© 2020 National Association of Insurance Commissioners 1

Date: 7/15/20

2020 Summer National Meeting Virtual Meeting

SURPLUS LINES (C) TASK FORCE

Wednesday, August 5, 2020 11:00 a.m. – 12:00 p.m. ET / 10:00 – 11:00 a.m. CT / 9:00 – 10:00 a.m. MT / 8:00 – 9:00 a.m. PT

ROLL CALL James J. Donelon, Chair Louisiana Sharon P. Clark Kentucky Larry D. Deiter, Vice Chair South Dakota Kathleen A. Birrane Maryland Lori K. Wing-Heier Alaska Barbara D. Richardson Nevada Alan McClain Arkansas Mike Causey North Carolina Ricardo Lara California Glen Mulready Oklahoma Michael Conway Colorado Jessica K. Altman Pennsylvania David Altmaier Florida Raymond G. Farmer South Carolina Dafne M. Shimizu Guam Kent Sullivan Texas Dean L. Cameron Idaho Mike Kreidler Washington Robert H. Muriel Illinois Jeff Rude Wyoming Vicki Schmidt Kansas NAIC Support Staff: Andy Daleo/Bob Schump

AGENDA

1. Consider Adoption of its 2019 Fall National Meeting Minutes

—Commissioner James J. Donelon (LA)

Attachment One

2. Consider Adoption of the Report of the Surplus Lines (C) Working Group —Stewart Guerin (LA)

3. Consider Adoption of its 2021 Proposed Charges—Commissioner James J. Donelon (LA)

Attachment Two

4. Discuss the Nonadmitted Insurance Model Act (#870) —Commissioner James J. Donelon (LA)

Attachment Three

5. Discuss a Blanks Proposal Regarding Home State Direct Premiums Written —Commissioner James J. Donelon (LA)

Attachment Four

6. Discuss Any Other Matters Brought Before the Task Force —Commissioner James J. Donelon (LA)

7. Adjournment W:\National Meetings\2020\Summer\TF\SURL\SLTF Agenda.docx

Draft Pending Adoption

© 2019 National Association of Insurance Commissioners 1

Draft: 12/17/19

Surplus Lines (C) Task Force Austin, Texas

December 7, 2019

The Surplus Lines (C) Task Force met in Austin, TX, Dec. 7, 2019. The following Task Force members participated: James J. Donelon, Chair, and Stewart Guerin (LA); Al Redmer Jr., Vice Chair (MD); Lori K. Wing-Heier, represented by Michael Ricker (AK); Michael Conway represented by Rolf Kaumann (CO); Colin M. Hayashida represented by Paul Yuen (HA); Robert H. Muriel represented by Patrick Hyde (IL); Nancy G. Atkins represented by John Melvin (KY); Mike Causey represented by Fred Fuller (NC); Marlene Caride represented by Philip Gennace (NJ); Glen Mulready represented by Buddy Combs (OK); Elizabeth Kelleher Dwyer represented by Beth Vollucci (RI); Raymond G. Farmer represented by Lee Hill (SC); Larry Deiter represented by Johanna Nickelson (SD); Mike Kreidler represented by Jeff Baughman (WA); James A. Dodrill represented by Greg Elam (WV); and Jeff Rude represented by Donna Stewart (WY). Also participating was: Scott Greenberg (AZ); and Robert Wake (ME).

1. Adopted its Summer National Meeting Minutes

Mr. Fuller made a motion, seconded by Commissioner Redmer, to adopt the Task Force’s Aug. 3 minutes (see NAIC Proceedings – Summer 2019, Surplus Lines (C) Task Force). The motion passed unanimously.

2. Adopted the Report of the Surplus Lines (C) Working Group

Mr. Guerin reported that the Surplus Lines (C) Working Group met Sep. 26 in regulator-to-regulator session, pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings.

During the conference call, the Working Group heard a summary of five applications for admission to the Quarterly Listing of Alien Insurers. All five of the applying companies were discussed, and four companies were admitted to the Oct. 1 edition of the listing.

Ms. Stewart made a motion, seconded by Commissioner Redmer, to adopt the report of the Surplus Lines (C) Working Group. The motion passed unanimously.

3. Heard Comments on an Exposure of a Blanks Proposal Regarding Home State Direct Premiums Written

Commissioner Donelon summarized the background on a blanks proposal to add a new column to Schedule T within the Property/Casualty (P/C) financial blank. Specifically, this new section would provide Home State direct premiums written. The blanks proposal was exposed for a 45-day public comment period ending Oct. 10. During the exposure period, comment letters were received from three interested parties.

Commissioner Donelon said the overall intent of the proposal is to provide a means for insurance departments to arrive at an estimate of surplus lines premium tax dollars due to their states by applying the state surplus lines tax rate to the direct premiums written as would be reported on a home state basis. He said there is a general understanding that this is not a perfect solution to the surplus lines tax reconciliation issues experienced by several state insurance departments. He added that the proposal does provide the states with a starting point to begin the process of tax reconciliation. This issue came to the Task Force’s attention due to inquiries received by NAIC staff from state insurance departments seeking assistance in surplus lines tax reconciliation.

