NU Online News Service, Sept. 9, 2:39 p.m.EDT

WASHINGTON–The House passed legislation today to reformand streamline regulations for nonadmitted commercial surplus linesinsurers and reinsurers.

The legislation, H.R. 2571, "the Nonadmitted and ReinsuranceReform Act of 2009," passed unanimously under expedited procedureson a voice vote.

Its primary sponsors were Rep. Dennis Moore, D-Kan., and Rep.Scott Garrett, R-N.J.

The bill now moves to the Senate, where it was introduced onJune 25 by Sen. Evan Bayh, D-Ind.; Sen. Mike Crapo, R-Idaho; Sen.Bill Nelson, D-Fla.; and Sen. Mel Martinez, R-Fla., who resignedeffective today.

The legislation would subject the surplus lines transactions,which involve unusual and difficult risks to a single set ofregulations–those of an insured's home state or principal place ofbusiness–regardless of the location of the risk.

It would also establish a clear requirement that all surpluslines premium taxes be paid to each the home state. An interstatecompact has been drafted that would facilitate the transfer of thepremium taxes to the other states involved, as appropriate.

According to insurance industry officials, the practical effectof the legislation would be to provide incentives to states tocreate an interstate compact that would govern multistate surpluslines placements.

The National Association of Insurance Commissioners did notformally support the legislation, according to insurance industrylobbyists, because the state regulators object to the provisionsdealing with reinsurance.

Under those provisions, primary responsibility for regulation ofa reinsurance transaction is assigned to the insured's home stateand application of other state laws is prohibited. As a result, itbars state insurance regulators from interfering in reinsuranceagreements of ceding insurers domiciled in other states.

According to several industry officials, the NAIC opposes thereinsurance provisions because it has drafted its own reinsuranceregulatory proposals and is seeking support for them over thoseincluded in the measure the House has passed.

The reason is that the House legislation takes a home-stateregulatory approach, while under the NAIC proposal the NAIC wouldapprove states to regulate reinsurance transactions.

Also, under the House bill current state requirements thatforeign reinsurers post 100 percent collateral for transactionswould remain the same, Under the NAIC measure the collateralrequirement would be reduced for some reinsurers judged morecreditworthy. The State of Florida,has already reduced the 100percent requirement for ceding reinsurers highly ranked by creditrating agencies.

Several property and casualty insurance industry trade groupsvoiced strong support for the legislation and urged the Senate toapprove it.

These include the Council of Insurance Agents and Brokers, theNational Association of Professional Surplus Lines Offices, Ltd.,and the American Association of Managing General Agents.

The Risk and Insurance Management Society, which representslarge commercial purchasers of insurance, also backed the bill.

David A. Sampson president and chief executive officer of theProperty Casualty Insurers Association of America (PCI), called thelegislation "an important step toward reforming and streamliningour current insurance regulatory system."

"Adopting this reform legislation is a practical solution tolongtime marketplace problems," said CIAB President Ken A. Crerar."The result will be lower costs to insurance consumers and greateraccess to affordable products."

NAPSLO President John Wood added that the surplus linesorganization is "very pleased to see the strong support the Housemembers gave the bill, and we hope the Senate will followsuit."

"This is an important piece of regulatory reform that will helpboth consumers and the industry," he said.

But Steve Bartlett, president of the Financial ServicesRoundtable, which represents large multinational insurers, said ina letter to all members of the House that although "this measure ismeaningful," its passage will mean that the U.S. insurance industry"will receive only a narrow and incremental improvement to theefficiency of regulation."

Instead, Mr. Bartlett said, Congress should "build on thisprogress toward uniformity, by moving quickly to pass comprehensiveinsurance reform for all lines of insurance as part of financialregulatory reform."