The Nnadmitted and Reinsurance Refrm Act (NRRA) Cmpliance Guide Updated Nvember 11, 2011 Versin 010 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLP. All Rights Reserved.
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Cntents (Click n a link t g t that page.) Please cntact Nicle Allen fr any questins regarding this guide. I. Overview: The NRRA Cmpliance Guide II. NIMA and SLIMPACT III. Surplus Lines Regulatry Issues Addressed in the NRRA Enacted Legislatin by State 1. Surplus Lines Transactins Gverned by the Rules f the Hme State f the Insured 2. Treatment f Surplus Lines Premium Tax 3. Surplus Lines Insurer Eligibility Standards 4. Cmmercial Purchase Exemptin 5. Surplus Lines Brker Licensing Enacted Legislatin by State Attachment A: State-by-State Requirements (table) Attachment B: Exempt Cmmercial Purchase Certificatin Frm Attachment C: Hme State Checklist Attachment D: NIMA Allcatin Frmula Exhibit 1: Infrmatin Required t be Submitted by the Brker r Insured via the Clearinghuse Web Prtal Enacted Legislatin by State Alabama Alaska Arizna Arkansas Califrnia Clrad Cnnecticut Delaware District f Clumbia Flrida Gergia Hawaii Idah Illinis Indiana Iwa Kansas Kentucky Luisiana Maine Maryland Massachusetts Michigan Minnesta Mississippi Missuri Mntana Nebraska Nevada New Hampshire New Jersey New Mexic New Yrk Nrth Carlina Nrth Dakta Ohi Oklahma Oregn Pennsylvania Rhde Island Suth Carlina Suth Dakta Tennessee Texas Utah Vermnt Virginia Washingtn West Virginia Wiscnsin Wyming 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 2
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List I. Overview: The Nnadmitted and Reinsurance Refrm Act (NRRA) Cmpliance Guide The Nnadmitted and Reinsurance Refrm Act (NRRA) was enacted int law in July 2010 as part f the Ddd- Frank Wall Street Refrm and Cnsumer Prtectin Act (Ddd-Frank). The NRRA refrms the regulatin f surplus lines insurance by limiting regulatry authrity ver surplus lines transactins t the hme state f the insured and by setting federal standards fr the cllectin f surplus lines premium taxes, insurer eligibility, and cmmercial purchaser exemptins. Mst f the prvisins f the NRRA went int effect n July 21, 2011. In anticipatin f that deadline, many states revised their laws and regulatins t cnfrm t the new law. With minr exceptins, the new state laws fcus n surplus lines premium taxatin, which is the mst challenging cmpliance issue fr bth brkers and state regulatrs. In additin t the tax issue, mst f the states have attempted t cnfrm their laws t the ther issues addressed by the NRRA, including the cmmercial purchaser exemptin and surplus lines insurer eligibility standards. A number f state legislatures adjurned withut taking any actin t cnfrm their laws and rules t the NRRA, and therefre their laws d nt necessarily match the federal standards. Whether r nt a state has taken actin, hwever, the NRRA standards apply. Therefre, surplus lines brkers must lk t bth the NRRA and the laws f the hme state f the insured t determine what they need t d t cmply with all applicable rules. This Cmpliance Guide is intended t prvide the basic infrmatin surplus lines brkers need t understand hw t cmply with state surplus lines regulatry requirements in light f the NRRA, the newly-revised state laws and regulatins (in states that have acted t cnfrm their laws t the NRRA), and current laws and regulatins (in states that have nt cnfrmed their laws t the NRRA). The Guide prvides an explanatin f the NRRA s refrms, hw they interact with state laws, and what brkers need t d t cmply. The Cmpliance Guide prvides the fllwing infrmatin: 1. a discussin f the tw general appraches the states are taking t cmply with the NRRA (NIMA and SLIMPACT); 2. an explanatin f the surplus lines regulatry issues addressed in NRRA: Surplus lines premium taxes; Surplus lines transactins gverned by rules f insured s hme state; Surplus lines insurer eligibility standards; Single natinal standard fr cmmercial purchaser exemptin; and Surplus lines brker licensing. 3. a state-by-state discussin f surplus lines laws and rules; 4. a chart summarizing the rules fr cmpliance in each state (Attachment A); 5. a mdel exempt cmmercial purchaser certificatin frm (Attachment B); 6. a Hme State checklist t assist in determining the hme state f the insured (Attachment C); and 7. the NIMA allcatin frmula (Attachment D). 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 3
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List II. NIMA and SLIMPACT There are tw principal framewrks that the states are using t implement the NRRA: the Nnadmitted Insurance Multi-State Agreement (NIMA) and the Surplus Lines Insurance Multi-State Cmpliance Cmpact (SLIMPACT). (A number f states have chsen a third ptin: freging bth interstate appraches cmpletely, pting t tax and keep 100% f surplus lines premium tax fr cverage prvided t hme state insureds; ther states have taken n actin at all.) NIMA The Natinal Assciatin f Insurance Cmmissiners (NAIC) develped NIMA, and several states have enacted legislatin giving their state insurance regulatrs authrity t enter int NIMA. See the chart and the state-by-state cmpendium (belw) fr the states that have enacted such authrizing legislatin and fr the states that have entered int NIMA. NIMA creates a central clearinghuse fr reprting and cllecting surplus taxes, and fr distributing surplus lines taxes amng participating states in accrdance with a unifrm risk allcatin frmula. (A cpy f the NIMA allcatin frmula can be fund at the end f this Guide at Attachment D.) As an incentive t get states t participate in NIMA, nly states that sign n t NIMA ( participating states ) will be entitled t utilize the clearinghuse. Mrever, if an insured s hme state is a participating state, n nn-participating state will be entitled t any prtin f the premium tax n the insured s surplus lines plicy, even if a prtin f the cvered risk is lcated in the nn-participating state. Under NIMA, the clearinghuse will distribute surplus lines premium tax accrding t risk allcatin t participating states; any amunts that are allcable t risks in nn-participating states will be retained by the insured s hme state. NIMA requires each state t establish a single tax rate (thus reslving the cmpliance difficulties such as thse psed by Kentucky s jurisdictin-by-jurisdictin tax rates). The tax