Thursday, April 19, 2012

Kentucky Updates NRRA Related Legislation

Kentucky has enacted SB 295 to update its surplus lines code to add provisions to conform to the  Nonadmitted and Reinsurance Reform Act (NRRA). Specifically, H 295 adds NRRA definitions of  admitted insurer, affiliate, exempt commercial purchaser and home state to Kentucky's surplus lines code.

H 295 also uses NRRA criteria for surplus lines insurer eligibility but did not include NRRA definitions of affiliated group, control, premium tax, qualified risk manager or state.  Kentucky passed SLIMPACT in 2011 and H295 was necessary to update the surplus lines code to be consistent with the NRRA.

In addition to the NRRA terms, the law, signed by the Governor on April 11, has additional reforms in that it eliminates the underlying license requirement for a nonresident surplus lines broker. It also limits the bond requirement to be applicable only to resident surplus lines brokers.

The new law does not mention tax sharing but the 2011 legislation adopted SLIMPACT, which authorized tax sharing should SLIMPACT becomes operational. SLIMPACT is not yet operational because it requires a minimum of 10 states and only 9 have passed SLIMPACT at this time. This bill also does not address the use of the other state's tax rates for a multi-state risk but the SLIMPACT Commission has indicated it intends to use the other states rates, at least for property insurance.

Kentucky law previously allowed the Commissioner to declare a surplus lines insurer ineligible, but an amendment in H 295 indicated the Commissioner shall mail notice of ineligibility if the Commissioner believes that a surplus lines insurer no longer meets the standards.  It is not clear if the bill limits the Commissioner's ability to declare an insurer ineligible for any reason other than failure to comply with NRRA eligibility standards.

Comprehensive information on 2012 legislation in Kentucky and other states is available on NAPSLO's website, in addition to a number of NRRA resources.

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