Tuesday, April 19, 2011

Arizona Approves Legislation Allowing State to Enter Tax Allocation Compact

The Arizona Governor has signed House Bill 2112 on Monday which generally authorizes the Director of Insurance to enter into a compact or agreement such as SLIMPACT or NIMA. 

Arizona is the 14th state to pass NonAdmitted and Reinsurance Reform Act (NRRA) implementation legislation during this session. In connection with Arizona’s NRRA implementation efforts, NAPSLO provided draft legislation and Director of Government Relations, Steve Stephan, testified twice before the legislature.

The NRRA mandates that beginning July 21 the insured's home state will be the only state with jurisdiction over surplus lines transactions and the only state that can require a tax be paid by the broker. As a result states are working to bring their laws into compliance.

Arizona’s bill generally authorizes the Director to enter into a tax compact; however, prior to joining any compact, the Director must conduct an administrative hearing demonstrating that participation in a compact is in the best interests of Arizona.  In reaching this determination, the following factors must be considered (1) the impact on the state’s gross receipt of premium taxes, (2) the regulatory burden and costs placed on insurance companies, surplus lines brokers and agents; (3) the cost impact on insureds resulting from any regulatory requirements attributable to a compact; (4) any other factors raised by the director or any other interested party.

The bill also replaces the existing "industrial insured" exemptions from the diligent search and insurer licensing/"doing business" requirements with exemptions from such requirements for an exempt commercial purchaser (ECP) as defined by the NRRA.

The bill also incorporates the U.S. domestic insurer eligibility requirements from the NRRA, as well as automatic eligibility for non-U.S. insurers upon International Insurers Department listing and provides for exclusive "home state" regulation as required by the NRRA. 

The bill would subject surplus lines brokers to quarterly reporting with the clearinghouse of transactions involving the multistate risks of an Arizona home state insured.

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