Nonadmitted and Reinsurance Reform Act (NRRA)
In the summer of 2010, sweeping financial services reform legislation, which included significant changes to surplus lines regulation that the Association had been working on for years, was incorporated in the Dodd–Frank Wall Street Reform and Consumer Protection Act. The surplus lines reforms, outlined in the Nonadmitted and Reinsurance Reform Act (NRRA), went into effect in July 2011.
In passing the NRRA, Congress sought to achieve a simpler and more efficient system of regulation and taxation of the surplus lines industry by establishing the insured’s “home state” as the one and only jurisdiction to regulate and tax surplus lines transactions. WSIA believes the greatest benefit of the NRRA is the efficiency brought about by home state regulation and taxation. In the law, Congress also clearly expressed its desire that states establish a uniform, nationwide approach to the regulation and taxation of the surplus lines industry.
Since its passage, the NRRA has produced significant benefits for the surplus lines industry. Its “home state” approach has brought efficiency, clarity and uniformity to the regulation and taxation of surplus lines insurance by creating a modern and efficient regulatory framework. Consequently, WSIA remains a strong supporter of the law and its reforms.
All states and the District of Columbia follow the NRRA’s “home state” approach to the regulation of surplus lines transactions. Before the NRRA was enacted, surplus lines brokers and insurers were often faced with inconsistent regulatory requirements, depending on the state where the risk was located or the state where the transaction occurred. A multi-state risk was even more complex, because each state with any portion of the underlying risk had regulatory jurisdiction over the transaction. The NRRA’s “home state” approach has corrected this problem and has brought a degree of uniformity to surplus lines transactions.
Another key reformation intended by the NRRA relates to the “national standards” for eligibility of surplus lines insurers. Before the NRRA, states imposed inconsistent standards to determine whether a surplus lines insurer would be included as an “eligible” or “listed” insurer. Consequently, brokers and clients often found they were frustrated and confused when confronted with the fact that, for multi-state risks, companies would meet the “eligibility” and “listing” requirements in one state but not others. To solve this problem, in Section 524 of the NRRA Congress set forth uniform national criteria for determining the eligibility of U.S. based companies to write surplus lines insurance.
All states except Michigan and Washington D.C., have adopted specific NRRA implementation language, though both jurisdictions continue to comply with the NRRA’s home state tax approach.
Two agreements were initially formed by the states after the adoption of the NRRA, but since October 2017, both agreements have been vacated.
NIMA - The Non-Admitted Insurance Multi-State Association (NIMA) became operational in July 2012 and allowed participating states to collect surplus lines premium according to state laws consistent with the agreement. NIMA was limited to providing a mechanism to report, collect, allocate and distribute surplus lines tax revenues. On May 2, 2016, NIMA members voted to dissolve NIMA. The dissolution was effective October 1, 2016 and included a 12-month run-off period ending October 1, 2017.
SLIMPACT - The Surplus Lines Insurance Multistate Compliance Compact (SLIMPACT) was intended to clarify the law and ease the regulatory burdens on E&S brokers when placing multistate risks. SLIMPACT never became operational, because it never achieved the required ten member states, but it was intended to provide uniform regulatory provisions for its members, where each compacting state would have collected taxes on all nonadmitted risks where risk exposures were present in the compacting state(s). The National Conference of Insurance Legislators (NCOIL), that sponsored the model language, eventually voted to abandon the compact.
Florida left NIMA on June 1, 2016 and NIMA officially dissolved on October 1, 2016, resulting in all all U.S jurisdictions collecting and retaining 100% of the surplus lines premium tax paid to them as the “home state” of the insured. The January 2014 report of the U.S. Government Accountability Office, “Effects of the Nonadmitted and Reinsurance Reform Act of 2010,” noted the home state provision has produced significant benefits for the surplus lines industry by reducing the need for brokers and insurers to comply with differing sets of rules, disclosures and requirements.
Home state taxation, where the home state of the insured assesses and retains 100% of the tax on a multistate risk at the home state rate in accordance with their laws and regulations, has significantly increased regulatory efficiencies and must be maintained. WSIA is pleased that, while states took different paths toward implementation, all states now tax multistate surplus liens policies based solely on the rate and rules of the home state of the insured.
WSIA Analysis of Tax Sharing
In the years following passage of the NRRA, WSIA gathered and analyzed data that clearly illustrated the reality of insignificant tax allocations relative to the additional cost burden bore by industry and insureds. The Association shared this analysis with the state Insurance Commissioners in letters sent in August 2013, March 2014 and May 2014.
