The outline for a compromise over a uniform mechanism to implement the surplus-lines and reinsurance-modernization law emerged during the National Association of Insurance Commissioner’s fall meeting on Oct. 28.

The insurance industry and regulators seem to be nearing an agreement on the use of the compromise surplus-lines premium tax-allocation formula developed by the state of Kentucky—the concept most widely supported by industry.

They are wrestling with creating the most efficient way to implement the Nonadmitted and Reinsurance Reform Act (NRRA), a part of the 2010 Dodd-Frank Act.

The law, which became effective July 21, says the insured’s home state will be the only one with jurisdiction over multistate surplus-lines transactions, and the only one that can require a tax be paid by the broker.

The devil has been the inability to get the states to initialize a simple method for disbursing premiums owed to states where the actual risk exists.

Even if state officials and the industry agreed on the ground rules for a uniform interstate compact, it would not deal with the fact that several large states (California and Texas, for example) have either passed legislation or adopted regulations that do not permit the sharing of surplus-lines taxes they collect as the state of domicile with the state where the risk is located.

Meanwhile, states that have adopted the Nonadmitted Insurance Multistate Agreement (NIMA) have postponed implementation until Jan. 1 because the clearinghouse that would collect and distribute premiums on their behalf is not yet functional. 

The NIMA member states decided in a closed-door meeting Nov. 4 to take steps to incorporate NIMA as a means of limiting the liability of states involved in the system.

NIMA is the compact NAIC officials are supporting, and addresses only the collection and allocation of surplus-lines taxes. The National Conference of Insurance Legislators (NCOIL) supports the Surplus Lines Multistate Compliance Compact (SLIMPACT), which would do more to bring uniformity to surplus lines regulation in general, according to NAPSLO. 

Nicole Allen, senior VP/strategic resources, said the Council is encouraged by the NIMA states’ discussion of the Kentucky compromise, and would strongly urge them to find common ground with the SLIMPACT states on an allocation formula.