Filed Under:Markets, E&S/Specialty

NAPSLO Exec: NRRA Benefits Evident; Tax-Sharing Agreement Not Likely

NU Online News Service, March 23, 2:58 p.m. EDT

The benefits of the surplus-lines-modernization law enacted in 2010 are already being felt through greater efficiency in the marketplace and likely lower premiums for customers, according to an official of the National Association of Professional Surplus Lines Offices.

Brady Kelley, NAPSLO executive director, made those observations in comments on the surplus-lines industry before the Networks Financial Institute’s Insurance Reform Summit, held Wednesday inWashington.

Kelley acknowledged that the law is not being implemented as originally envisioned, and as a result it is not the uniform solution that Congress intended.

The law allowed the states to set up tax-sharing arrangements where the home state that is the recipient of the premiums under the new law is supposed to allocate part of the premium taxes to the state where the risk is located.

But, as it is playing out, states constituting the majority of premiums have determined that establishing a system to allocate premiums as envisioned is not cost-effective.

Kelley, however, doesn’t believe that is necessarily a bad thing.

“The benefit of this law is home-state regulation and taxation of a surplus-lines policy,” he said.

He explained that, prior to this law, “you had multi states with jurisdiction over a single policy.

“We are now migrating toward one state that is the home state, a single set of rules and regulatory oversight of the transaction,” Kelley said.

He contended that the NRRA has had the effect of “making the system more efficient for the industry and the customer.”

He said a more efficient regulatory system could lead to lower compliance costs, which could result in lower premiums.

 “Our goal is for a single set of compliance rules nationwide,” Kelley said. “That was the intent and purpose of the federal law. It opens up the door for nationwide uniformity to occur in the future.”

Kelley said he believes that the “potential for tax-sharing arrangements are diminishing as the states continue to implement the federal law.”

He cited statistics showing that 24 states representing 63 percent of surplus-lines premiums have already implemented an approach where the home state retains 100 percent of the tax.

“Many of the states took this approach in their first attempt to implement the federal law,” Kelley said. “That seems to be the trend.”

He said NAPSLO believes this new trend will continue.

The law, the Nonadmitted and Reinsurance Reform Act (NRRA) went into effect in July 2011. It was enacted by Congress as part of the Dodd-Frank financial-services-reform law.

The states’ view of a compromise was to establish compacts to act as clearinghouses for proper allocations of premiums to the states.

Two rival compacts were established, but neither has been able to attract enough states as participants to launch operations.

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