rate must include any applicable taxes, fees and assessments. Where the hme state f the insured utilizes the services f a stamping ffice, the stamping ffice is permitted t impse stamping fees in additin t the tax. Participating states must agree t require tax filings and payments n a quarterly basis (February 15 fr the quarter ending the preceding December 31; May 15 fr the quarter ending the preceding March 31; August 15 fr the quarter ending the preceding June 30; and Nvember 15 fr the quarter ending the preceding September 30). Participating states are required t use the clearinghuse prcess fr all surplus lines transactins invlving multistate prperty-casualty risks. Participating states may use the clearinghuse fr single state and nn-prperty-casualty risks, but are nt required t d s. The effective date f the Nnadmitted Insurance Multistate Agreement (NIMA) has been delayed until January 1, 2012. The change was made by the NIMA signatry jurisdictins (11 states and Puert Ric), wh essentially acknwledged that their clearinghuse will nt be peratinal by Nvember 15, which is date that third quarter 2011 surplus lines premium taxes wuld have been due under the agreement. Delay f the NIMA implementatin date buys time fr the NIMA states t get their clearinghuse up and running befre May 15, 2012, which will be the due date fr first quarter 2012 surplus lines premium taxes. As a result f the change in the NIMA effective date, fr transactins in which the hme state f the insured is a NIMA state, the state s laws will need t be reviewed t determine the amunt and methd fr paying the surplus lines premium tax in the absence f NIMA and its clearinghuse. As discussed mre fully in 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 4
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List the state-by-state breakdwn belw, the NIMA states generally fall int the fllwing categries with respect t surplus lines premium tax until NIMA is effective: States that will retain 100% but require sme type f allcatin frmula: Alaska Cnnecticut Flrida (tax cannt exceed the rate impsed by the state where the risk/expsure is lcated) Hawaii Nebraska Wyming States that will tax and retain 100% at the hme state s tax rate: Mississippi Nevada Suth Dakta Utah Pr Rata State: Luisiana In states that are authrized t enter int NIMA but have nt dne s, brkers shuld lk t the laws f the state t determine premium tax payment requirements until such time as the state has entered int NIMA. (Fr example, Arkansas requires payment f 100% f the premium tax t the state at the state s surplus lines premium tax rate f 4% unless the insurance cmmissiner enters int NIMA. When Arkansas enters NIMA, taxes will be paid in accrdance with NIMA.) SLIMPACT NCOIL, a grup f state legislatrs frm acrss the cuntry wh fcus n insurance issues, is pushing fr enactment f the Surplus Lines Insurance Multistate Cmpliance Cmpact (SLIMPACT). SLIMPACT takes an apprach that is bth mre cmprehensive and less defined than NIMA t satisfy the refrms prvided fr in the NRRA. SLIMPACT is mre cmprehensive because it addresses nt nly the tax cllectin and allcatin issues, but als the ther regulatry issues addressed in NRRA such as insurer eligibility, insured hme state determinatins, cmmercial purchaser exemptins, and s frth. At the same time, SLIMPACT is less defined because, althugh it establishes a clearinghuse fr tax payment and allcatin, the agreement itself des nt establish standards fr the clearinghuse r all the regulatry issues it cvers. Instead, the cmpact creates a cmmissin cmprised f the cmpacting states that will, essentially, have authrity t set standards and make decisins in cnnectin with these surplus lines regulatry plicy issues. A state that becmes a member f SLIMPACT (a participating state ) r that cntracts with SLIMPACT (a cntracting state 1 ) will nly be authrized t allcate premium taxes with ther participating and cntracting states. (This mirrrs NIMA s allcatin limitatin.) 1 A cntracting state is a state that uses the SLIMPACT clearinghuse and ther services, but des nt participate in the cmpact s decisin-making prcess. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 5
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List SLIMPACT will becme effective fr purpses f adpting rules and creating a clearinghuse when ten states, r states with representing 40% f all surplus lines premium vlume, enter int the cmpact. Despite the fact that SLIMPACT is nt yet effective (as f Octber 31, 2011, nine states have enacted SLIMPACT), NCOIL, alng with the Cuncil f State Gvernments (CSG) and the Natinal Cnference f State Legislatures (NCSL) have begun the prcess f drafting SLIMPACT s allcatin frmula and bylaws, and a rule t adpt, amend, and repeal Cmmissin rules. The prpsed bylaws and rules are based n the life insurance prduct cmpact, the Interstate Insurance Prduct Regulatin Cmmissin (IIPRC). Because SLIMPACT is nt effective, it is nt clear when these dcuments and the allcatin frmula will be adpted. Even when the 10 state r 40% threshld is reached, the clearinghuse will nt becme peratinal fr mre than a year. This means the SLIMPACT clearinghuse will nt be perating until at least January 1, 2013. In the meantime, brkers shuld lk t the laws f the insured s hme state t determine premium tax payment requirements. Fr example, Nrth Dakta requires payment f 100% f the premium tax t the state, at the tax rates f the states in which the cvered risks are lcated, and prvides that, nce SLIMPACT is in effect, apprpriate amunts will be allcated t ther states accrding t risk lcatin. Tax payment infrmatin fr each SLIMPACT state is belw. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 6
