Reported premium in the Non-Admitted Insurance Multi-StateAgreement (NIMA) exceeds more than $500 million in the year sincethe Surplus Lines Clearinghouse became operational a year ago,NIMA Inc. reported Tuesday.

Of the more than $531 million in premium reported to theClearinghouse as of July 1, 2013, $281 million was directlyallocated to the six participating member states and territories ofNIMA. These include Florida, Louisiana, South Dakota, Utah, Wyomingand Puerto Rico.

Total non-NIMA state allocated premiums totaled $252 million.(Please see this reported breakdown for non-NIMA state premiumallocation.)

During its first year, ending July 1, 2013, the Clearinghousecollected more than $24.9 million in total taxes on this reportedpremium.

The NIMA agreement provides a mechanism to report, collect,allocate and distribute surplus lines tax revenues consistent withthe Nonadmitted and Reinsurance Reform Act (NRRA), part of theDodd-Frank Act.

The NRRA establishes the insured's home state as the only statewith jurisdiction over multistate surplus-lines transactions andthe only state that can require a tax to be paid by the broker. Thehome state is then supposed to provide states where the risk issituated with their share of the premiums.

“NIMA provides a viable opportunity for states to collectadditional tax revenues while also promoting nationwideuniformity,” says Merle Scheiber, chairman of NIMA, Inc. and SouthDakota's director of insurance. “The success of the program lieswithin the accuracy of the data as well as its availability toregulators.”

However, the proponents of home-state taxation — the approachused in about 46 jurisdictions and states representing more than 80percent of nationwide surplus-lines premium — are standing theirground and supporting their system rather than NIMA.

NIMA has been trying to lure these states, offering them a freetrial Associate Membership. The Associate Members reportpolicy information to the Clearinghouse but do not share in the taxrevenue, although they receive quarterly data reports on the amountof taxable premium that could have been allocated to their statehad they been a participating member of NIMA, Inc.

But the National Association of Professional Surplus LinesOffices (NAPSLO) and the Council of Insurance Agents & Brokers(CIAB) reached out to Scheiber to go through their reasons forsupporting home-state taxation.

Various broker and state insurance interest groups held ameeting in June in South Dakota, Scheiber's state, withrepresentatives of NIMA, Inc., the Clearinghouse, NAPSLO, CIAB andthe National Conference of Insurance Legislators (NCOIL)present.

NAPSLO has said in the past that it believes the cost of taxsharing will far exceed the reallocation of surplus lines taxdollars among any states participating in a tax-sharingarrangement.

“When you break down the relatively low percentage ofsurplus-lines premium on multi-state risks, and further break downthe proportion of multi-state premium allocable outside theinsured's home state, the resulting tax allocations becomerelatively immaterial,” according to NAPSLO, based in Kansas City,Mo.

“We continue to be opposed to tax sharing for these reasons,”NAPSLO Executive Director Brady Kelley said in a brief interviewyesterday.

NAPSLO said that it has analyzed the data published as partof NIMA's Associate Membership offering, which includes datareported through the NIMA Surplus Lines Clearinghouse for the threequarters ending March 31, 2013, and has found that it illustratedthe potential for only immaterial reallocation to these non-NIMAstates, even before accounting for any taxes flowing back out ofthose states to the NIMA states.

NAPSLO's report includes an assessment of the top 10 premiumjurisdictions, led by Texas and California.

“The premium reported through NIMA for these top 10 statesrepresents just .42 percent of the total 2011 surplus lines premiumin these states and would appear to result in a maximum $2.8million in taxes for the first nine months of NIMA's operations –just .24 percent of total 2011 surplus lines taxes collectednationwide.

“We believe it is highly unlikely that [the big states] wouldever agree to join a tax-sharing arrangement. Thus, NIMA is not aviable national solution to the NRRA uniform tax provisions,” says a summary of NAPSLO's key points shared at the June 12meeting.

The CIAB weighed on behalf of its brokers by noting that “thefragmentation of regulation – a handful of states that requireallocation of premium by jurisdiction versus the majority that donot – remains a substantial problem.”

“We have no doubt that the NIMA offices can demonstrate premiumtaxes that could have gone to other jurisdictions if there was alarger participation. It is just as true that there are millions ofdollars of premium taxes that would not be retained by states thatjoin the clearinghouse. We flatly disagree with the statementthat 'associate membership' would be 'at no cost to …brokers.'”

Joel Wood, the CIAB's chief lobbyist, explains, “Associatemembership may be free for state insurance departments, but itwon't be free for brokers or ultimately their clients who pay thecosts of such regulation. Brokers bear the regulatory burden ofdetermining allocations of surplus lines premium taxes. It isthat disproportionate bureaucratic burden – in a system where thereis no standard approach among states — that inspired the creationof the NRRA.”

However, NIMA continues to press its point that as “more statesjoin NIMA, Inc., the percentage of this non-member premium shoulddecrease, and the member states will then tax their portion of thispremium pursuant to the NIMA Agreement.”