Although the Nonadmitted and Reinsurance Reform Act (NRRA) wentinto effect in July of last year, states are continuing to debatewhich, if any, tax-sharing option to adopt.

As a result, neither of the two competing compacts—NIMA (theNonadmitted Insurance Multistate Agreement) and SLIMPACT (the Surplus LinesInsurance Multistate Compliance Compact)—has been implemented.

And that inaction is just fine for the surplus-lines industry—orat least better than the alternative, say legislative committeeleaders of the National Association of Professional Surplus LinesOffices (NAPSLO).

At NAPSLO's Mid-year Leadership Forum in Scottsdale, Ariz.,industry executives on the association's legislative committeeupdated membership on the NRRA.

And their message: No tax-sharing agreement is better than thecompliance nightmare of two competing systems.

NRRA's intent was to streamline and provide consistency withinthe industry; having two entirely different approaches, withdifferent rules and regulations, clearly accomplishes neither goal,in NAPSLO's view.

Therefore, the organization asserts, no arrangement is superiorto two inconsistent ones.

“That is not workable,” says Brady R. Kelley, NAPSLO's executivedirector. “That is anything but uniform.”

While NRRA is meant to encourage nationwide adoption of uniformrequirements, forms and procedures for the reporting, payment,collection and allocation of surplus-lines premiums taxes, it doesnot require the states to standardize procedures.

And indeed, the most popular “allocation” option among thestates right now: not to participate in any tax-sharingagreement.

Currently, 24 states representing 63 percent of nationwidepremium volume have no plans to participate in tax-sharingagreements.

And this “100-percent approach”—in which each home statecollects 100 percent of the tax on every surplus-lines policy—findsplenty of favor among surplus-lines executives.

“It is the clear, simple approach for our industry,” says JamesDrinkwater, president of the brokerage division of AmWINS andco-chair of the NAPSLO legislative committee.

Kelly also points out that “the cost/benefit of tax sharing isnot clear. Most surplus-lines transactions represent single-statetransactions, and based on recent data…any ultimate amount of taxsharing will likely be insignificant in relation to the cost of taxsharing.”