On Wednesday, September 9, 2009, the U.S. House of Representatives unanimously approved the Nonadmitted and Reinsurance Reform Act of 2009 (the "NRRA"). The NRRA would simplify and clarify regulatory and compliance aspects of surplus lines insurance and reinsurance, and it enjoys the support of several major insurance industry groups, including risk managers, insurers, and producers. The House had previously approved two earlier versions of the NRRA, but neither was taken up by the Senate. The NAIC was involved in the process with the current version, and advocates believe that the political atmosphere may make enactment of the bill easier to achieve. Companion legislation was introduced in the Senate and is being sponsored by Sen. Evan Bayh, D-Ind., who sits on the Senate Banking, Housing and Urban Affairs Committee.
The major provisions of the NRRA are as follows:
- Premium Taxes: The NRRA establishes a uniform nationwide system for surplus lines premium tax collection and allocation by prohibiting any state other than the home state of an insured from requiring a premium tax payment for nonadmitted insurance. In addition, it authorizes states to establish procedures to allocate among themselves the premium taxes paid to an insured's home state. Tax payments made on a policy would be forwarded into a federal pool that would pay allocations to states involved in multi-state transactions.
- Increased Access to Surplus Lines: The NRRA makes accessing the surplus lines market easier by standardizing the definition of who constitutes a large commercial purchaser entitled to directly access the surplus line market through a risk manager. It also liberalizes the definition of what criteria an employee risk manager must meet to be regarded as "qualified" and therefore entitled to bypass the admitted market when seeking coverage.
- Authority to Regulate: The NRRA grants authority to regulate surplus lines insurance transactions solely to the insured's home state, and proscribes how to identify the "home" state. In addition, only an insured's home state may require a surplus lines broker to be licensed to conduct nonadmitted business with respect to such insured. States may not collect fees relating to licensure of a surplus lines broker in the state unless it has a regulatory mechanism in effect for participation in the NAIC's national insurance producer database, or any other equivalent uniform national database. In addition, a state may not establish eligibility criteria for nonadmitted insurers domiciled in a U.S. jurisdiction except in conformance with the Non-Admitted Insurance Model Act, unless the state has adopted nationwide uniform requirements, forms, and procedures that include alternative nationwide uniform eligibility requirements. A state may not prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the United States if it is listed on the NAIC International Insurers Department Quarterly Listing of Alien Insurers.
- Reinsurance Financial Regulation: Simplifies reinsurance regulation by granting the reinsurer's state of domicile the sole responsibility for regulating the reinsurer's financial solvency if such state is either NAIC-accredited or has financial solvency requirements substantially similar to the NAIC. In addition, a state is prohibited from requiring a reinsurer to provide financial information other than that required to be filed with its NAIC-compliant domiciliary state.