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List III. Surplus Lines Regulatry Issues Addressed in the NRRA 1. Surplus Lines Transactins Gverned by the Rules f the Hme State f the Insured The NRRA establishes a single-state cmpliance regime fr surplus lines insurance transactins. Only the "hme state f the insured," is permitted t require the payment f surplus lines premium tax and t therwise regulate the placement f a surplus lines plicy placed n r after July 21, 2011. This means that a brker nly has t cmply with the hme state f the insured's regulatry requirements regarding diligent search, disclsure language, eligibility requirements, filings, brker licensing requirements, and premium tax requirements. What is the Hme State f the Insured? Crrectly identifying the hme state f the insured fr a particular surplus lines placement will be critical fr brkers t cmply with the regulatry requirements that apply t the transactin. The NRRA defines the hme state f the insured as (i) the state in which an insured maintains its principal place f business r, in the case f an individual, the individual s principal residence; r (ii) if 100% f the premium f the insured risk is lcated ut f the state referred t in clause (i), the State t which the greatest percentage f the insured s taxable premium fr that insurance cntract is lcated. The definitin ges n t clarify that, with respect t affiliated grups, [i]f mre than 1 insured frm an affiliated grup are named insureds n a single nn-admitted insurance cntract, the term hme State means the hme State, as determined pursuant t [clauses (i) and (ii) abve], f the member f the affiliated grup that has the largest percentage f premium attributed t it under such insurance cntract. NIMA and SLIMPACT incrprate the NRRA definitin f hme state, including the affiliated grup clarificatin. Bth NIMA and SLIMPACT, hwever, als define additinal terms t address what their drafters cnsidered gaps in the NRRA s hme state definitin. NIMA adds definitins fr principal place f business, principal residence, and grup insurance. SLIMPACT adds definitins fr principal place f business and purchasing grup. A brker will have t determine the hme state f the insured n a transactin-by-transactin basis. Althugh identifying the hme state will likely be straightfrward in mst cases, there may be times when the determinatin is nt clear cut, r when mre than ne state culd claim t be the hme state f an insured with respect t a particular transactin. Fr this reasn, when determining an insured s hme state, it is particularly imprtant t pay clse attentin t the relevant definitins in state law, as well as thse under NIMA and SLIMPACT. (A Hme State checklist t assist in determining the hme state f the insured can be fund at the end f this Guide at Attachment C.) 2. Treatment f Surplus Lines Premium Tax Under the NRRA, the hme state f the insured has sle regulatry authrity ver the cllectin and allcatin f surplus lines premium taxes. The federal law prhibits any state ther than the hme state f the insured frm requiring any premium tax payment fr surplus lines insurance. This means that fr surplus lines plicies placed n and after July 21, surplus lines brkers must lk nly t the law f the hme state f the insured t determine the amunt f premium tax wed n a surplus lines transactin, and fr 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 7
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List any ther regulatry requirements the state may impse in cnnectin with the payment f the premium tax, such as the timing f tax payments and whether the state requires the submissin f risk allcatin infrmatin fr multi-state transactins. Als as f July 21, surplus lines brkers are required t submit the premium tax payment n a surplus lines transactin nly t the insured s hme state. In the case f a state that has jined NIMA r SLIMPACT, the payment will be made t the respective clearinghuse in accrdance with the hme state s law. Brkers n lnger have t make separate payments t each state in which a cvered risk lcated fr multi-state placements entered int n r after July 21. Plicy Endrsements: Premium taxes n plicies with new r renewal effective dates prir t July 21, 2011, including assciated premium-bearing endrsements t such plicies entered int subsequent t July 21, 2011, will cntinue t be payable in accrdance with the applicable tax law at the time f the plicy placement r renewal, nt the date f the endrsement. Taxes n plicies with new r renewal effective dates n r after July 21, 2011, including assciated premium-bearing endrsements, will be payable slely t the hme state f the insured. Allcatin: Many states will cntinue t require brkers t submit dcumentatin regarding allcatin by state f the risks cvered by a surplus lines transactin. If the hme state f the insured is a state that has jined NIMA, the brker will be required t use the NIMA risk allcatin frmula. (The NIMA allcatin frmula can be fund at the end f this Guide at Attachment D.) If the hme state is a state that has jined SLIMPACT, the brker will be required t use the SLIMPACT risk allcatin frmula (which has nt been drafted yet). In ther states, the allcatin requirement (if there is ne) will be determined in accrdance with state laws and regulatins. Categrizing the States The states can be categrized as fllws fr surplus lines premium tax purpses: (1) Pr-Rata States: A number f states have nt changed their premium tax laws t cnfrm t the NRRA. Nnetheless, they still must cmply with the NRRA s requirement that nly the hme state f the insured may require surplus line premium tax payments. Mst, if nt all, f these states currently impse tax nly n the prtin f the risk lcated in the state. This means that, fr transactins n and after July 21, if ne f these Pr- Rata States is the hme state f the insured, the brker will be required t pay tax nly n the prtin f the risk lcated in the insured s hme state. (2) 100% Retentin States: As f July 21, a number f states tax 100% f the premium n surplus lines plicies and d nt allcate the taxes t ther states where cvered risks are lcated. This means that, fr transactins n and after July 21, if ne f these 100% Retentin States is the hme state f the insured, the brker will be required t pay tax t the hme state f the insured n the entire amunt f the premium, mst likely at the hme state s tax rate. It is unlikely that these states will require brkers t file risk allcatin reprts because there will be n allcatin f the tax prceeds amng the states. Nnetheless, brkers shuld review the laws and regulatins f the hme state f the insured t cnfirm tax payment and reprting requirements. (3) NIMA States: When NIMA s clearinghuse is peratinal, if a NIMA State is the hme state f the insured, the brker will be required t pay tax and submit allcatin and reprt infrmatin t the NIMA clearinghuse n a quarterly basis (February 15 fr the quarter ending the preceding December 31; May 15 fr the quarter ending the preceding March 31; August 15 fr the quarter ending the preceding June 30; and Nvember 15 fr the quarter ending the preceding September 30). 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 8
