Florida, Mississippi and Hawaii have entered into an agreement that will allow them to keep millions of dollars in taxes on surplus lines insurance policies.
The agreement was the result of federal legislation — the Nonadmitted and Reinsurance Reform Act of 2010– that provides that only an insured’s home state may collect a premium tax payment on surplus lines insurance policies. In cases where the policy covers multi-states, those other states would lose the ability to collect taxes, absent a revenue-sharing agreement.
The federal legislation gave states until June 15 to establish uniform procedures for the collection of surplus lines premium taxes and fees for multi-state risks.
The states of Florida, Mississippi and Hawaii negotiated a pact before the deadline. Under it, they will establish a clearinghouse to collect premium taxes and distribute them to participating states in accordance with an agreed formula.
“Florida and the other participating states are leading the nation in the modernization of the reporting process for surplus lines premium,” said Florida Insurance Commissioner Kevin McCarty.
“Hopefully this will pave the way for more states to sign on and conserve badly needed general fund revenue,” Mississippi Insurance Commissioner Mike Chaney said.
Florida’s McCarty said that without the current agreement Florida stood to lose between $15 million and $20 million a year.
Chaney said the new agreement means Mississippi should get about $16 million in tax revenue of which about $10 million will go into the Mississippi Windstorm Underwriting Association, the state’s wind pool. Mississippi began collecting taxes on surplus lines companies in 1997, but 2010 was the first year some of the tax was dedicated to the state’s wind pool, Chaney said.
The wind pool is the insurer of last resort for homeowners and commercial property in high-risk areas. The wind pool received about $9.5 million from the surplus lines tax in 2010, according to Chaney. The policies are taxed 5 percent for the wind pool and 4 percent for the state’s general fund.
“That helps keep us from having to go try to find $20 million every year to put in to keep rates level,” Chaney said.
About 11 or 12 percent of the Gulf Coast’s insurance market is written by surplus lines companies. Surplus lines carriers write insurance, typically specialized property or liability coverage, that is not available from licensed insurers.
“It makes the market more competitive,” Chaney said.
Topics Florida Excess Surplus Mississippi Hawaii
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