Wednesday, August 31, 2011

Brady R. Kelley Named Executive Director

The NAPSLO Board of Directors announced that Brady R. Kelley has accepted the position of Executive Director of the Association and will join NAPSLO on September 12, replacing Richard M. Bouhan who will be retiring from the organization following 30 years of service.

Mr. Kelley most recently was Chief Financial and Business Strategy Officer for the National Association of Insurance Commissioners (NAIC), the U.S. standard-setting and regulatory support organization governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.

“After an extensive search we are very pleased to announce that Mr. Kelley has accepted the position as Executive Director,” said NAPSLO President Letha Heaton. “We would also thank Mr. Bouhan for his many years of service to the Association and the surplus lines industry.”

Mr. Bouhan will remain with the Association through June of 2012 working on the transition and also legislative and legal issues for NAPSLO. Mr. Bouhan joined the Association in 1981 as Legislative Director and became Executive Director in 1988.

Mr. Kelley has served as Chief Financial and Business Strategy and previously served as Chief Financial Officer, Director of Financial Services, and Financial Services Manager since joining the NAIC in 1998. He also served as a senior accountant for Price Waterhouse after graduating with a bachelor’s degree in accounting from the University of Missouri. He has also received the CPA designation.

“We are sad to see him leave us, and excited for the opportunity this provides him and his family,” said NAIC Chief Executive Officer, Dr. Therese M. (Terri) Vaughan. “Having appreciated his talents for 13 years at the NAIC, we applaud the wisdom of NAPSLO’s choice and wish Brady the very best of luck.”

Thursday, August 25, 2011

More States Adopt NAPSLO’s View on Requiring Surplus Lines Brokers to Have P&C License

A recent survey by the NARAB Working Group has shown that a number of states have adopted NAPSLO’s position that under Gramm-Leach-Bliley Act of 1999 states can not require surplus lines brokers to have underlying P&C license if they are not handling the diligent search for a policy.

One of the goals of Gramm-Leach-Bliley was to allow easier access to surplus lines licenses to out of state residents. A number of states required that before a broker could acquire a surplus lines license they would need to acquire an underlying property and casualty license. NAPSLO argued that if the broker was not performing the diligent search of the state’s admitted market, under GLB they did not need an underlying P&C license.

The NARAB survey showed that Idaho, Illinois, Kansas, Kentucky, Maine, Maryland, Mississippi, Montana, Nebraska, North Dakota, Oregon, Rhode Island, and Wyoming eliminated the underlying license requirement for those brokers that do not conduct diligent searches. In addition, a number of other states had previously passed legislation that adopted this view.

Sunday, August 21, 2011

New Jersey Enacts Law to Collect 100% of the Tax and Allows State to Join A Compact

The New Jersey Governor has signed into law Nonadmitted and Reinsurance Reform Act (NRRA) compliance  legislation that would authorize the state to collect 100% of the tax on U.S. premiums and allows the state to join a compact or tax sharing agreement.

New Jersey is among the latest states to enact NRRA related implementation legislation. During the session NAPSLO provided draft legislation and offered comments.

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.

New Jersey SB 2390 authorizes New Jersey to collect 100% of the tax on U.S. premiums for a surplus lines or independently procured insurance policy when New Jersey is the home state of the insured. It  also authorizes the Commissioner to enter into, modify and terminate one or more tax sharing agreements or compacts.

The bill provides that in determining whether to enter into a compact or tax sharing agreement, the Insurance Commissioner must consider: efficiencies to be achieved; the amount of revenue to be generated through participation; and any other material factor. In addition, a decision by the Commissioner to enter into a tax sharing arrangement is subject to nullification by the Joint Budget Oversight Committee

The bill defines home state per the NRRA, however limits the imposition of nonadmitted insurance premium tax to U.S. premium. The bill does not incorporate the NRRA's exempt commercial purchaser (ECP) exemption or insurer eligibility requirements.

Friday, August 19, 2011

Delaware Enacts NRRA Bill Requiring 100% of Premium to be Taxed; Establishes Procedure to Enter Compact

The Delaware Governor has signed into law Nonadmitted and Reinsurance Reform Act (NRRA) compliance related legislation that would authorize the state to collect 100% of the tax on the U.S. premium and allows the state to join a compact or tax sharing agreement.

Delaware is among the latest states to enact NRRA related implementation legislation. During the session NAPSLO provided draft legislation and offered comments.