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Because the NIMA clearinghuse is nt yet peratinal, further guidance frm the NIMA states is needed s that brkers knw the prper prcedures t fllw fr tax payment, reprting and allcatin until the clearinghuse is functinal. In states that are authrized t enter int NIMA but have nt dne s, brkers shuld lk t the laws f each state t determine premium tax payment requirements until such time as the state has entered int NIMA. (Fr example, Arkansas requires payment f 100% f the premium tax t the state at the state s surplus lines premium tax rate f 4% unless the insurance cmmissiner enters int NIMA. At that time, taxes will be paid in accrdance with NIMA.) (4) SLIMPACT States: When SLIMPACT s clearinghuse is peratinal (which will nt be until at least January 2013), if a SLIMPACT State is the hme state f the insured, the brker will be required t pay tax and submit allcatin and reprt infrmatin t the SLIMPACT clearinghuse in accrdance with the rules and timeframes mandated by the SLIMPACT Cmmissin. Althugh these rules and timeframes are currently being drafted, it is nt clear when they will be adpted by the SLIMPACT states. Because SLIMPACT is nt effective, the SLIMPACT Cmmissin has nt established cmpliance rules, and the SLIMPACT clearinghuse is nt peratinal, further guidance frm the SLIMPACT states is needed s that brkers knw the prper prcedures t fllw fr tax payment, reprting and allcatin until the clearinghuse is functinal. 3. Surplus Lines Insurer Eligibility Standards Mst states require that a surplus lines insurer be deemed eligible by meeting certain financial criteria r by having been designated as eligible n a state-maintained list. Prir t the enactment f the NRRA, state eligibility standards varied widely frm state t state. As f July 21, 2011, a surplus lines transactin is subject nly t the eligibility requirements f the insured s hme state: if the insured s hme state des nt have insurer eligibility requirements, n such requirements apply; if, hwever, the hme state des have insurer eligibility requirements, they must cmply with NRRA. Eligibility requirements themselves are made unifrm acrss the cuntry (in thse states that have them) because the NRRA prhibits states frm impsing eligibility requirements n surplus lines insurers except fr (i) standards that cnfrm with the NAIC s Nn-Admitted Insurance Mdel Act r (ii) natinwide unifrm requirements, frms and prcedures enacted pursuant t a cmpact r ther agreement amng the states. At this time, SLIMPACT is the nly interstate cmpact r agreement under cnsideratin by the states that has the ptential t establish natinwide, unifrm insurer eligibility standards. Unless and until SLIMPACT establishes eligibility rules that becme the standard in every state, hwever, the insurer eligibility rules in all states, including SLIMPACT states, will need t cmply with the standards set in the NAIC s Nn-Admitted Insurance Mdel Act. The Mdel Act requires an unauthrized insurer t: (i) be authrized in its dmiciliary state t write the type f insurance that it writes as surplus lines cverage; and 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 9
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List (ii) have capital and surplus, r its equivalent under the laws f its dmiciliary jurisdictin, equaling the greater f (1) the minimum capital and surplus requirements under the law f the hme state f the insured, r (2) $15 millin. Under the Mdel Act, the insured s hme state cmmissiner may reduce r waive the capital and surplus requirements (dwn t a minimum f $4.5 millin) after the cmmissiner makes a finding f eligibility based n several factrs. In additin t eligibility requirements fr U.S. dmiciled insurers, the NRRA requires the states t permit the placement f surplus lines cverage with nnadmitted insurers dmiciled utside the United States (alien insurers) that are listed n the NAIC s Quarterly Listing f Alien Insurers. This means that all states must permit NAIC-listed alien insurers t place surplus lines cverage. A state may allw placement f cverage with alien insurers nt n the NAIC list (and have a separate set f requirements fr thse nn-listed insurers), but the states cannt refuse t allw placement with NAIC-listed alien insurers. The NAIC s Quarterly Listing f Alien Insurers is available fr reference and dwnlad n the NAIC s website at http://www.naic.rg/releases/2011_dcs/naic_prvides_quarterly_listing_alien_insurers_website.htm. 4. Cmmercial Purchaser Exemptin The NRRA establishes a single exempt cmmercial purchaser definitin and exemptin standard that is applicable in every state. As f July 21, 2011, n diligent search in the admitted market is required (and, therefre, a brker can g directly t the surplus lines market) t place a plicy fr an exempt cmmercial purchaser if (i) the brker has disclsed t the exempt cmmercial purchaser that cverage may be available frm the admitted market, which may prvide greater prtectin with mre regulatry versight; and (ii) the exempt cmmercial purchaser has requested in writing that the brker prcure/place such cverage with a surplus lines insurer. An exempt cmmercial purchaser is a purchaser f cmmercial insurance that: (1) emplys r retains a qualified risk manager 2 t negtiate insurance cverage; 2 QUALIFIED RISK MANAGER. The term qualified risk manager means, with respect t a plicyhlder f cmmercial insurance, a persn wh meets all f the fllwing requirements: (A) The persn is an emplyee f, r third-party cnsultant retained by, the cmmercial plicyhlder. (B) The persn prvides skilled services in lss preventin, lss reductin, r risk and insurance cverage analysis, and purchase f insurance. (C) The persn (i) (I) has a bachelr s degree r higher frm an accredited cllege r university in risk management, business administratin, finance, ecnmics, r any ther field determined by a State insurance cmmissiner r ther State regulatry fficial r entity t demnstrate minimum cmpetence in risk management; and (II) (aa) has 3 years f experience in risk financing, claims administratin, lss preventin, risk and insurance analysis, r purchasing cmmercial lines f insurance; r (bb) has (AA) a designatin as a Chartered Prperty and Casualty Underwriter (in this subparagraph referred t as CPCU ) issued by the American Institute fr CPCU/Insurance Institute f America; (BB) a designatin as an Assciate in Risk Management (ARM) issued by the American Institute fr CPCU/Insurance Institute f America; (CC) a designatin as Certified Risk Manager (CRM) issued by the Natinal Alliance fr Insurance Educatin & Research; (DD) a designatin as a RIMS Fellw (RF) issued by the Glbal Risk Management Institute; r 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 10