Commissioner Donelon invited Task Force members to provide comments.

Ms. Nickelson said the difference between home state premium and risk state premium makes it difficult to tie back to one another. She said it would be helpful if brokers and companies would report on a home state basis as it would benefit audit practices.

Commissioner Redmer said he sees only an incremental benefit from implementing this approach, and he believes that the burden placed on industry would not prove worthwhile. He suggested fine tuning the approach.

Attachment One

Draft Pending Adoption

© 2019 National Association of Insurance Commissioners 2

David Kodama (American Property Casualty Insurance Association—APCIA) said a key concern from his comment letter related to the precedent, which would be set by using the financial statements to impose a responsibility on surplus lines insurance companies, that is not a statutory duty.

Brady Kelley (Wholesale & Specialty Insurance Association—WSIA) said he would like a reasonable method of estimating premium tax, but he thinks that the proposal may be an imperfect solution, as the company versus broker reporting will never match. He said driving this type of change in the industry would likely be troublesome. He said an alternative solution that is more reasonable may be developed with additional time.

Mr. Kodama said this proposal would not only place obligations on the insurance industry, but it would also require a commitment of additional resources from state insurance regulators at state insurance departments to review the policy level detail. He is unsure whether an actual benefit would be achieved. He said that the APCIA would remain committed to finding an alternative solution.

Ms. Nickelson said that receiving the home state premium on Schedule T would allow state insurance regulators a premium amount to compare to broker reported premium, as both would be prepared on the same basis.

Mr. Kodama said the broker is the regulated entity in the surplus lines transaction, and theirs is the statutory duty to bill, collect and remit premium taxes. He said the proposal attempts to add the insurance companies as a third party to the transaction.

Commissioner Donelon clarified that the proposal attempts to impose a statutory obligation on surplus lines insurance companies that are unregulated in all the states except for their state of domicile, while licensed surplus lines brokers are the regulated entities.

Mr. Wake said he is unsure why company reporting cannot be consistent with broker reporting since federal law provides a definition for identifying home state premium. He said the laws in his state require brokers to pay the tax and insurance companies to do thorough business reporting. He said the tax collecting authority in Maine, separate from the insurance department, has said receiving the home state premium would provide a definite benefit.

Mr. Kelley said that although it would be possible for companies to collect home state premium data, it would be difficult to accurately compare to broker reported data.

Mr. Kodama said that home state identification is not a straightforward process; and to assure consistency, new process rules would need to be created.

Commissioner Donelon said if there is inconsistency in identifying a home state, it points to a need for new rules or a model law for brokers.

Ms. Stewart added that state insurance regulators have updated their systems, statutes and procedures to recognize a home state, but many insurance companies have not.

Mr. Kelley said that the distinction of home state is not a concern of surplus lines carriers, as it does not influence risk underwriting.

Dan Maher (Excess Line Association of New York—ELANY) said surplus lines brokers have the legal duty to identify the home state, and should there be a disagreement in that identification with the company or another state, that would affect the ability to perfectly reconcile a broker versus company home state premium reporting.

Commissioner Donelon said that situations in which such disagreements occur are isolated, and the inability to have a perfect process should not prevent the creation of a tool that would allow for a more accurate accounting of premium taxes.

Ms. Nickelson said she recognizes that a perfect reconciliation between company and broker reporting will never be possible because of report timing and other factors. However, she said that it would provide a starting point for accessing whether additional investigation is necessary.

Mr. Kodama said the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA) was written to streamline the surplus lines market, and adding additional responsibilities to surplus lines carriers would be contrary to the intent of the legislation.

Attachment One

Draft Pending Adoption

© 2019 National Association of Insurance Commissioners 3

Mr. Greenberg clarified that the proposal would require separate Schedule T reporting for home state premium. He noted that companies would need to discount reported premiums for the additional fees that brokers are obligated to collect, premium returns, and cancellations.

Commissioner Donelon asked whether, at this point, a vote to forward the proposal to the Blanks (E) Working Group for more discussion is appropriate.

Andy Daleo (NAIC) said that he had discussed with NAIC staff regarding the proposal, and he was told that no additional technical evaluation and discussion of the proposal would be completed by the Blanks (E) Working Group. He said that because of the technical nature of the proposal, all discussion would be limited to the Task Force.

Mr. Kodama asked whether the proposal involved a question of whether it was legal to compel insurance companies to report home state premium when it is not a statutory responsibility.

Mr. Kelley asked if there were alternative methods to assess whether accurate premiums were available, rather than imposing reporting duties on insurance companies that will have dramatic changes on current reporting requirements.

Commissioner Donelon said that based on the discussion, he views the proposal as a much more convoluted attempt to remedy an acknowledged problem faced by state insurance regulators. He added that the proposal is problematic and may be more burdensome to insurers than perceived, and it may not be legal. He also questioned what enforcement options would be available to the states other than the state of domicile to enforce compliance on nonadmitted carriers.

Commissioner Donelon asked if a postponement would be appropriate due to the amount of time spent on this issue.

