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

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

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

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

As a result states are bringing their laws into compliance. Butstates are using rival compacts with different premium-sharingrequirements.

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

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

According to the National Association of Professional SurplusLines Offices (NAPSLO), the California bill proposes what isessentially an "A" list/"B" list approach to eligible surplus linesinsurers.

 The "B" list appears to follow the NRRA mandatedstandards, however requires B list insurers to file a number ofdocuments with the state insurance department (e.g., certificate ofcapital and surplus issued by the insurer's domiciliaryjurisdiction, certified copy of the insurer's license, etc.).

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

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

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

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