The Nonadmitted and Reinsurance Reform Act of 2010 (NRRA)appears to be largely functioning as intended: simplifyingcompliance for multistate risks while not altering rates or riskappetite, according to market participants who responded to aGovernment Accountability Office request.

However, the GAO study notes that industry associationsrepresenting insurers and producers report that some states aremaking eligibility requirements in apparent violation of an NRRAsection.

The GAO's study, "Effects of the Nonadmitted and ReinsuranceReform Act of 2010," notes that almost all states have modifiedtheir laws to implement "at least portions" of the NRRA.

The NRRA, which was part of the Dodd-Frank Act, stipulates inpart that the home state of an insured has exclusive authority torequire payment of premium tax for nonadmitted insurance.

All states but Michigan have amended their laws to address thisprovision, the GAO says, and states had largely adopted adefinition of "home state" consistent with terminology in theNRRA.

The GAO says the NRRA was passed because supporters argued itwould "make it easier for surplus-lines insurers and brokersconducting business across states."

To that end, the GAO report says, "According to officials of anassociation representing surplus-lines insurers and brokers, thehome-state provision has produced significant benefits for thesurplus-lines industry by reducing the need for insurers to complywith differing sets of rules, disclosures and requirements."

The NRRA also allows, but does not require, states to form aninterstate compact to allocate premium taxes paid to the homestate. However, the GAO notes that only a few states have chosen todo so. Most states, the study says, are collecting and retaining100% of the premium taxes.

States making additional requirements

Another section of the NRRA, GAO notes, seeks to establishuniformity in the criteria states use to determine which insurersare eligible to sell insurance on a surplus-lines basis."Specifically," GAO says, "NRRA states that a state may not imposeeligibility requirements on or establish eligibility criteria forsurplus-lines insurers domiciled in the United States that areauthorized to write policies in their state of domicile."

The NRRA also establishes minimum capital and surplusrequirements: $15 million or the minimum capital and surplusrequirements of the insured's home state.

The GAO says some industry associations have reported thatstates are acting in apparent violation of this part of the NRRA,Section 524, by requesting additional information such as businessplans, disaster plans and policy forms, as well as asking for feesor other charges not specified in Section 524.

"According to associations," GAO says, "in some cases, statesare applying different standards for single and multistate risks, aparticular issue for alien insurers."

The study says the National Association of InsuranceCommissioners (NAIC) has formed a subgroup to improve access toinformation by regulators, brokers and the insured to help reducethe requesting of additional information.

Regarding the NRRA's impact on the pricing and market capacity,the study says, "Market participants said that NRRA has had little,if any, effect on the prices or availability of coverage, as thiswas not an intent of the act."