IN AN ARTICLE in this month's issue, agents and brokers discuss how they interact with the E&S marketplace. One of those agents, John Tallarida, senior vice president of the Heffernan Group in Palo Alto, Calif., cited one problem retailers can face. He explained that after investing a lot of time working with a surplus-lines broker on a large account, a retailer may discover that the client has exposures in a state in which the surplus-lines broker is not licensed. At that point, Tallarida says, the retailer might have to bring in another surplus-lines broker–just to remit the required premium tax in that jurisdiction.

This is the sort of headache that a new bill before Congress, the Nonadmitted and Reinsurance Reform Act (H.R. 5637), is intended to relieve. The bill was introduced in June by Rep. Ginny Brown-Waite (R-Fla.) and Rep. Dennis Moore (D-Kan.). Late last month, it was approved by the House Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. A few days later, it got the OK from the committee itself. Let's ignore the bill's relatively short reinsurance section and consider how it might affect the E&S industry.

One of the bill's provisions would solve the premium-tax dilemma by barring any state other than the insured's “home state”–that is, the state “in which an insured maintains its principal place of business or principal residence”– from requiring the payment of premium taxes on a surplus-lines transaction. Rather, for a given insured, its home state could require the insured or its surplus-lines broker to file tax allocation reports annually showing how much of the insured's premium is tied to exposures in other states. Then the home state could distribute the appropriate amount of premium taxes to those states. H.R. 5637 encourages the creation of interstate compacts or other vehicles to facilitate such tax sharing. Thus, the bill answers one of the greatest concerns states have when it comes to regulating insurance: “Where's mine?”