2014 GAO Report on the Implementation of the NRRA
The NRRA required the Government Accountability Office (GAO) to study (1) the effects, if any, on the price and availability of insurance coverage in the surplus lines market and (2) examine actions states have taken to implement the NRRA. On January 16, 2014, the GAO released its report to Congress titled “Effects of the Nonadmitted and Reinsurance Reform Act of 2010.” This report is a superb resource to help understand the NRRA and the states’ implementation of the law. The Association was pleased to serve as a resource to the GAO during the development of this report. View the report and January 2014 summary here.
February 2014 Testimony Regarding NRRA for Federal Insurance Office Report
In December of 2013, the FIO released its report, “How to Modernize and Improve the System of Insurance Regulation in the United States,” which contained a section addressing the NRRA. The Association submitted testimony regarding the NRRA section during the U.S. House Financial Services Committee hearing on the report. You can view the testimony here as well as the response to FIO on December 16, 2011 on the same report.
Helpful NRRA Documents
The documents below are helpful to understand the NRRA and provide historical perspective on the development and implementation of the law
May 2, 2016 - NIMA announces plans to dissolve
April 13, 2016 - Florida announces withdrawal from NIMA
July 15, 2015 - Louisiana announced withdrawal from NIMA
NRRA Law – The Nonadmitted and Reinsurance Reform Act, as signed into law on July 21, 2010.
Clarifying Statement on NRRA – Rep. Dennis Moore (D-KS), the main sponsor of the NRRA, clarified the intent and meaning of the legislation through remarks entered into the Congressional Record.
April 5, 2012 - Joint Trade Associations Letter to NAIC Regarding Insurer Eligibility post-NRRA
Additional Comments from Trade Associations to NAIC on Insurer Eligibility and NAIC’s Suggestions for Information Access
WSIA's NRRA Frequently Asked Questions – In February 2012, in order to help during the implementation phase of the NRRA, WSIA developed a set of FAQs.
WSIA Guiding Principles on the NRRA – In January 2012, WSIA's Legislative Committee adopted WSIA's policy positions on the implementation of the NRRA.
Council of State Governments Memorandum – The CSG issued a memorandum questioning the Nonadmitted Insurance Multistate Agreement (NIMA) tax compact, saying that NIMA fails to provide any substantial or enforceable mechanism for achieving uniformity.
NAIC Quarterly Listing of Alien Insurers – the Quarterly Listing of Alien Insurers has become the authoritative regulatory source for the eligibility of non-U.S. insurers pursuant to the NRRA. Maintained by the National Association of Insurance Commissioners (NAIC), the listing provides brokers, exempt commercial purchasers, and insureds with assurance as to the eligibility of non-U.S. insurers with which excess and surplus lines insurance business is being quoted or placed. The public Quarterly Listing of Alien Insurers is now available for download on the NAIC website.
NAPSLO Compact Position Paper – NAPSLO issued a paper in February 2011 stating its opposition to any tax compact that reduces uniformity or that increases the reporting burden on purchasers of non-admitted insurance or the brokers that serve them.
NAPSLO Allocation Methodology Paper – NAPSLO issued a paper outlining the reason that it opposes allocating multi-state casualty premium tax and its position on tax allocation methods in general.
Coalition Letter to SLIMPACT States Supporting Kentucky Allocation Formula – In August 2011, NAPSLO joined five other industry trade groups in recommending to representatives of the SLIMPACT Commission that they adopt an allocation methodology proposed by the Kentucky Department of Insurance.
Coalition Letter to NIMA States Supporting Kentucky Compromise - In October 2011, NAPSLO joined nine other industry trade groups in writing representatives of states who were part of the Nonadmitted Insurance Multi-State Agreement to recommend their adoption of the allocation methodology proposed by the Kentucky Department of Insurance ("Kentucky Compromise").
Kentucky Allocation Proposal – States agreed to a proposal by the Kentucky Department of Insurance on how to allocate surplus lines premium taxes.
Talking Points for NIMA States Meeting – Association representatives met with representatives of the NIMA states on November 4, 2011 to provide comments on state approaches to tax allocation.
NIMA Agreement Analysis – Attorney Richard Brown wrote a paper stating that NIMA and the Clearinghouse would impose intolerable compliance costs on surplus lines brokers and increase the cost of insurance with no benefit to surplus lines insurance buyers or measurable benefit to participating state’s treasuries.
NRRA Myths vs. Facts –The association produced a paper on the Myths vs. Facts on the Nonadmitted and Reinsurance Reform Act (NRRA) implementation legislation.