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List (2) has paid aggregate natinwide cmmercial prperty and casualty insurance premiums in excess f $100,000 in the immediately preceding 12 mnths; and (3) meets at least ne f the fllwing criteria: (i) pssesses a net wrth in excess f $20 millin (as adjusted fr inflatin); (ii) generates annual revenues in excess f $50 millin (as adjusted fr inflatin); (iii) emplys mre than 500 full-time (r full-time equivalent) emplyees per individual insured r is a member f an affiliated grup emplying mre than 1,000 emplyees in the aggregate; (iv) is a nt-fr-prfit rganizatin r public entity generating annual budgeted expenditures f at least $30 millin (as adjusted fr inflatin); r (v) is a municipality with a ppulatin f mre than 50,000. A number f states currently have exemptins fr cmmercial purchasers (called industrial insureds in many states). Thse exemptins are nt preempted by the NRRA. Thus, in thse states, if the industrial insured exemptin is retained, there culd be tw classes f exemptins: ne fr entities that meet the NRRA exempt cmmercial purchaser requirements and ne fr entities that meet the state s industrial insured exemptin. Befre taking advantage f the exemptin, brkers shuld check the law f the hme state f the insured as well as the NRRA definitin t ensure that the exemptin is used crrectly. B. A draft Exempt Cmmercial Purchaser Certificatin Frm can be fund at the end f this Guide at Attachment 5. Surplus lines brker licensing: The federal law prhibits any state except the hme state f the insured frm requiring that a surplus lines brker be licensed in rder t sell, slicit, r negtiate surplus lines insurance with respect t the insured. This means that, as f July 21, 2011, a brker needs nly ne surplus lines prducer license t place a surplus lines plicy a license (resident r nn-resident) in the insured s hme state. In whlesale transactins, the whlesale brker n each such accunt must have the apprpriate license in the "hme state f the insured" fr each state where placements are made. On a related issue, NRRA prhibits a state frm cllecting fees relating t the licensing f a surplus lines brker r business entity unless the state participates in the NAIC s natinal insurance prducer database fr surplus lines prducer licensure by July 21, 2012. Effectively, this prvides a strng incentive t the states t utilize the NAIC s unifrm prducer licensing applicatins fr surplus lines prducers and t license surplus lines brkers electrnically thrugh the Natinal Insurance Prducer Registry (NIPR). (ii) (EE) any ther designatin, certificatin, r license determined by a State insurance cmmissiner r ther State insurance regulatry fficial r entity t demnstrate minimum cmpetency in risk management; (I) has at least 7 years f experience in risk financing, claims administratin, lss preventin, risk and insurance cverage analysis, r purchasing cmmercial lines f insurance; and (II) has any 1 f the designatins specified in subitems (AA) thrugh (EE) f clause (i)(ii)(bb); (iii) has at least 10 years f experience in risk financing, claims administratin, lss preventin, risk and insurance cverage analysis, r purchasing cmmercial lines f insurance; r (iv) has a graduate degree frm an accredited cllege r university in risk management, business administratin, finance, ecnmics, r any ther field determined by a State insurance cmmissiner r ther State regulatry fficial r entity t demnstrate minimum cmpetence in risk management. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 11
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Enacted Legislatin by State Click a state belw t jump t that state. Alabama Alaska Arizna Arkansas Califrnia Clrad Cnnecticut Delaware District f Clumbia Flrida Gergia Hawaii Idah Illinis Indiana Iwa Kansas Kentucky Luisiana Maine Maryland Massachusetts Michigan Minnesta Mississippi Missuri Mntana Nebraska Nevada New Hampshire New Jersey New Mexic New Yrk Nrth Carlina Nrth Dakta Ohi Oklahma Oregn Pennsylvania Rhde Island Suth Carlina Suth Dakta Tennessee Texas Utah Vermnt Virginia Washingtn West Virginia Wiscnsin Wyming 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 12
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Alabama Hme State f the Insured NRRA definitin + principal place f business definitin Premium Tax SLIMPACT; AL will tax and keep 100% at a rate f 6% until SLIMACT peratinal Exempt Cmmercial Purchaser AL industrial insured exemptin + NRRA apprach Eligible Insurer NRRA apprach (licensure in dmiciliary jurisdictin + greater f $15MM capital / surplus r minimum required by AL) unless/until SLIMPACT rule issued Prducer Licensing License required nly fr placements fr AL insureds; silent n participatin in a prducer licensing database Effective Date September 1, 2011 AL H 76 Defining Hme State f the Insured The hme state is where an insured maintains its principal place f business r if the insured is an individual, the individual s principal residence. SLIMPACT Art. II(12). Principal place f business is the state where the insured maintains its headquarters and where the insured s high-level fficers direct, cntrl and crdinate the business activities f the insured. Id. Art. II(23). Hwever, if 100% f the insured risk is lcated utside f the state f the principal place f business r principal residence, the hme state is the state that cllects the greatest percentage f the insured s taxable premium. Id. Art. II(12). If mre than ne insured frm an affiliated grup are named insureds n a single nnadmitted insurance cntract, the hme state is the hme state f the member f the affiliated grup that has the largest percentage f premium attributed t it under the insurance cntract. Id. Art. II. Multi-State Risk Surplus Lines Premium Taxes Alabama adpted the SLIMPACT mdel apprach t multi-state premium tax allcatin. Under SLIMPACT, each cmpacting state must adhere t specified tax allcatin frmulas and data reprting requirements. Id. Art. IV(1). The Premium Tax Data Allcatin Frmula determines each cntracting state s premium allcatin. Id. Art. IV(1). Each state may then charge its wn rate f taxatin n that allcatin. Id. Art. IV(5). If a cmpacting state changes its rate f taxatin, the state must give 90 days ntice t the Cmpact Cmmissin (the multi-state gverning bdy fr the SLIMPACT system). Id. Art. IV(6). Until SLIMPACT is peratinal, Alabama will tax 100% f direct premiums, less return premiums and exclusive f sums cllected t cver state r federal taxes. The tax rate is 6%. 27-10-31(a). Exempt Cmmercial Purchasers The statute is silent with respect t exempt cmmercial purchasers, but the Cmpact Cmmissin established under SLIMPACT has general authrity t prmulgate rules fr cmpacting states t implement the express prvisins f the NRRA. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 13
