Monday, July 18, 2011

California Enacts NRRA Legislation; Law Doesn't Address Compact, Sharing Premium Taxes

California has enacted Nonadmitted and Reinsurance Reform Act (NRRA) compliance legislation that authorizes the imposition of surplus lines premium tax and independent procurement tax on 100% of premium, however the bill does not addresses compacts or sharing  premium taxes with other states.

California is among the latest states to enact NRRA related implementation legislation. During the session NAPSLO provided draft legislation, offered comments and met with legislators and representatives of the department of insurance.

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 bringing their laws into compliance.

California's bill, A315, authorizes the imposition of surplus lines premium tax and independent procurement tax on 100% of the premium, however, as amended, the bill does not addresses sharing premium taxes with other states.

The bill proposes what is essentially an "A" list/"B" list approach to eligible surplus lines insurers. The "B" list appears to follow the NRRA mandated standards, however requires B list insurers to file a number of documents with the Department (e.g., certificate of capital and surplus issued by the insurer's domiciliary jurisdiction, certified copy of the insurer's license, etc.). Obtaining "A" listed status would entail all of the burdens of current eligibility in California.

The bill does include the NRRA definition of exempt commercial purchaser (ECP) concept and allows free export of ECP business subject to the conditions set forth in the NRRA. The bill further requires brokers to undertake additional record keeping requirements related to NRRA. Brokers will now need to record the insured's home state, if an ECP, verify that the insured qualifies as an ECP, determine whether the risk is single state or multistate and if multistate, allocate premium taxes even though there are no provisions for sharing of taxes with other states.

The amended version notes that "if a new or renewal policy has an effective date between January 1, 2011, to July 20, 2011, inclusive, and is placed on or before July 20, 2011, then the policy shall be considered to be business done by the surplus line broker as of the effective date. If a new or renewal policy has an effective date between January 1, 2011, to July 20, 2011, inclusive, then the policy shall be considered to be business done by the home state insured who directly procures policies as of the effective date."

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