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.

Delaware's SB109 provides authorization for participation in an interstate cooperative compact or agreement, however it requires the insurance commissioner to establish a NRRA Implementation Revenue Study committee to study the fiscal impact of entering into a compact.

The law provides that 100% of the premium for all policies written on home state insureds, whether single-state or multi-state, is considered Delaware premium for tax purposes; provides for the payment of premium tax on independently procured nonadmitted insurance; and provide for penalties for noncompliance with tax filing requirements.

SB 109 further adds definitions for "home state," "affiliated group" and "control," adopts the NRRA exempt commercial purchaser exemption, and amends insurer eligibility requirements.

NAPSLO Applauds Regulators' Approval of Kentucky Allocation Proposal

NAPSLO applauded insurance regulators' decision to approve a proposal by the Kentucky Department of Insurance on how to allocate surplus lines premium taxes. In a non-binding straw vote on Thursday, the SLIMPACT (Surplus Lines Multistate Compliance Compact) Commission voted to approve the allocation method proposed by Kentucky.

“NAPSLO, and the industry, were pleased to see regulators vote to approve Kentucky’s allocation proposal,” said NAPSLO Legislative Co-Chair David Leonard. “The Kentucky proposal presents a workable methodology that would be a vast improvement over other tax methodologies under discussion and we hope that other state groups will also adopt the proposal.”

The commissioners, representing the nine states that adopted SLIMPACT legislation, were meeting to discuss issues regarding the compact following the Nonadmitted and Reinsurance Reform Act (NRRA), a part of the 2010 Dodd-Frank Act, becoming effective on July 21, 2011. The Commission must adopt a tax allocation formula and Kentucky, one of the nine states, proposed a tax allocation formula that would allocate surplus lines taxes based on exposures, however, most casualty would not be allocated, an approach similar to what is in use today. The Kentucky formula could be used in any tax-allocation agreement as necessary between different states.

“Adoption of Kentucky’s proposal would basically continue the current allocation system rather than require brokers to implement a new system,” said NAPSLO Legislative Co-Chair Hank Haldeman. “It is significant step toward implementing uniformity and simplicity in filing multistate taxes, which is sorely needed.”

NAPSLO joined eight other industry trade groups in writing SLIMPACT Commissioners to recommend that they adopt the allocation methodology proposed by Kentucky. The industry groups supporting the Kentucky proposal were the American Association of Managing General Agents, the American Bankers Insurance Association, the American Insurance Association, the California Insurance Wholesalers Association, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, the National Association of Mutual Insurance Companies, and the Risk Management Society.

The SLIMPACT commission is presently composed of Alabama, Kansas, Kentucky, Indiana, New Mexico, North Dakota, Rhode Island, Tennessee, and Vermont

Wednesday, August 10, 2011

Oregon Enacts NRRA Legislation; State Can Join Compact with Legislature's Approval

The Oregon Governor recently signed into law Nonadmitted and Reinsurance Reform Act (NRRA) compliance legislation that allows the director of the Department of Consumer and Business Servies, following legislative approval, to enter into a compact or to otherwise establish procedures with other states to allocate premium taxes.

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

The NRRA mandates that beginning July 21, 2011 the insured's home state is 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.

Oregon's HB 2679  does not implement all NRRA mandates, though it does adopt the NRRA's exempt commercial purchaser (ECP) exemption from the diligent search requirement (and allows the director to waive the requirement for additional commercial insureds based on criteria that are more liberal than the ECP criteria). The bill also adds definitions for "home state," "affiliated group" and "control."

HB 2679 provides that after receiving express legislative approval, the Director of the Department of Consumer and Business Services is authorized to enter into a compact or to otherwise establish procedures with other states to allocate among the states the premium taxes paid to an insured's home state.

The bill also imposes a tax on independently procured insurance (same rate of 2% as for surplus lines) which Oregon does not currently have. Both the independent procurement and surplus lines tax would be imposed only on the premiums attributable to Oregon exposures. The bill also requires surplus lines licensees to pay a state fire marshal tax "equal to 0.3 percent of the premium or fees charged by the insurer or the insurer's agents and other intermediaries for the insurance."

Tuesday, August 09, 2011

NAPSLO, Other Industry Groups Urge SLIMPACT States to Adopt Kentucky's Allocation Proposal

NAPSLO joined five other industry trade groups in writing representatives of the Surplus Lines Multistate Compliance Compact Commission to recommend that they adopt an allocation methodology proposed by the Kentucky Department of Insurance.