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List On July 21, 2011, the NRRA exempt cmmercial purchaser prvisin will be in effect. Accrding t the NRRA, an exempt cmmercial purchaser is ne that prcures insurance cverage thrugh a qualified risk manager, paid at least $100,000 in prperty and casualty insurance premiums in the last year, and meets ne f the fllwing criteria: Had a net wrth f ver $20 millin at the end f the preceding fiscal year; Had net revenues r sales ver $50 millin at the end f the preceding fiscal year; Has mre than 500 full-time emplyees per individual cmpany, r is a member f an affiliated grup emplying mre than 1,000 emplyees in the aggregate; Is a municipality with a ppulatin f mre than 50,000 peple; r Is a nnprfit rganizatin r public entity generating annual budgeted expenditures f at least $30 millin Under the NRRA, a surplus lines brker seeking t prcure r place nnadmitted insurance in Alabama fr an exempt cmmercial purchaser shall nt be required t satisfy any state requirement t make a due diligence search t determine whether the full amunt r type f insurance sught by such exempt cmmercial purchaser can be btained frm admitted insurers if: The brker disclses t the exempt cmmercial purchaser that such insurance may r may nt be available frm the admitted market that may prvide greater prtectin with mre regulatry versight; and The exempt cmmercial purchaser has subsequently requested in writing the brker t prcure r place such insurance fr a nnadmitted insurer. Alabama currently has an industrial insured exemptin. That exemptin will remain in effect. As f July 21, 2011, the NRRA cmmercial purchaser exemptin will als be effective. Surplus Line Insurer Eligibility Criteria The Cmpact defines insurer eligibility requirements as the criteria, frms, and prcedures established t qualify as a surplus lines insurer under the law f the hme state, prvided that such criteria, frms, and prcedures are cnsistent with the express prvisins f the NRRA n and after July 21, 2011. SLIMPACT Art. II(14). The Cmpact Cmmissin is charged with prmulgating unifrm rules fr cmpacting states regarding freign insurer eligibility requirements as authrized by the NRRA. Id. Art. III(3). On July 21, 2011, the NRRA eligibility requirements will be in effect. Under the NRRA, Alabama may nt impse eligibility requirements n, r therwise establish eligibility criteria fr, nnadmitted insurers dmiciled in a U.S. jurisdictin, except: Alabama may require that the insurer be authrized t write the type f insurance in its dmiciliary jurisdictin; and Alabama may require that the insurer have capital and surplus r its equivalent under the laws f its dmiciliary jurisdictin which equals the greater f: The minimum capital and surplus requirements under the law f Alabama; r $15,000,000 The insurance cmmissiner may waive the minimum capital and surplus requirements if the cmmissiner makes an affirmative finding f acceptability after cnsidering: quality f management, capital and surplus f a parent cmpany, cmpany underwriting prfit and investment trends, market availability, and cmpany recrd and reputatin within the 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 14
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List industry. The cmmissiner may nt make a finding f acceptability if the insurer s capital and surplus is under $4.5 millin. Under the NRRA, a state may nt prhibit a surplus lines brker frm placing nnadmitted insurance with, r prcuring nnadmitted insurance frm, a nnadmitted insurer dmiciled utside the U.S. that is listed n the Quarterly Listing f Alien Insurers maintained by the Internatinal Insurers Department f the NAIC. Natinal Prducer Database The statute des nt require participatin in a natinal prducer licensing database, but the statute s preamble recgnizes that within tw years f enactment f the NRRA, all states must participate in the NAIC prducer database, r any ther equivalent unifrm natinal database, fr the licensure f surplus lines licensees and the renewal f such licenses if a state wants t cntinue cllecting fees related t surplus lines licenses. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 15
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Alaska Hme State f the Insured Premium Tax Exempt Cmmercial Purchaser Eligible Insurer Prducer Licensing Effective Date July 21, 2011 AK H 164 Defining Hme State f the Insured NRRA definitin + principal place f business definitin Signed NIMA; AK prtin at 2.7% + nn-nima state prtins at rate f 2.7% + NIMA state prtins at rate f state where risk is lcated until NIMA is peratinal NRRA apprach NRRA apprach License required nly fr placements fr AK insureds; AK law silent regarding participatin in electrnic licensing database The hme state is where an insured maintains its principal place f business r if the insured is an individual, the individual s principal residence. 21.34.900(14)(A)-(B). Principal place f business means the state where the insured maintains its headquarters and where the insured s high-level fficers direct, cntrl and crdinate the business activities. 21.34.900(14)(C). Hwever, if 100% f the insured risk is lcated utside f the state f the principal place f business r principal residence, the hme state is the state that cllects the greatest percentage f the insured s taxable premium. If mre than ne insured frm an affiliated grup are named insureds n a single nnadmitted insurance cntract, the hme state is the hme state f the member f the affiliated grup that has the largest percentage f premium attributed t it under the insurance cntract. 