Responding to a request for comment, Connecticut Insurance Department spokesman Donna Tommelleo says State Insurance Commissioner Tom Leonardi and Department Of Revenue Services Commissioner Kevin Sullivan say the state has decided to withdraw because of concerns about NIMA's viability and the length of time it has taken to become operational.

However, he says, “this does not affect the implementation schedule, which will proceed on” schedule.

The departures will leave seven states and Puerto Rico as members of NIMA.

McDermott is the spokesman for Florida Insurance Commissioner Kevin McCarty, who is president of the National Association of Insurance Commissioners as well as secretary of NIMA.

The Florida Surplus Lines Office, which is also a part of Florida state government, is serving as the technology platform provider and will also provide all clearinghouse administrative duties.

However, the latest development appears to be consistent with the concerns voiced last month by Richard A. Brown, a senior lawyer based in San Francisco who specializes in issues related to the implementation of the Non-Admitted and Reinsurance Reform Act.

The NRRA went into effect last July. It was aimed at modernizing and reforming the surplus lines regulatory system. A key part was establishing the home state of a risk as the exclusive authority to tax and regulate the surplus lines insurance industry.

A major piece of the new law allows for the establishment of compacts that would serve as a clearinghouse to allow the home state to pass on to the proper state premium taxes paid on risks located in other states.

However, as Brown has noted, even though the NRRA was implemented a year ago, no actual tax-sharing between states that was supposed to be a core component of the law has yet to take place.

“Just because the clearinghouse is set up, doesn't mean it will be operational,” he says. “A lot of details have to be ironed out before there is any actual tax sharing.”

NIMA is one of two compacts established by states and industry in an effort to facilitate payment of premium taxes to the appropriate state. The other is the Surplus Lines Insurance Multistate Compliance Compact or SLIMPACT. It is also struggling to get up and running.

Brown declined further comment on the issue today, saying he wants to study further the potential impact of the three defections.

Late today, the Council of Insurance Agents & Brokers said in a statement that after a recent meeting of its board the association is reiterating its position that the states should keep 100 percent of surplus lines premium tax they collect. Ken A. Crerar president and chief executive officer of the Council says current efforts to come to tax sharing agreements is only resulting in “confusion and complexity for brokers and their clients.”

“This is the fairest and most cost-effective method of taxation for all stakeholders, including regulators, consumer and brokers,” he says.

“The misinterpertation of the new law is causing mass marketplace confusion and we are increasingly concerned about the unintended results that are exacerbating the existing compliance burdens and challenges,” he adds.

Updated 3:22 p.m. EDT with comments from the Connecticut Department of Insurance