Wednesday, June 15, 2011

Nevada Approves NRRA Legislation Allowing Commissioner to Enter Into Compact With Approval by State Board of Examiners

The Nevada Governor has signed into law Nonadmitted and Reinsurance Reform Act (NRRA) compliance legislation which authorizes the Commissioner, with the approval of the State Board of Examiners, to enter into a tax sharing agreement.

Nevada is among the latest of states to pass NRRA related implementation legislation. During the session NAPSLO provided draft legislation and offered comments on legislation.

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.

Nevada’s bill authorizes the Commissioner, with the approval of the State Board of Examiners, to enter into a tax sharing agreement. The bill was amended to remove a specific authorization to join NIMA, in favor of a more generic authorization to join a nonspecified compact. The bill provides that if the Commissioner conducts a hearing regarding participation in a tax agreement, within 18 months after the Commissioner enters into the agreement, the Commissioner must submit the findings to the State Board of Examiners as well as to the Legislative Counsel Bureau. The State Board of Examiners has the authority to approve the Commissioner's continued participation in the tax agreement if it is found to be in the best interest of the state (or to approve withdrawal if it is found not to be in the state's best interest).

The bill also allows the Commissioner may adopt regulations as necessary "to ensure compliance with federal law relating to nonadmitted insurance." If the Commissioner has entered into a tax sharing agreement, the tax rate of each participating state where risks are located would apply to premium allocated to that state; Nevada's tax rate would apply to the portion allocated to those states that have not entered into the agreement and Nevada would retain those taxes.

If the Commissioner has not entered into a tax sharing agreement, Nevada will collect and retain nonadmitted insurance premium tax based on 100% of the premium when the insured's home state is Nevada. The bill requires quarterly multistate allocation reports. It also incorporates the NRRA's definition of "home state", but also adds the NIMA definitions of "principal place of business" and "group policyholder" which if enacted could effectively preclude Nevada consumers from participating in surplus lines group insurance programs.

The bill incorporates the NRRA's exempt commercial purchaser (ECP) exemption (with a more liberal standard for a city or county), and provides for the exclusive home state regulation of surplus lines transactions and taxation, including surplus lines broker licensing. The bill also incorporates the NRRA/NAIC insurer eligibility requirements.

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