21.34.900(14)(A)-(B). Multi-State Risk Surplus Lines Premium Taxes The statute authrizes the directr t participate in an agreement with anther state fr the purpses f cllecting and disbursing t the ther state any premium tax cllected and payable t the ther state, and fr receiving frm the ther state premium tax it has cllected and is wed t this state. T the extent that anther state where a prtin f the prperties, risks r expsures reside has failed t enter int an agreement with this state, the directr shall retain all f the net premium tax cllected by this state. 21.33.063. Pursuant t the statute, Alaska has entered int NIMA. Accrding t guidance issued by the Insurance Department after Alaska entered NIMA, Alaska will tax 100% f premiums n multi-state plicies where Alaska is the hme state. Fr plicies effective n r after July 21, 2011, taxes will be calculated as fllws: prtin f the premium allcated t AK at AK s rate f 2.7%, PLUS prtins allcated t nn-nima states at AK s rate f 2.7%, PLUS, prtins allcated t NIMA states at the rate f the NIMA state where the risk is lcated. Exempt Cmmercial Purchasers Under 21.34.900(13), an exempt cmmercial purchaser is ne that prcures insurance cverage thrugh a qualified risk manager, paid at least $100,000 in prperty and casualty insurance premiums in the last year, and meets ne f the fllwing criteria: 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 16
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Had a net wrth f ver $20 millin at the end f the preceding fiscal year; Had net revenues r sales ver $50 millin at the end f the preceding fiscal year; Has mre than 500 full-time emplyees per individual cmpany, r is a member f an affiliated grup emplying mre than 1,000 emplyees in the aggregate; Is a municipality with a ppulatin f mre than 50,000 peple; r Is a nnprfit rganizatin r public entity generating annual budgeted expenditures f at least $30 millin. Brkers prcuring r placing insurance fr an exempt cmmercial purchaser are nt required t make a due diligence search t determine whether the full amunt r type f insurance sught by the exempt cmmercial purchaser can be btained frm an admitted insurer if: 21.34.020(b). The brker disclses t the exempt cmmercial purchaser that such insurance may r may nt be available frm the admitted market that may prvide greater prtectin with mre regulatry versight; and The exempt cmmercial purchaser has subsequently requested in writing the brker t prcure r place such insurance fr a nnadmitted insurer. Surplus Line Insurer Eligibility Criteria Accrding t 21.34.040(c)(1), a surplus lines brker may place insurance with a nnadmitted insurer if the insurer has the greater f: $15 millin in unimpaired basic capital and surplus r the minimum capital and surplus required in its dmiciliary jurisdictin. Under the NRRA, the nly eligibility requirements that may be placed n freign insurers are: The insurer is authrized t place that type f insurance in its dmiciliary jurisdictin; and The insurer has capital and surplus r its equivalent under the laws f its dmiciliary jurisdictin that is the greater f the minimum capital and surplus requirements under the laws f this state r $15 millin. Therefre, t the extent Alaska s minimum surplus and capital requirements cnflict with the NRRA, they will be preempted by the NRRA apprach. Guidance issued by the Insurance Department indicates that Alaska will require minimum capital and surplus f $15 millin. Under 21.34.040(f), in cmpliance with the NRRA, the insurance cmmissiner may waive the minimum capital and surplus requirements fr unauthrized freign insurers if the cmmissiner makes an affirmative finding f acceptability after cnsidering: quality f management, capital and surplus f a parent cmpany, cmpany underwriting prfit and investment trends, market availability, and cmpany recrd and reputatin within the industry. The cmmissiner may nt make a finding f acceptability if the insurer s capital and surplus is under $4.5 millin. A surplus lines brker may place insurance with an alien insurer if that insurer is listed n the quarterly list f alien insurers maintained by the NAIC. 21.34.040(c)(7). Additinally, alien insurers that are nt n the NAIC list may apply fr apprval frm the Directr. The Directr may apprve an alien insurer s request fr eligibility if the insurer: Establishes satisfactry evidence f gd repute and financial integrity; Maintains capital and surplus f $15 millin; Maintains a trust f $2.5 millin depsited in a U.S. financial institutin; Submits the required applicatin and fee, and cnsents t service r prcess; and Submits designatin f persns t cntact. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 17
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Natinal Prducer Database The statute is silent as t whether Alaska will participate in the NAIC prducer database r sme ther equivalent unifrm natinal database fr prducer licensing and renewals. Under the NRRA, Alaska may nt cllect any fees relating t licensing f an individual r entity as a surplus lines brker in Alaska unless the state has in effect by July 21, 2012, laws r regulatins that prvide fr participatin by the state in the natinal prducer database f the NAIC, r any ther equivalent unifrm natinal database, fr the licensure f surplus lines brkers and renewal f such licenses. 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 18
