NU Online News Service, July 19, 3:04 p.m. EDT

California enacted a law Monday that allows the state to keep all the premium taxes generated by the surplus lines industry.

The state's decision further muddles the situation created by the Nonadmitted and Reinsurance Reform Act, a provision of the Dodd-Frank financial services reform law that goes into effect Thursday.

Under the law, the insured's home state will be the only state with jurisdiction over surplus lines transactions and the only state that can require a tax to be paid by the broker.

As a result states are bringing their laws into compliance. But states are using rival compacts with different premium-sharing requirements.

The California law, A.B. 315, authorizes the imposition of surplus lines premium tax and independent procurement tax on 100 percent of premiums. It was signed by the governor Friday.

However, the bill does not addresses compacts or sharing premium taxes with other states.

According to the National Association of Professional Surplus Lines Offices (NAPSLO), the California bill proposes what is essentially an "A" list/"B" list approach to eligible surplus lines insurers.

The "B" list appears to follow the NRRA mandated standards, however requires B list insurers to file a number of documents with the state insurance department (e.g., certificate of capital and surplus issued by the insurer's domiciliary jurisdiction, certified copy of the insurer's license, etc.).

Obtaining "A" listed status would entail all of the burdens of current eligibility in California, NAPSLO officials say.

The bill does include the NRRA definition of an exempt commercial purchaser (ECP) concept and allows free export of ECP business subject to the conditions set forth in the NRRA.

The bill further requires brokers to undertake additional record-keeping requirements related to NRRA.

Brokers will now need to record the insured's home state, if an ECP, verify that the insured qualifies as an ECP, determine whether the risk is single state or multistate and if multistate, allocate premium taxes even though there are no provisions for the sharing of taxes with other states.

Special Reports /

Calif. Surplus Lines Law Allows State to Keep All Premium Taxes

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