NRRA Implemented
The Florida Surplus Lines Office and the Department of Financial Services (collectively “Florida”) moved forward on July 1, to implement the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA) enacted by Congress and chapter 2011-46, Laws of Florida, enacted by the Florida Legislature. Florida selected July 1 as the date the surplus lines risks for which Florida is the “home state” must begin paying all surplus lines taxes for such risks (and a .03 per cent fee) to the state of Florida. Since this date does not match the primary effective date of the NRRA (July 21, 2011), it has the potential to create confusion among surplus lines agents and other states.
NRRA provides that effective July 21, 2011, all surplus lines taxes must be paid to the home state of the policyholder. Home state is defined generally as “the state in which an insured maintains its principal place of business.” However, the law also has a provision, section 521, that authorizes states to “enter into a compact or otherwise establish procedures to allocate among the States the premium taxes paid to an insured’s home State.” The law further provides that if the compact or procedures are enacted within 330 days of July 21, 2010 they “apply to any premium taxes that, on or after such date of enactment, are required to be paid to any State that is subject to such compact or procedures.” Chapter 2011-46 became law within the 330-day time period and Florida takes the position that as of July 1, 2011, it is entitled to collect and retain all surplus lines premium taxes for businesses whose home state is Florida. It is not clear whether another state which has not enacted procedures or compacts within the first 330 days would agree with this reading. It is possible other such states would assert they remain entitled to receive surplus lines taxes for the portion of the risk in their state until the July 21, 2011 date. There is a preemption provision for the federal law in section 522 of the Act. Florida takes the position that this provision protects companies that comply with its procedures.
While July 1 may be the effective date for collecting the taxes, under the new law the taxes do not have to be remitted until the 45th day following each calendar quarter, making the first due date October 15.
As of July 25, 2011 the state of Florida had reached agreement with 11 states (Alaska, Connecticut, Hawaii,
Louisiana, Mississippi, Nebraska, Nevada, Puerto Rico, South Dakota, Utah, and Wyoming) to be part of the Non-Admitted Insurance Multi-State Agreement coalition. Early on there were discussions that Florida might apply a percentage to the out of state premium to collect an amount equal to the special assessments levied for the Florida Hurricane Cat Fund and Citizens Property Insurance Corporation. This idea has been abandoned.
The Federal law also makes the home state the sole entity responsible for the statutory and regulatory requirements for the nonadmitted market. Section 524 of the NRRA establishes uniform standards for surplus lines eligibility, limiting a state’s ability to impose eligibility requirements. A broker cannot be prohibited from placing nonadmitted insurance with a nonadmitted reinsurer not domiciled in the United States as long as the company is listed on the quarterly listing of alien insurers maintained by the NAIC.