NAPSLO joined the American Association of Managing General Agents, the American Bankers Insurance Association, the American Insurance Association, the Council of Insurance Agents & Brokers, and the Independent Insurance Agents & Brokers of America in writing the letter urging adoption of the Kentucky proposal.

Kentucky has proposed a tax allocation formula that would allocate surplus lines taxes based on exposures. However, brokers would not allocate most casualty, an approach similar to what has been in use. Following the July 28 hearing before House Financial Subcommittee on Insurance, Housing and Community Opportunity industry groups have voiced support for a unified tax allocation methodology.

"We believe the Kentucky proposal would allow brokers to continue to operate under a basically unchanged allocation system. That consistency is important to the industry and the insureds that we serve," said NAPSLO Legislative Co-Chair Hank Haldeman. "We hope that the states in the NIMA agreement will also adopt the Kentucky proposal as a way to handle tax allocation."

The joint industry letter said Kentucky's proposal possesses considerable merit and meets the needs of state officials without unnecessarily burdening companies, brokers and insureds with unreasonable data reporting requirements. It added that the Kentucky proposal is the option best suited and most likely to bring the various parties and interests together to produce much-needed uniformity.

Nine states have passed SLIMPACT legislation and a tenth state is needed to create a clearinghouse. Because of the timing established in the SLIMPACT legislation, the earliest possible date a SLIMPACT clearinghouse could began to process taxes is January 1, 2013.

Tuesday, August 02, 2011

New Jersey Seeks Comments on Fee Changes

In order to implement a 2010 statute, the New Jersey Department of Banking and Insurance has issued a proposal for public comment that would change the limits of fees for surplus lines insurance.

Under the proposal, in addition to allowing to charge a fee for the actual cost incurred for any services performed by a person that is not associated with the surplus lines producer such as inspection services, a surplus lines producer may charge a fee to an originating broker in connection with the negotiation or procurement of any contract of surplus lines insurance in the following amounts:
1. For personal lines, a fee not to exceed $50; and
2. For commercial lines, a fee that is the greater of two percent of the premium for the applicable policy period or $100, but in no event in excess of $250.

New Jersey statutes previously limited surplus lines producers to charge a fee to an originating broker in connection with the negotiation or procurement of any contract of surplus lines insurance that didn’t exceed $50, plus the actual cost incurred for any services performed by a person that is not associated with the surplus lines producer, such as inspection services. Effective October 1, 2010, the $50 maximum fee was deleted and the maximum amount was to be set by the Insurance Commissioner.

The proposed amendment retains the existing fee limit currently applicable with respect to personal lines surplus lines insurance, and increases the amount permitted for commercial lines surplus lines insurance. The proposed fee amounts are based on discussions the Department has had with surplus lines producers, trade associations and representatives.

The Department is also proposing to clarify that the applicability of the provisions on fees in that subsection to personal lines surplus lines insurance is limited to the originating or retail producer, and does not extend to the surplus lines producer.

A 60-day comment period ending September 20 is provided for this notice of proposal, and comments should be sent to Robert J. Melillo, Chief Legislative and Regulatory Affairs, Department of Banking and Insurance, 20 West State Street, PO Box 325, Trenton, NJ 08625-0325.

Monday, August 01, 2011

Surplus Lines Premiums in Stamping Offices Increase in 2011, Items Processed Down Slightly

Surplus lines premium written in the 14 stamping offices states increased for the first half of 2011 compared to 2010, according to a report from the Surplus Lines Stamping Office of Texas.

Premiums reported by the stamping offices for the first six months of the year increased by 11.4% to $10.2 billion, compared to $9.15 billion in 2010, in large part as New York reported an increase in premiums from $1.356 billion to $2.522 billion in 2011 because of late-filed premiums from prior years' policies during the first six months of 2011.

While premiums increased, the number of items recorded by the stamping offices dropped slightly, from 1,599,590 in 2010 to 1,576,569, a 1.4% decrease. New York reported a 4.4% increase while Florida reported a 12.3% decrease.

Seven states reported increases in premium, from 0.5% in Pennsylvania to the 85.9% in New York and 4.1% in California. Seven states reported declines, ranging from 1.2% decline in Texas to a 16.4% decline in Nevada.