WIN Magazine - Winter 2012 - (Page 10)
BY RICHARD A. BROWN
TATE IMPLEMENTATION OF the Nonadmitted and Reinsurance Reform Act (NRRA), effective July 21, 2011, proceeded relatively smoothly during 2012, albeit with a few hiccups as industry and regulators navigated the transition to Home State taxation and regulation of surplus lines transactions. The big issues for 2013 are market security and premium tax audits. The NRRA’s surplus lines insurer eligibility standards for foreign (domiciled in the U.S.) and alien (offshore) nonadmitted insurers expose the industry and consumers to the risk that unscrupulous nonadmitted insurers may enter the market based on creative financial statements or otherwise skirt the system undetected. After all, fraudsters need not announce their presence by making required regulatory filings. As for premium tax audits, 2013 will be the second full year of surplus lines premium tax data under the NRRA. In search of premium tax revenues, the states can be expected to closely scrutinize broker compliance with Home State taxation and regulatory requirements.
MARKET SECURITY The surplus lines broker is responsible for due diligence of security of nonadmitted markets with which the 10 | v i e w t h i s i s s u e a t | www.aamgawin.org
broker places risks. For the past two decades, security due diligence has relied heavily on state “white lists” of “approved” nonadmitted insurers. The system was effective. There have been no insolvencies of nonadmitted insurers in recent memory. The NRRA set two criteria for surplus lines insurer eligibility: (a) for insurers domiciled in the U.S., capital and surplus of $15 million or such higher amount as the Home State may require or (b) for insurers domiciled outside the U.S., eligibility is defined by whether they appear on the NAIC’s Quarterly List of Alien Insurers. The domiciliary state regulator is responsible for solvency regulation of foreign non-admitted insurers. The NAIC is responsible for solvency regulation of alien nonadmitted insurers. Foreign Non-admitted Insurers By definition, the surplus lines insurer is domiciled in some state other than the Home State of the insured. The Home State taxes and regulates the transaction; the domiciliary state of the insurer is responsible for guarding the policyholders’ money. Most nonadmitted insurers domiciled in the U.S. write little or no premium in their domiciliary state. The domiciliary regulator may therefore have little reason to give more than routine attention to an insurer that writes business only in other states.
Table of Contents for the Digital Edition of WIN Magazine - Winter 2012
With or Without a Hard Market
Surplus Lines Regulatory Picture for 2013
Managing the Tensions
CAT Modeling and the Implementation of RMS 11
A Primer on Insurance-Linked Securities
The Profile of the Perfect Customer
Social Media Marketing for the Wholesale Insurance Professional
In the WIN-ners Circle
Index to Advertisers / Advertisers.com
WIN Magazine - Winter 2012