State Legislators Adopt Surplus Lines Tax Compact, Compliance Resolution

November 24, 2010

The National Conference of Insurance Legislators (NCOIL) has adopted a revised version of the Surplus Lines Multi-State Insurance Compact (SLIMPACT) as well as a resolution urging the states to amend their insurance laws to have them conform to the recently passed surplus lines law reforms.

NCOIL took both actions at its recent 2010 annual meeting in Austin, Texas.

The new compact, known as SLIMPACT-lite, is a smaller version of the larger compact, which NCOIL adopted in 2007. The new compact is designed to fulfill the compact provisions of the Nonadmitted and Reinsurance Reform Act (NRRA) which Congress passed and the President signed last July as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The National Association of Surplus Lines Offices (NAPSLO) says it supports NCOIL’s action in approving what is known as SLIMPACT-lite. “NCOIL should be commended for responding to the concerns the NAIC expressed about SLIMPACT and creating a revised version that addresses the problems the NAIC had with SLIMPACT,” said Dick Bouhan, executive director of NAPSLO.

“SLIMPACT-lite is a workable compact that meets the requirements of the NRRA in ways that the NAIC compact proposal does not. NAPSLO believes it will be well received by state legislatures,” stated Steve Stephan, government relations director of NAPSLO.

Also at its annual meeting, NCOIL adopted the resolution urging the states to amend their insurance laws to have them conform to the NRRA by the law’s effective date of July 21, 2011.

In mid-November NAPSLO, the American Association of Managing General Agents (AAMGA), and The Council of Insurance Agents & Brokers (The Council), released a joint letter urging state legislators and insurance regulators to work as swiftly as possible to bring their codes and regulations into compliance with the NRRA. The letter said that “failure to act will result in confusion for regulators and licensees alike, arising from the existence of inapplicable, inaccurate and unenforceable code and regulation.”

The three industry trade groups outlined six potential areas where NRRA compliance will require states to address their laws:

• Ensuring surplus lines premium tax is applicable on surplus lines policies only in the home state of the insured;

• Producer licensing and surplus lines placement laws can apply only when the state is the “home state” of the insured;

• Eligibility criteria for U.S.-based (foreign) surplus lines insurers must be amended to require the insurer to be licensed in the domiciliary state and meet the greater of $15 million or the state’s capitalization requirement;

• Eligibility criteria for alien surplus lines insurers must be amended so any insurer listed on the NAIC / IID Quarterly Listing is eligible;

• The NRRA definition of an “exempt commercial purchaser” must be incorporated into state law; and

• States must allow surplus lines brokers to participate in the National Insurance Producer Database.

Each of the states will need to conduct a comprehensive review of its code and regulations to identify inconsistencies with the NRRA, the authors wrote.

Bouhan says NCOIL’s effort to encourage the state’s to act quickly to have their laws amended and conform to the NRRA requirements is important.

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