In the wake of New York's decision not to join a nationwidecompact on sharing of surplus-lines taxes, industry officialsbelieve such compacts may be doomed.

Richard Bouhan, executive director of the National Associationof Professional Surplus Lines Offices, voices such concern afterNew York passed legislation to bring its laws into compliance withthe Nonadmitted and Reinsurance Reform Act passed by Congress lastJuly. The New York legislation, recently signed into law, removesprovisions that would have authorized the state to join a taxcompact.

Bouhan says California is likely to take similar action, and itis unclear whether Florida and Texas will decide to passlegislation implementing the revised Surplus Lines InsuranceMultistate Compliance Compact, referred to as "SLIMPACT-Lite."

Bouhan says that in 2009 these four states reportedapproximately $16 billion of the $32 billion in surplus-linespremiums generated nationally.

He says the Florida Legislature has not approved legislation toallow the state to join a compact.

Texas, however, may join. The state comptroller already hasauthority to have the state join a compact, and the Legislature isconsidering a proposal  to join SLIMPACT-Lite.

"Along with California's expected decision not to includecompact language in [its] NRRA-compliance legislation, New York'saction brings into question whether large states are willing toparticipate in an allocation compact," Bouhan says. "Without thelarge states, a compact might not be practical."

The legislation passed by the New York Legislature provides forthe state to tax 100 percent of each surplus-lines policy's writtenpremium when New York is the home state of the insured.

The underlying federal legislation mandates that beginning July21 the insured's home state will be the only state withjurisdiction over surplus-lines transactions and the only statethat can require a tax be paid by the broker.

To comply, states are revising their laws, with many states alsoconsidering forming a tax compact to share surplus-lines premiumtaxes.