Legislators, Surplus Lines Groups Weigh a Lighter SLIMPACT Tax Deal

November 17, 2010

As the deadline to implement the surplus lines insurance modernization bill — or the Nonadmitted & Reinsurance Reform Act (NRRA) in the Dodd-Frank Act — quickly approaches, some of the nation’s legislators are searching for a way to find consensus on just how to solve a complicated provision.

The problem centers on the provision that deals with how reporting, payment and allocation of premium taxes will be handled post-July 2011.

One solution is the creation of the Surplus Lines Insurance Multi-State Compliance Compact, or SLIMPACT, but not everyone is on board with the concept. In an effort to win consensus from legislators, regulators and the insurance industry, the National Conference of Insurance Legislators (NCOIL) is offering a lighter version of SLIMPACT, now referred to as SLIMPACT-Lite.

The slimmed down version of SLIMPACT is being presented as a compromise proposal at the inaugural State Leader Summit: Working Session on Financial Modernization, to be held this Friday, from 8 a.m. to 11:30 a.m. in Austin, Texas, during the NCOIL Annual Meeting.

“SLIMPACT-Lite could represent the breakthrough that stakeholders have been searching for since the President signed Dodd-Frank in July,” said NCOIL President Rep. Robert Damron. “Its structure is familiar to legislators in the 36 jurisdictions that have already approved an Interstate Insurance Product Regulation Compact, and its authorities have been limited from the original draft to focus on those issues that are addressed by Dodd-Frank or are otherwise most needed to streamline surplus lines taxation and regulation.”

SLIMPACT-Lite would authorize a governing commission to establish allocation formulas to help states share premium tax dollars, uniform payment methods and reporting requirements for insureds and surplus lines brokers, national eligibility standards, and a single policyholder notice to replace the various forms used across the country. To streamline taxation, it would require a state to create a single tax rate for surplus lines insurance, allow states to charge their own rates, and set uniform payment due dates, among other things.

But while NCOIL members have their eyes set on SLIMPACT-Lite, the National Association of Insurance Commissioners (NAIC) is reviewing other options to solve surplus lines premium tax allocation issues.

In August, the NAIC launched an Implementation Task Force, headed by Commissioner James Donelon of Louisiana, to discuss SLIMPACT and other tax allocation models. The task force is currently proposing more of an agreement among commissioners rather than a traditional compact, says Dick Bouhan, executive director of the National Association of Surplus Lines Offices. Bouhan says an “agreement” rather than a formal compact might not be as stable down the line. “Structurally SLIMPACT-Lite is different and I think it has more of a chance of meeting legal muster when it gets passed and of being a more stable entity,” Bouhan says.

“When the NAIC began its process to implement Dodd-Frank two months ago, NCOIL urged the organization to consider SLIMPACT as a starting point,” said Damron in a statement. “I committed to working with regulators to modify SLIMPACT, if necessary, and — after reviewing concerns voiced during numerous NAIC Task Force meeting — believe that SLIMPACT-Lite balances the concerns of many stakeholders”

Right now, regulators are insisting on a tax-only agreement, says Phil Ballinger, executive director of the Texas Surplus Lines Stamping Office. He says that the proposal set forth that appears ready for approval from the NAIC task force is being opposed by many industry trade associations.

The surplus lines industry sees some problems with the way the NAIC’s current version is drafted, Bouhan says, and SLIMPACT-Lite is more in line with the NRRA.

However, Bouhan noted that based upon on the NAIC task force phone call yesterday, SLIMPACT-Lite doesn’t conform very well with what the task force is putting forth. “Whether the broader NAIC approves of it remains to be seen,” he says. But Bouhan said SLIMPACT appears to be gaining support from legislators, and it will be legislators who must ultimately approve a compact or agreement in the states.

“The next few months should be interesting,” Ballinger says.

Representatives of The Council of State Governments (CSG), NAIC, North American Securities Administrators Association (NASAA), and National Conference of State Legislatures (NCSL) are expected to participate in the NCOIL Summit on Friday.

The NCOIL State-Federal Relations Committee also will consider a draft Resolution in Support of Amending the Insurance Law to Conform to the Nonadmitted and Reinsurance Reform Act (NRRA), sponsored by NCOIL President-Elect Rep. George Keiser (ND). The resolution says that state “statutes must be amended to conform to the mandatory provisions and definitions contained in the NRRA,” among other things.

The NCOIL Annual Meeting will take place from Nov. 18 – 21 at the Hilton Austin Downtown in Austin, Texas.

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