states less burdensome for the consumer and broker.

The legislation also establishes that only one state, the home state of the insured, can regulate a multistate Surplus Lines transaction, but encourages states to form a compact to handle allocation of tax payments.

Thursday, February 17, 2011

Surplus Lines Premiums Reported to Stamping Offices Drop in 2010

Premium reported to the 14 U.S. stamping offices in 2010 totaled $18.5 billion, a decrease of 4.8% from the prior year according to a report was issued by the Surplus Lines Stamping Office of Texas.

The report noted that the number of filings was virtually unchanged, at 3.2 million. Three states (Idaho, Illinois, and Minnesota) reported small increases in premium, with the remaining states all indicating declines, ranging from 2.2% (New York) to 14% (Arizona).

Surplus lines premiums reported to the stamping offices continued a multi-year decline in 2010, falling to $18.5 billion, down from $19.4 billion in 2009,  $21.1 billion in 2008 and $23 billion in 2007.

Wednesday, February 16, 2011

Representatives Express Concern Over Unfilled Federal Insurance Posts

Rep. Ed Royce (R-CA), and a bipartisan group of Financial Services Committee members, sent a letter to President Obama and Treasury Secretary Geithner to express concerns that six months after the enactment of the Dodd-Frank regulatory reform bill critical insurance posts remain unfilled.

In an effort to create a dedicated federal knowledge base on insurance matters the Dodd-Frank bill called for a Director of the Federal Insurance Office ("FIO") and an insurance-designee to the Financial Stability Oversight Council (the "Council"). Six months after the enactment of this legislation these critical insurance posts remain unfilled.

The letter stated that the "FIO is essential in ensuring that the U.S. speaks with one voice internationally on insurance issues. With FIO participation, the U.S. will be able to maintain an active federal role within the International Association of Insurance Supervisors, better representing American interests and encouraging international cooperation."

Monday, February 07, 2011

Surplus Lines Law Group to Meet in Austin

The Surplus Lines Law Group will meet March 24-25 at the Driskill Hotel in Austin.

The Surplus Lines Stamping Offices of Texas and Windstead PC are sponsoring the meeting and it will start on Thursday night, March 24 with a dinner and followed by meetings on March 25 at the hotel. 

A registration form is available to download and more information about the meeting is available to download. The registration form has information on reserving hotel rooms, available at $219.

Thursday, February 03, 2011

CSG Says NIMA Fails to Provide Way to Uniformity, Usurps Legislative Authority

Rick Masters, Special Counsel for Interstate Compact at the Council of State Governments released a memorandum questioning the Nonadmitted Insurance Multistate Agreement (NIMA) tax compact, saying that "NIMA fails to provide any substantial or enforceable mechanism for achieving uniformity because it fails to provide a binding agreement which pre-empts other state laws in conflict with its requirements. Moreover it unconstitutionally purports to vest authority in an Executive Branch official (e.g. the Insurance Commissioner) to bind the Legislature of a State which adopts it. NIMA thus usurps Legislative authority because the action which NIMA authorizes to be taken by the Insurance Commissioner contains no limitations or conditions upon which such uniform regulations could be developed or which a state insurance department is otherwise authorized to undertake within its own state."

State Inaction Risks Loss of Surplus Lines Premium Tax Revenue

The following article was in the Dec. 21, 2010 issue of the Insurance Journal.
State Inaction Risks Loss of Surplus Lines Premium Tax Revenue
By Richard A. Brown
The States appear poised, through inaction, to leave untold millions of dollars in premium tax revenue “on the table” when the Nonadmitted Insurance and Reinsurance Reform Act (NRRA) becomes the law of the land on July 21, 2011. Under Subtitle B of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as of that date, “No state other than the home state of an insured may require any premium tax payment for nonadmitted insurance” (Section 521(a)).

The term “home state” is generally defined to mean the state in which the insured maintains its principal place of business or where the insured resides in the case of an individual (Section 527(6)(A)(i)). If 100 percent of the insured risk is located elsewhere, the home state is where the largest percentage of premium is attributed under the insurance contract (Section 527(6)(a)(ii)). For “affiliated groups,” the home state is where the named insured member with the largest proportion of premium is located (Section 527(6)(B)).

Although federal prohibitions such as 521(a) are effective immediately, not all state law is automatically preempted by an act of Congress. Where a federal law authorizes certain state action in aid of a federal regulatory scheme, each state must enact implementing legislation

Under existing state laws, the premium for multi-state risks is taxed based on the portion of premium allocable to each individual state. Because the NRRA does not automatically alter those laws effective July 21, 2011, the home state will continue to tax only a portion of the premium for multi-state risks unless it enacts new legislation.

