Although the Nonadmitted and Reinsurance Reform Act (NRRA) went into effect in July of last year, states are continuing to debate which, if any, tax-sharing option to adopt.

As a result, neither of the two competing compacts—NIMA (the Nonadmitted Insurance Multistate Agreement) and SLIMPACT (the Surplus Lines Insurance Multistate Compliance Compact)—has been implemented.

And that inaction is just fine for the surplus-lines industry—or at least better than the alternative, say legislative committee leaders of the National Association of Professional Surplus Lines Offices (NAPSLO).

At NAPSLO's Mid-year Leadership Forum in Scottsdale, Ariz., industry executives on the association's legislative committee updated membership on the NRRA.

And their message: No tax-sharing agreement is better than the compliance nightmare of two competing systems.

NRRA's intent was to streamline and provide consistency within the industry; having two entirely different approaches, with different rules and regulations, clearly accomplishes neither goal, in NAPSLO's view.

Therefore, the organization asserts, no arrangement is superior to two inconsistent ones.

“That is not workable,” says Brady R. Kelley, NAPSLO's executive director. “That is anything but uniform.”

While NRRA is meant to encourage nationwide adoption of uniform requirements, forms and procedures for the reporting, payment, collection and allocation of surplus-lines premiums taxes, it does not require the states to standardize procedures.

And indeed, the most popular “allocation” option among the states right now: not to participate in any tax-sharing agreement.

Currently, 24 states representing 63 percent of nationwide premium volume have no plans to participate in tax-sharing agreements.

And this “100-percent approach”—in which each home state collects 100 percent of the tax on every surplus-lines policy—finds plenty of favor among surplus-lines executives.

“It is the clear, simple approach for our industry,” says James Drinkwater, president of the brokerage division of AmWINS and co-chair of the NAPSLO legislative committee.

Kelly also points out that “the cost/benefit of tax sharing is not clear. Most surplus-lines transactions represent single-state transactions, and based on recent data…any ultimate amount of tax sharing will likely be insignificant in relation to the cost of tax sharing.”

Special Reports /

NAPSLO: No NRRA Tax-Sharing Plan Is Better Than Two Competing Approaches

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