Friday, October 21, 2011

NAPSLO Joins Nine Other Industry Groups Urging NIMA States to Adopt the Kentucky Compromise for Allocating Surplus Lines Taxes

NAPSLO joined nine other industry trade groups in writing representatives of states who are part of the Nonadmitted Insurance Multi-State Agreement (“NIMA States”) to recommend their adoption of the allocation methodology proposed by the Kentucky Department of Insurance (“Kentucky compromise”).

NAPSLO joined the American Association of Managing General Agents, the American Bankers Insurance Association, the American Insurance Association, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, the National Association of Mutual Insurance Companies, the National Association of Professional Insurance Agents, the Property Casualty Insurers Association of America and the Risk and Insurance Management Society, Inc. in writing the letter urging adoption of the Kentucky allocation proposal.

The industry letter noted the Kentucky proposal would continue to require the allocation of casualty premiums on a state-specific or location-specific basis when a multistate policy’s premiums are determined on a state-specific or location-specific basis, but it permits the allocation of premiums to the home state if a single premium charge is applied and no location-specific rating occurs in connection with the placement. Industry groups previously voiced support for the Kentucky compromise in August writing representatives of the Surplus Lines Multistate Compliance Compact Commission (“SLIMPACT”) to urge the adoption of the Kentucky proposal. SLIMPACT members have stated their support of the plan. Many states revised their insurance laws this year for the purpose of compliance with the Nonadmitted and Reinsurance Reform Act (“NRRA”).

“We believe the Kentucky compromise is the option best suited and most likely to bring the various parties and interests together and produce the much-needed uniformity intended by the NRRA,” said David Leonard, Co-Chair of NAPSLO’s Legislative Committee. “We are most interested in working with states as we seek to realize the promise of uniformity while resolving the threat of unworkable allocation methods and competing tax sharing approaches.”

The Kentucky compromise includes refinements to the existing NIMA allocation method possessing considerable merit and meeting the needs of state officials without burdening companies, brokers and insureds with unnecessary and new data reporting requirements for the sole purpose of collecting taxes.

In contrast, the letter said that the NIMA allocation methodology would unavoidably result in new costs and fees, and would complicate, rather than simplify, surplus lines premium tax reporting and allocation procedures.

“The industry is concerned the NIMA allocation system would significantly expand the collection and reporting of information solely for tax allocation purposes,” said James Drinkwater, Co-Chair of NAPSLO’s Legislative Committee. “This represents new challenges, adds further complexity to the surplus lines marketplace, and exacerbates the burdens the NRRA was designed to relieve.”

To download a copy of the letter, CLICK HERE.

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