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Arizna Hme State f the Insured Premium Tax Exempt Cmmercial Purchaser Eligible Insurer Prducer Licensing Effective Date July 20, 2011 2011 AZ H 2112 Defining Hme State f the Insured NRRA definitin Multistate Allcatin Agreement Authrized pending insurance cmmissiner determinatin; 100% t Arizna at rate f 3% unless state enters NIMA NRRA apprach NRRA apprach License required nly fr placements fr AZ insureds; AZ law requires participatin in NAIC r similar database by July 21, 2012 The hme state is where an insured maintains its principal place f business r, if the insured is an individual, the individual s principal residence. 20-401(6)(a). Hwever, if 100% f the insured risk is lcated utside f the state f the principal place f business r principal residence, the hme state is the state that cllects the greatest percentage f the insured s taxable premium. 20-401(6)(b). If mre than ne insured frm an affiliated grup are named insureds n a single nnadmitted insurance cntract, the hme state is the hme state f the member f the affiliated grup that has the largest percentage f premium attributed t it under the insurance cntract. 20-401(6)(c). Multi-State Risk Surplus Lines Premium Taxes The statute generally authrizes the insurance directr t enter int a multistate agreement fr the reprting, payment, cllectin and allcatin f surplus lines taxes if the directr cncludes that entering int a multi-state agreement is in the best interests f the state. 20-416.01(A). In determining whether an agreement is in the best interest f Arizna, the directr is instructed t cnsider: the impact n the state s grss receipt f premium taxes, the regulatry burden and csts fr insurers and brkers, the cst impact n insureds, and any ther factrs the directr wishes t cnsider. 20-416.01(A)(1) (A)(4). If the directr decides nt t enter int a multistate agreement upn a determinatin that it is nt in the best interests f the state, Arizna will keep 100% f surplus lines taxes. 20-416(H). Arizna taxes surplus lines premiums at a rate f 3%. Per DOI guidance, if the directr des nt enter an agreement, the entire premium will be taxed at the Arizna rate. Exempt Cmmercial Purchasers Exempt cmmercial purchasers are identified by Arizna as industrial insureds in 20-401.07(C)(1). Under 20-401.07(C)(1), industrial insureds are defined as: an insured whse hme state is Arizna that prcures insurance cverage thrugh a qualified risk manager, paid at least $100,000 in prperty and casualty insurance premiums in the last year, and meets ne f the fllwing criteria: Had a net wrth f ver $20 millin at the end f the preceding fiscal year; 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 19
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Had net revenues r sales ver $50 millin at the end f the preceding fiscal year; Has mre than 500 full-time emplyees per individual cmpany, r is a member f an affiliated grup emplying mre than 1,000 emplyees in the aggregate; Is a municipality with a ppulatin f mre than 50,000 peple; r Is a nnprfit rganizatin r public entity generating annual budgeted expenditures f at least $30 millin. Surplus Line Insurer Eligibility Criteria The directr may publish a list f unauthrized insurers that may write surplus lines insurance in Arizna. 20-413(G). Thse unauthrized insurers must meet certain eligibility criteria: Unauthrized freign insurers must be authrized t transact insurance n an admitted r surplus lines basis in at least ne ther state and they must pssess a minimum capital and surplus f $15 millin. 20-413(B). Unauthrized alien insurers must pssess a minimum capital and surplus f $15 millin and maintain within the U.S. in public depsitries r trust institutins assets f at least $2.5 millin. 20-413(C). The directr may require the alien insurer t keep a larger depsit in the U.S. if he believes the public interest requires it. 20-413(C). Surplus lines brkers may als place insurance with an alien insurer that is listed n the quarterly listings f alien insurers maintained by the NAIC. 20-413(C) Natinal Prducer Database The statute requires the insurance directr t participate in the Natinal Insurance Prducer Database f the NAIC r any ther equivalent natinal database fr the licensure and license renewal f surplus lines brkers after July 21, 2012. 20-411(H). 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 20
The Cuncil s NRRA Cmpliance Guide Updated 11/11/11 Versin 010 Jump t: Table f Cntents State List Arkansas Hme State f the Insured Premium Tax Exempt Cmmercial Purchaser Eligible Insurer Prducer Licensing Effective Date April 1, 2011 2011 AR H 2143 Defining Hme State f the Insured NRRA definitin + principal place f business definitin Multistate allcatin agreement authrized; 100% t AR at 4% until state enters agreement and agreement becmes effective NRRA apprach NRRA apprach License required nly fr placements fr AR insureds; allws participatin in NAIC r similar database by July 21, 2012 The hme state is where an insured maintains its principal place f business r, if the insured is an individual, the individual s principal residence. 23-65-304(6)(A)(i)(a). Principal place f business is defined as: that state in which the insured maintains its headquarters and where the insured s high-level fficers direct, cntrl, and crdinate the business activities f the insured. 23-65-304(6)(A)(i)(b). Hwever, if 100% f the insured risk is lcated utside f the state f the principal place f business r principal residence, the hme state is the state that cllects the greatest percentage f the insured s taxable premium. 23-65-304(6)(A)(ii). If mre than ne insured frm an affiliated grup are named insureds n a single nnadmitted insurance cntract, the hme state is the hme state f the member f the affiliated grup that has the largest percentage f premium attributed t it under the insurance cntract. 23-65- 304(6)(B). Multi-State Risk Surplus Lines Premium Taxes The insurance cmmissiner may enter int written multi-state agreements with ther state jurisdictins t prvide fr cperatin and assistance amng member jurisdictins in the administratin and cllectin f taxes impsed n multistate surplus lines insurance. 23-65-315(b). Until the insurance cmmissiner enters int a multistate allcatin agreement (at which time taxes will be paid and allcated accrding t the agreement), n later than 60 days fllwing the end f the mnth in which surplus lines insurance was prcured, the surplus lines brker shall remit t the state treasurer a tax f 4% n the direct premiums written (100% f premium), less return premiums and exclusive f sums cllected t cver state r federal taxes. 23-65- 315(a). Exempt Cmmercial Purchasers Under 23-65-304(5)(A), an exempt cmmercial purchaser is ne that prcures insurance cverage thrugh a qualified risk manager, paid at least $100,000 in prperty and casualty insurance premiums in the last year, and meets ne f the fllwing criteria: Had a net wrth f ver $20 millin at the end f the preceding fiscal year; Had net revenues r sales ver $50 millin at the end f the preceding fiscal year; 2011 The Cuncil f Insurance Agents & Brkers and Stepte & Jhnsn LLC 21