NAIC Surplus Lines Implementation Task Force Reviews Model Nonadmitted and Reinsurance Reform Act Advisory Bulletin

May 20, 2011


The National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force (“Task Force”) met via teleconference today, May 20, 2011, to receive and consider interested party comments on a model advisory bulletin (“bulletin”) designed to outline nationwide regulatory changes that will affect surplus lines brokers placing business in various states pursuant to the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). 

The agenda and meeting materials are attached.

Incorporated into the Dodd-Frank Wall Street Reform and Consumer Protection Act, the NRRA provides that only an insured’s “Home State” may require a premium tax payment for nonadmitted insurance.  Effective July 21, 2011, it also authorizes states to establish procedures to allocate nonadmitted insurance premium taxes among themselves.

Task Force chairman Jim Donelon, the Louisiana Insurance Commissioner, noted that suggestions on the bulletin had been submitted for consideration from the following entities:  The Council of Insurance Agents & Brokers (“CIAB”); Lloyd’s America, Inc.; the National Association of Professional Surplus Lines Offices, Ltd. (“NAPSLO”) ; the New York Insurance Department; and the Property Casualty Insurers Association of America (“PCI”).

The deadline for comments from insurance regulators and interested parties to the NAIC on the draft bulletin was May 12, 2011.  While no comments were submitted from regulators, other interested parties submitted written comments.  Although no firm decisions were made about the comments, all of them were taken under advisement by the NAIC.

  • CIAB was most concerned as to how the new tax structure would be applied and sought additional clarification. “We are most concerned about ensuring that there is continuity in the treatment of policies and post-policy effective date endorsements based on the policy’s effective date,” wrote CIAB President Ken Crerar in a May 12 letter to Chairman Donelon.
  • Lloyd’s America, Inc. wanted to be sure it was understood that alien surplus lines insurers do not have NAIC insurance code numbers and suggested that the bulletin should be revised to clarify this. In its comments, Lloyd’s also pointed out that its policy identification numbers have at least 17 digits and wanted to ensure the field for this data could accommodate them. NAIC general counsel John Bauer said this is a matter that should ultimately be discussed with the selected clearinghouse vendor that would implement the collection of surplus lines taxes.
  • Highlights from NAPSLO’s suggestions on the bulletin included broadening its scope so that it addresses all components of the federal legislation; clarifying which policies apply to the NRRA reforms and removing all references that might offer specific guidance concerning compliance with any tax sharing arrangement, because no state is yet participating in a clearinghouse, compact or tax allocation agreement.
  • The New York Insurance Department submitted a hand-edited draft of the bulletin with an array of detailed language changes, including a suggestion to issue the bulletin to stamping offices, as well as to surplus lines brokers
  • PCI suggested that the bulletin be revised to address all NRRA provisions that are of direct interest to surplus lines carriers.

“There are a lot of areas of the NRRA that are not specifically addressed by the legislation.  We are looking for a bulletin that will specifically address those items with regard to regulatory authority, eligibility requirements,” said David Kodama, senior director of research and policy analysis for PCI.  He said the proposed bulletin addresses only issues that directly affect surplus lines brokers.

After reviewing all the comments, Chairman Donelon asked if one model bulletin should be issued for both brokers and insurers, or if they should receive separate ones.  Task Force members agreed everyone should receive the same bulletin.

Several Task Force members, including those from Texas and Delaware, agreed all references to the Nonadmitted Insurance Multi-State Agreement (NIMA) or any other tax allocation system should be kept out of the proposed bulletin.

Mr. Bauer said a placeholder could be included in the proposed bulletin so that a state could indicate that further notice would be coming on tax allocation issues.

After a brief discussion, Task Force members asked Mr. Bauer to prepare a second draft of the model bulletin and then circulate it, so it can be discussed and completed during another meeting after Memorial Day (May 30).

With no further business before the Task Force, the meeting was adjourned.



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