NU Online News Service, Nov. 16, 10:55 a.m. EST

The states have “botched implementation” of the surplus-lines provisions of the Dodd-Frank financial services reform law, an insurance broker tells Congress today.

The broker, Steven Monroe, chief compliance officer, U.S. and Canada, for Marsh, Inc., says the issue demonstrates that the states will not modernize insurance regulation “without federal pressure, and, even then, they will not go easily.”

Monroe also voices concern that state implementation of the surplus-lines law raises constitutional issues, one of which was the Constitutional provision reserving foreign affairs to the federal government.

Specifically, he mentions state efforts to subject premiums paid on foreign risks to U.S. taxes. Monroe says collection of such taxes has the potential to expose insurance agents and brokers to professional-liability claims from insureds who—after being told by their agent or broker to pay 100 percent of the premium tax to a state—are informed by a non-U.S. jurisdiction that such payments are insufficient to satisfy tax liabilities to that non-U.S. jurisdiction.

Monroe, testifying on behalf of the Council of Insurance Agents and Brokers, makes his comments before the Housing and Community Opportunity Subcommittee of the House Financial Services Committee.

With his comments focusing on implementation of the “Nonadmitted and Reinsurance Reform Act,” Monroe says that although “we are hopeful that the NRRA's non-tax provisions will be implemented as Congress intended, we are very concerned by the implementation of the tax provisions of the law.”

He explains, “Despite the clear intent of the NRRA, the states have not yet adopted nationwide uniform requirements, forms, and procedures that provide for the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance.”

He points to the lack of a single allocation formula, as interests still work to find a compromise between the Nonadmitted Insurance Multi-State Agreement (NIMA) and the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT).

Monroe says “a number of states” are considering—and one has adopted—policies that will tax 100 percent of the premium on a surplus lines transaction, including premium covering risks located outside the U.S.

Monroe says he does not believe that this was Congress' intent when enacting the NRRA. “The language of the statute provides not only that the insured's home state is the only state that may regulate or impose taxes on a nonadmitted insurance transaction, but also that the states may form a compact to share taxes among themselves if they so wish,” Monroe says.

“This evidences Congress' intent that premiums attributable to risks in a foreign jurisdiction were not considered to fall within the ambit of the NRRA,” Monroe adds.

He notes that imposing tax on foreign risks would leave brokers and insureds in the same position as before NRRA's enactment, except that instead of potential double taxation among the states they would face double taxation by the state and foreign jurisdictions.

Special Reports /

Broker Blasts State Implementation of NRRA in Congressional Testimony

Related Stories

Recommended For You