NU Online News Service, May 25, 9:05 a.m.EDT

The Non-Admitted Insurance Multi-State Agreement has adopted therevenue-sharing agreement of a rival compact in an apparent effortto jumpstart creation of a uniform system to implement apremium-tax-sharing component of the federal surplus-lines reformlaw.

Under the agreement, NIMA will adopt a premium allocation systeminitially proposed by the Kentucky Department of Insurance as themeans for allocating premium taxes to the proper states.

Clearinghouses were envisioned as the best method of properlyallocating premium taxes on surplus lines under the theNon-admitted and Reinsurance Reform Act (NRRA), which was enactedas part of the Dodd-Frank financial services reform law of2010.

The law went into effect July 21, 2111, and established theinsured's home state as the only state with jurisdiction overmulti-state surplus-lines transactions and the only state that canrequire a tax to be paid by the broker.

NIMA and the Surplus Lines Multistate Compliance Compact, orSLIMPACT, were created as rival compacts last year as states workedto implement the new law.

NIMA was supported by the National Association of InsuranceCommissioners; SLIMPACT was created because most industry officialssaid NIMA did not constitute congressional intent in enacting theNRRA.

NIMA is set to start up July 1, but SLIMPACT is not yetoperational and cannot be operational until July 1, 2013, at theearliest, and only if a tenth state joins.

The “Kentucky Proposal” NIMA has adopted excludes themajority of casualty surplus lines premium from multi-stateallocation. Therefore, the home state continues to collect mostsurplus-lines tax for casualty insurance unless a casualty policyis rated on a state or location-specific basis.

However, Rick Brown, an insurance-regulatory lawyer whopractices in San Francisco, cautions that NIMA adoption of theKentucky system is unlikely to persuade additional states that theperceived economic benefits of a clearinghouse outweigh theassociated costs.

“NIMA is to be congratulated for adopting a workablepremium-allocation methodology,” Brown says.

However, he adds that “there does not appear to be any appetiteby non-NIMA states to share surplus-lines-tax revenues.

According to statistics cited at the March 24 NationalAssociation of Professional Surplus Lines Offices mid-yearLeadership Forum in Scottsdale, Ariz., states representing 63percent of nationwide premium volume have no plans to participatein tax-sharing agreements.

Joel Wood, senior vice president of government affairs for theCouncil of Insurance Agents and Brokers, agreed with Brown,stating, “The Kentucky allocation formula is much better, so we'rehappy to hear of the action.”

He adds, “We remain concerned that there is no critical mass ofpremiums that will flow through NIMA, or SLIMPACT, for that matter,and we find it highly unlikely at this stage that many large statesbeyond Florida are likely to join in such mechanisms.”

NIMA is being run by the Florida Surplus Lines Service Office.In announcing the decision to adopt the Kentucky method, FloridaInsurance Commissioner Kevin McCarty said it was done “in thespirit of compromise.”

He says, “NIMA members have once again worked together tointegrate the best ideas of its members to create a streamlinedprocess consistent with the provisions of Dodd-Frank.”

McCarty says the proposal is supported by NAPSLO and states thatjoined SLIMPACT, as well as several trade and industry groups.

NAPSLO Executive Director Brady Kelley says, “NAPSLO advocatedthe allocation methodology proposed by Kentucky with the goal ofmoving toward a uniform solution for those states pursuing taxsharing. We will continue our work on the efficient and uniformreporting and payment of taxes to the home state.”