Federal Surplus Lines Reform and Those Devilish Details

Surplus lines insurance, sold by insurers not licensed in the state, is still regulated, and policyholders are required to pay premium taxes as well as various assessments. The allocation of taxes on multi-state risks is perhaps one of the most vexing problems faced by surplus lines insurers and their brokers. Varying regulatory requirements and differences in tax rates, combined with the difficulties of measuring multi-task risks, led to a call for federal intervention to develop uniform regulation. The call was answered with the passage of the Nonadmitted and Reinsurance Reform Act (NRRA). This law is of limited benefit to only a few Florida surplus lines agents and of no benefit at all to most. It further negates the regulatory control over the administration of tax collection and hinders the collection of assessments, both regular and emergency.

The NRRA has been considered by Congress for several years. This act was added as an amendment to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) when it was considered on the House floor. H.R. 4173 passed the House on Dec. 11, 2009. The Restoring America’s Financial Stability Act of 2010 (S. 3217) included nearly identical language as well. This legislation was reported by the Senate Committee on Banking, Housing, and Urban Affairs on April 15, 2010, and subsequently brought to the Senate floor for consideration. On May 20, 2010, the Senate finished consideration, inserting the amended text of S. 3217 into H.R. 4173 and passing the amended H.R. 4173. The NRRA language was included in the H.R. 4173 conference report, which was agreed to by the House on June 30, 2010, and by the Senate on July 15, 2010. President Barack Obama signed the legislation, now P.L. 111-203, on July 21, 2010.