Friday, June 03, 2011

Hawaii Approves NRRA Compliance Legislation; State Could Join Compact Under Bill

The Hawaiian Governor has signed legislation this week which provides the Insurance Commissioner broad discretion to participate in a tax sharing system, as well as to adopt uniform insurer eligibility requirements.

Hawaii is among 26 states to pass NonAdmitted and Reinsurance Reform Act (NRRA) related implementation legislation and during the session NAPSLO provided draft legislation, offered comments on legislation and testified during a hearing.

The NRRA mandates that beginning July 21, 2011 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.

Hawaii's bill would provide the Commissioner broad discretion to participate in a tax sharing system, as well as to adopt uniform insurer eligibility requirements. While the bill authorizes does not expressly endorse NIMA, it does incorporate many of its provisions, including its definitions of "Home State," "Group Insurance" and "Principal Place of Business." The bill incorporates the NRRA's exempt commercial purchaser (ECP) exemption from the diligent search requirement.

Hawaii's bill would require brokers and insureds to report the multi-state allocation for transactions on a quarterly basis, which is inconsistent with the NRRA. The bill would require brokers to report all surplus lines business transacted during the quarter, not just transactions involving Hawaii Home State risks, and would require brokers to provide the following information "itemized by state": aggregate gross premiums; aggregate return premiums; aggregate net premiums and fees and aggregate remitted taxes and fees.

Brokers and insureds must apply the tax rate of each state where there are exposures for a multi-state risk, even if the other state does not participate in the new tax sharing system. Hawaii would retain all premium taxes on Hawaii Home State risks not paid to other states.

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