Surplus Lines Requirements Subgroup Agrees to Send Survey on Solvency Monitoring to Regulators

Nov 6, 2012


The National Association of Insurance Commissioners (“NAIC”) will compile and distribute a survey to regulators to help determine what they need to conduct solvency monitoring of nonadmitted insurers, members of the Surplus Lines Requirements Subgroup (“Subgroup”) of the Surplus Lines Task Force decided during a teleconference meeting on November 1, 2012.

Subgroup members agreed to move forward with the survey after a brief discussion during the meeting. 

The NAIC had formed the Subgroup to address concerns about states’ implementation of the national uniform standards for surplus lines insurer eligibility.  The standards are mandated by Section 524 of the Nonadmitted and Reinsurance Reform Act (“NRRA”), which became effective on July 21, 2011.

In an April 5, 2012 letter to NAIC Chief Executive Officer Therese M. Vaughn, eight insurance trade groups outlined their concern and opposition to the application of state-specific standards, saying the requirements are inconsistent with the eligibility standards established by NRRA.  The letter, which is attached, highlights the following four general categories of concern:

1.      In some states, companies are being asked to file information or documentation for listing eligibility for purposes that  are “superfluous, if not irrelevant” to the information needed by the particular state to verify licensing and capitalization criteria;

2.      Many of the documents being requested by states are available electronically;

3.      Additional eligibility criteria – other than the NRRA requirements – is being required in some states;

4.      Some states are only applying the NRRA eligibility standards when a company is insuring a multi-state risk, then applying its own state standards when the transaction involves a single state risk.

Organizations that signed the April 5, 2012 letter include:

  • American Association of Managing General Agents
  • American Insurance Association
  • Council of Insurance Agents & Brokers
  • Independent Insurance Agents and Brokers of America
  • National Association of Professional Insurance Agents
  • National Association of Professional Surplus Lines Offices
  • Property Casualty Insurers Association of America

Subgroup Chairman Cindy Donovan of Indiana acknowledged that the issue is complicated.

“We are all going to have to work on this together and it may mean give and take on both sides,” she stated.

During discussion, a representative from Delaware lauded the suggestion for a survey.

“I think it’s a great idea to survey the states, find out what is their fee, what forms do they require, what additional documents do they want,” the Delaware representative said.

Bob Schump, International Insurers Department Manager for the NAIC, suggested that a more efficient route might be to look only at the essential information that states need to perform solvency monitoring.

“What are essential elements they have to be provided to prepare their white lists or prepare the criteria in the federal mandate?” Mr. Schump asked.

It was agreed that the survey would be compiled and distributed immediately so results could be returned by November 13, 2012.

Comments from teleconference participants highlighted the disparity from state to state:

A representative from New Mexico said the state asks insurers to prove they meet the $15 million capital statutory requirement.  New Mexico maintains an eligibility list.

A representative from Colorado said companies that wished to be listed on that state’s eligibility list must send in a one-page document and pay a fee.  The incentive is that a broker does not have to do any independent research to verify compliance, he said.

Mr. Schump explained that the NAIC’s charge is to review the current status of state eligibility requirements and look for ways to promote uniformity among the states while getting them to recognize that federal law pre-empts what they may have been doing in the past.

With no further business before the Subgroup, the meeting was adjourned.



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