Surplus Lines Reform Expected To Pass Unchanged

The comments came yesterday during a press conference held with AAMGA officials during the association's 84^th annual meeting held in Palm Desert, Calif.

Curtis Anderson, president of the AAMGA and president of National Binding/Programs for Risk Placement Services, Inc., in Scottsdale, Ariz. Noted, "It is obviously a large law, a lot of which has nothing to do with us insurance people, but the wording we have been trying to get pushed through to simplify our segment of the business has made it into the bill and so we are very happy with that."

While no changes are expected, Euclid Black, past-president of the AAMGA and president of Black White Associates based in Louisville, Ky., said that if changes are needed they will have to wait until the President signs the bill.

"We can't fix the deficiencies in this law until it has been passed," he said.

Bernd G. Heinze, executive director of the AAMGA, observed that the one thing the bill will do is allow the industry to police the payment of surplus lines taxes to the states and give the National Association of Insurance Commissioners the obligation to determine how that will be done.

The surplus lines reform legislation contained in the financial reform legislation aims to eliminate the current reporting and payment of taxes by the excess and surplus lines companies and MGAs by having the state of domicile collect and distribute reports and monies.

A study done by the AAMGA found that under the current, inefficient system there is between $70 million and $100 million spent on overhead. Mr. Heinze said. While it cannot be predicted whether the reform would bring down rates, there would be ultimate benefit in efficiency for producers, companies, and customers, he argued.

Mr. Forest noted that once the bill is signed into law, as many hope and expect, the next hurdle would be implementation.

"This bill has been approved by the NAIC in its format, but the next step will be how these 50 states are going to react once it becomes law," Mr. Forest said. "Are we going to have in-fighting between the 50 states? Or are they going to go along with it and not change some things, or try to change some other things?"

"If this thing does get to President Obama's desk, and does get signed, which we think it will, I think the NAIC will take a big hand in where this thing goes from that point on," Mr. Forest advised.

He said with Louisiana's Insurance Commissioner James J. Donelon's leadership on the NAIC's surplus lines committee, he believes there is a strong voice there for effectively shepherding through rules to govern the legislation. He admitted that each state will aim at protecting their own interests, but this reform is something the NAIC wanted and the expectation is they will develop effective rules for ease of doing business. Mr. Curtis added that the states need this efficiency as well.

When asked a question about how MGAs are dealing with current soft market conditions, Mark Rothert the incoming president of the AAMGA (he becomes president this Wednesday) and member of Ron Rothert Insurance Services in Portland, Oregon, said that despite current market conditions, the E&S market did "not get crazy" and write any business that came across its desk. They have maintained underwriting discipline to "make sure the risk is well placed," he said.

"They are husbanding their revenue– their surplus–to make sure that if there is a change in the marketplace, they are in a position to move forward to help those poor standard carriers who are digging themselves a deeper and deeper hole," Mr. Rothert said.

Despite some improvements in their investment portfolios, he does not see how they can claim their financial positions are improved when combined ratios are increasing and premiums continue to diminish.

"E&S markets are being very patient and very realistic," Mr. Rothert said. "From the standpoint of managing general agents, this is the market we have to deal with, this is the market we are working with, and we are doing the very best we possibly can. We've tightened our belt and taken steps to make sure we are going to stay solvent."

He observed that the AAMGA is doing the education and managing people through the market, observing, "I think the net result is that we will be stronger going forward."