Since it was passed by Congress in 2010, NAPSLOhas worked to promote and preserve the intent and clear mandates ofthe Nonadmitted and Reinsurance Reform Act (NRRA), and theresulting uniformity and efficiencies in surplus lines regulationthe NRRA was intended to achieve. The Association believes that, inthe four years since its passage, the NRRA's national framework andestablishment of home state regulation and taxation of surpluslines has produced tremendous benefits for our industry by ensuringone state, the home state of the insured, governs multistaterisks.

The key reforms intended by the NRRA are to:

• Isolate the regulation and taxation of surplus linestransactions to one state, the home state of the insured;
• establish national uniform eligibility standards for U.S. basedinsurers who write surplus lines insurance;
• allow a licensed surplus lines broker to procure insurance fromnon-U.S. based insurers included on the NAIC Quarterly Listing ofAlien Insurers;
• and establish a nationwide definition of an Exempt CommercialPurchaser for whom a broker can access the surplus lines market.

While great progress has been made in implementing thesereforms, there is still work to be done to bring about the fullspectrum of uniformity and efficiency envisioned by Congress. Toaddress these remaining uniformity issues, the NAPSLO LegislativeCommittee and Board of Directors recently adopted GuidingPrinciples on Uniformity in State Surplus Lines RegulatoryRequirements. The Committee identified a number of key areas whereuniform standards are desired and beneficial. NAPSLO will presentthese principles to individual states as we continue our work tobuild national uniformity within the state based system ofinsurance regulation.

The surplus lines marketplace has proven to be an essential partof the national insurance market that operates successfully in thestate-based regulatory system, which NAPSLO strongly supports.However, the current state based system can and should become moreuniform and efficient. NAPSLO encourages all states to adopt thefollowing uniform procedures for the regulation and taxation ofsurplus lines brokers and insurers.

Home State Tax Collection

NAPSLO strongly supports home state taxation of the surpluslines market, and all states should adopt the NRRA definition of“home state.” Any adopted definition of “home state” that conflictswith the NRRA definition results in less uniformity and often leadsto states disagreeing over which is the insured's home state.

The home state approach has simplified and improved theregulatory and tax compliance process for the industry and reformshave successfully reduced the cost of surplus lines compliancewithin the state-based system.

Tax Payment Dates

NAPSLO supports uniformity regarding tax payment dates, ascomplying with varying state requirements is inefficient and costlywhich becomes a cost burden for policyholders. States should belimited to use of four dates throughout the year; the first day ofMarch, June, September or December. This approach would decreasecosts for policyholders with no sacrifice to accurate reporting andcollections.

Uniform Definition of 'Taxable Premium'

NAPSLO believes that all states should adopt one uniformdefinition for determining taxable premium so taxes are calculatedand treated the same way in each state, in a uniform manner that isconsistent with the intention of the NRRA.

Broker Fees

States should allow reasonable broker fees in the placement ofsurplus lines policies as surplus lines placements often requireadditional work throughout the policy period. Broker fees are notconsideration for the policy and should be excluded from premiumfor tax calculation purposes.

Zero Reports Requirements

The NRRA clarifies that only one state can require a taxpayment, and surplus lines brokers must identify a home state forevery policy and remit taxes to that state. We believe this makes“zero reports” obsolete, and state requirements for them createunnecessary work with no apparent benefit to the industry orregulatory community.

Electronic Filing

Acceptance of electronic filings and reports offers improvedconsistency and efficiency for the states and surplus lines brokersby increasing the timeliness of reporting and reducing costlyerrors.

Uniform Notice to Insureds

Most states require a surplus lines notice be sent to aninsured, indicating that the insured has purchased a surplus linespolicy that is not covered by a guaranty fund, and who to contactwith questions. However, the required information and presentationvaries by state. NAPSLO supports the adoption of uniform languageand timing of delivery for the notice.

Insurer Eligibility

The NRRA clearly defines criteria for carrier eligibilitycompliance requirements. NAPSLO believes that states should notimpose additional requirements beyond the NRRA. The NAPSLOmembership benefits from strong carrier solvency, and thereforeNAPSLO supports strong solvency review. However, statesimplementing voluntary listing with additional solvency reviewshould be limited to information readily available through thedomiciliary state of National Association of InsuranceCommissioners (NAIC) database.

NAPSLO believes that uniformity and reciprocity among andbetween the states in areas of producer licensing and taxation aredesirable, and that the adoption of national standards could be apositive step in improving the efficiency and effectiveness of thestate regulatory system. We will continue to work toward completeand uniform implementation of the NRRA as well as these NAPSLOGuiding Principles, which we believe are in the best interest ofthe surplus lines industry and its consumers.