The surplus lines industry did not seek to reduce state premium tax revenues through its support of the NRRA. Instead, the industry sought only a uniform system for taxing nonadmitted insurance premium to reform longstanding conflicts among state laws.

The states, however, can easily protect themselves from a clearly unintended consequence of federal preemption by promptly updating their premium tax laws to take account of the “home state” implications of the NRRA. If they do not, the full amount of nonadmitted premium allocable to non-home states will altogether escape premium tax.

To be sure, purchasers of nonadmitted insurance covering multi-state risks no doubt will enjoy the resulting tax savings windfall.

Home State Taxation

The NRRA merely prohibits states other than the home state from imposing a tax on nonadmitted insurance premium. It permits — but does not require — the home state to tax 100 percent of the nonadmitted insurance premium for multi-state risks. Indeed, the home state is free to impose no tax at all on nonadmitted insurance premium for out-of-state risks. That appears to be the present state of affairs.

The NRRA also provides that “[t]he states may enter into a compact or otherwise establish procedures to allocate among the states the premium taxes paid to an insured’s home state (Section 521(b)(1)). But there will be no premium tax to allocate to sister states unless the home state taxes 100 percent of the nonadmitted premium without regard to risk location, foreign or domestic.

California presently taxes only that portion of nonadmitted insurance premium allocable to California. The law says:

“For the purpose of determining [nonadmitted insurance premium] tax, the total premium charged for all such nonadmitted insurance placed in a single transaction … shall be allocated to this state in such proportion as the total premium on the insured properties or operations in this state, as computed on the exposure in this state on the basis of any single standard rating method in use in all states or countries where such insurance applies, bears to the total premium so computed in all states or countries in which such nonadmitted insurance may apply” (California Insurance Code § 1775.5(b)).

Assuming California law remains unchanged, when California is the home state for a multi-state placement made on or after July 21, 2011, there will be no way for California to collect the entire premium tax on multi-state placements. Instead:

California will tax only a portion of the total nonadmitted insurance premium and its tax revenues will be the same as pre-NRRA.
No other state may tax the non-California portion of the premium and California presumably will not be inclined to allocate premium tax it did not collect to other states.
Nationwide premium tax revenues will thereby be necessarily reduced pending enactment of appropriate legislation by each state. Such a revenue shortfall is likely to further complicate the ongoing negotiations among the states to devise a uniform premium tax allocation methodology. And, such a revenue shortfall is not something the states should find desirable in today’s difficult economic environment.

Simplified Administration

Effective July 21, 2011, surplus lines broker compliance with state premium tax requirements for multi-state placements should be straightforward.

The surplus lines broker will calculate the tax due to the home state based on the home state’s tax laws in effect at the time of the placement (i.e., the effective date of the policy), collect that amount of tax from the insured, and remit the tax to the home state in the ordinary course.

If other states should seek to collect premium tax, they should be referred to Section 521(a) of the NRRA and the express preemption of state premium taxation authority that appears in Section 522(c).

Congress did not intend the NRRA to adversely affect state premium tax revenues. It is, however, the responsibility of the states to protect themselves. They may and should do so by timely updating their tax laws to capture 100 percent of nonadmitted insurance premium where they are the home state. If they do so, there should be substantial premium tax receipts available to allocate among the states if, as, and when they reach agreement on an appropriate allocation mechanism. The surplus line industry in California will be watching closely how Insurance Commissioner-Elect Dave Jones and his administration deal with this issue once they take office.

Richard Brown, an insurance regulatory attorney based in San Francisco, has authored multiple amicus briefs on important surplus lines issues for industry trade organizations, is the architect of California Insurance Code §1780.50 (Surplus Line Advisory Organization), and recently revised the Constitution of the Surplus Line Association of California in its entirety. Contact information appears on his Web site at

Wednesday, February 02, 2011

California SLA Issues Bulletin on Diligent Search Requirements

The California Surplus Lines Association recently issued a bulletin noting that the Nonadmitted & Reinsurance Reform Act (NRRA) will exempt surplus line brokers from any state diligent search requirements when procuring surplus line insurance for exempt commercial purchasers but noted that until July 21, 2011, brokers are advised to continue to comply with the current California diligent search requirements.

"The exemption from the diligent search requirement does not take effect until July 21, 2011, the effective date of the NRRA, which means current California law and regulations (and those of other applicable states) regarding diligent search requirements govern. Therefore, until July 21, 2011, brokers are advised to continue to comply with the current California diligent search requirements and those of other applicable states when placing surplus lines insurance for all insureds, including those who currently meet the definition of exempt commercial purchaser."