Rhode Island Approves SLIMPACT-Lite & General Compact Legislation

The Rhode Island Governor has signed into law two tax sharing compact related bills; one adopting SLIMPACT-Lite and the second provides general authorization for the commissioner to join a compact.

Rhode Island is among the latest of 26 states to pass Nonadmitted and Reinsurance Reform Act related implementation legislation. During the session NAPSLO provided draft legislation, offered comments on legislation and met with legislators.

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.

Rhode Island H5110 adopts SLIMPACT-lite and it establishes a Compact Commission would adopt rules on tax allocation, reporting, collection and distribution, and may also adopt uniform insurer eligibility requirements.

H5110 provides for exclusive home state regulation of surplus lines compliance, but does not incorporate the NRRA's ECP exemption from state diligent search requirements. The bill would provide the Superintendent with authority to enter into a different tax sharing agreement if SLIMPACT does not take effect or becomes ineffective, but only if the Division of Insurance has completed a fiscal analysis of the impact of the agreement or contract that examines the expected effects on Rhode Island's gross receipt of premium tax; reviewed whether the contract will create additional administrative burdens on the State of Rhode Island or surplus lines licensee; concluded, after conducting a public hearing, that entering into the agreement or contract: is in Rhode Island's financial best interest; and is consistent with the requirements of the NRRA.

The second bill, H5953, would generally authorize the Commissioner to participate in a tax sharing agreement and the clearinghouse established through such agreement, as well as to utilize the allocation schedule included in the agreement.

H5953 further authorizes the Commissioner to establish a "uniform, statewide rate of taxation applicable to lines of nonadmitted insurance subject to the agreement." The bill does not expressly reference NIMA but it does incorporate the "principal place of business/residence" and "group insurance" definitions from NIMA, which may lead to unintended consequences such as prohibiting Rhode Island residents from obtaining insurance under a group master policy issued under the surplus lines law of another state.

H5953 addresses surplus lines tax but not the tax on independently procured insurance. The bill would require the broker to collect and pay a 4% tax (up from 3%) on premiums allocated to exposures/locations in Rhode Island, and to pay tax on premiums allocated to exposures/locations in other states based on the tax rates and fees of those states, even if those states are not reciprocal in sharing taxes with Rhode Island.

H5953 does not incorporate the NRRA's mandates of exclusive home state regulation or taxation, exempt commercial purchaser (ECP) exemption or uniform insurer eligibility requirements.