Tennessee Approves SLIMPACT-Lite but State Could Join Other Tax Sharing Agreement

The Tennessee Governor has signed into law a bill that would adopt SLIMPACT-Lite, however if the compact is not effective by early next year the bill allows the state to enter into another tax sharing agreement.

Tennessee is among the latest of states to pass Nonadmitted and Reinsurance Reform Act 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.

Tennessee's bill would adopt SLIMPACT-lite, however, if SLIMPACT does not become effective by February 28, 2012, Tennessee would be authorized to enter into a cooperative agreement, compact or reciprocal agreement with another state(s) for the purpose of the collection of insurance premium taxes.

Under the bill surplus lines brokers would be required to file annual reports of surplus lines transactions. The bill would require a tax on the total gross premiums charged at a rate of 5%, which would be an increase from the current tax rate (from 3.25% on fire insurance, 4.0% on workers' comp and 2.5% for other lines) when Tennessee is the home state of the insured.

Tennessee would retain any premium tax allocated to a state that has failed to enter SLIMPACT with Tennessee. The bill provides that Tennessee's surplus lines law would apply only to surplus lines transactions where Tennessee is the insured's home state.

The bill would incorporate the exempt commercial purchaser (ECP) exemption and the bill repeals existing insurer eligibility provisions and incorporates the NRRA mandates regarding nationwide uniform insurer eligibility standards. However, the law as amended apparently would purport to continue to allow the Commissioner to make an insurer ineligible based on the insurer's claims practices.