Commissioner Redmer made a motion, seconded by Mr. Hill, to postpone a decision on the blanks proposal until the Task Force’s meeting at the Spring National Meeting. The motion passed unanimously.

4. Heard an Update on its Referral to the Producer Licensing (D) Task Force

Commissioner Donelon introduced Tim Mullen (NAIC) to provide an update on a referral from this Task Force to the Producer Licensing (D) Task Force regarding suggested modifications to the Producer Licensing Handbook to accommodate the adopted the Guideline on Nonadmitted Accident and Health Coverages (#1860).

Mr. Mullen said the Producer Licensing (D) Task Force had discussed this referral at several meetings, and it had exposed the issue for comment in October. He said 11 letters were received with two primary concerns. The first concern was that the members of Producer Licensing (D)a Task Force did not understand the scope of the accident & health (A&H) market in their states. The second concern was that existing state laws would not provide for the modifications to the Uniform Licensing Standards (ULS).

Mr. Mullen said that the ULS was adopted shortly after the adoption of the Producer Licensing Model Act (#218). The ULS provides for a high level of authority among NAIC member states, and it is not regarded as guidance, but as standards that the state market would need to develop and only then be modified. He said the Producer Licensing (D) Task Force would meet following this Task Force meeting; and although there would be additional discussion, he assumed that the referral would be premature at this time.

5. Received Adjustments to Exempt Commercial Purchaser Minimum Qualifications

Mr. Daleo stated that according to the directive within the Nonadmitted section of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the minimum qualifying amounts for three categories of Exempt Commercial Purchaser requires adjustment every five years. The Dodd-Frank Act legislation does not provide guidance on how these adjustments are to be carried out. As a result, back in 2014, the Task Force determined that the September Consumer Price Index CPI) would be used for the five-year period beginning Jan. 1. The last adjustment the Task Force made was in September 2014 for the period beginning Jan. 1, 2015. He said within Section 527 of the Dodd-Frank Act, the qualifying amounts in subclauses (I), (II) and (IV) are to be adjusted effective “each fifth January 1 based on the CPI for all urban consumers.”

The percentage change calculation and adjusted minimum amounts for the categories are in your materials, and they reflect a 7.9% rise. At the 2024 Fall National Meeting, Mr. Daleo will present a similar adjustment.

Attachment One

Draft Pending Adoption

© 2019 National Association of Insurance Commissioners 4

Commissioner Donelon said that a copy of the adjustments would be posted on the Task Force webpage.

Having no further business, the Surplus Lines (C) Task Force adjourned.

W:\National Meetings\2019\Fall\TF\SURL\Draft Minutes Final.dotx

Attachment One

© 2020 National Association of Insurance Commissioners

Draft: 7/20/20 Adopted by the Property and Casualty Insurance (C) Committee— Adopted by the Surplus Lines (C) Task Force—

20210 Proposed Charges

SURPLUS LINES (C) TASK FORCE

The mission of the Surplus Lines (C) Task Force is to monitor the surplus lines market and regulation, including the activity and financial condition of U.S. and alien surplus lines insurers by providing a forum for discussion of issues and to develop or amend relevant NAIC model laws, regulations and/or guidelines.

Ongoing Support of NAIC Programs, Products or Services

1. The Surplus Lines (C) Task Force will:A. Provide a forum for discussion of current and emerging surplus lines-related issues and topics of public policy and

determine appropriate regulatory response and action.B. Review and analyze quantitative and qualitative data on U.S. domestic and alien surplus lines industry results and

trends.C. Monitor federal legislation related to the surplus lines market and ensure all interested parties remain apprised.D. Develop or amend relevant NAIC model laws, regulations and/or guidelines.E. Oversee the activities of the Surplus Lines (C) Working Group.

2. The Surplus Lines (C) Working Group will:A. Operate in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the

NAIC Policy Statement on Open Meetings and operate in open session when discussing surplus lines topics and policy issues, such as amendments to the International Insurers Department (IID) Plan of Operation.

B. Maintain and draft new guidance within the IID Plan of Operation regarding standards for admittance and continuedinclusion on the NAIC Quarterly Listing of Alien Insurers.

C. Review and consider appropriate decisions regarding applications for admittance to the NAIC Quarterly Listing ofAlien Insurers.

D. Analyze renewal applications of alien surplus lines insurers on the NAIC Quarterly Listing of Alien Insurers andensure solvency and compliance per the IID Plan of Operation guidelines for continued listing.

E. Provide a forum for surplus lines-related discussion among jurisdictions.

NAIC Support Staff: Andy Daleo/Robert Schump

Attachment Two

Date: March 16, 2020

To: Surplus Lines (C) Task Force

From: NAIC Staff

RE: Nonadmitted Insurance Model Act (#870) ___________________________________________________________________________________________

Background The NAIC Nonadmitted Insurance Model Act #870 (Attachment A) was originally drafted through the combination of three previous NAIC models that date back to 1983: 1) Unauthorized Insurers Model Act; 2) Model Surplus Lines Law; and 3) Model Nonadmitted Insurance Act. Over the course of the past 37 years, amendments and adoptions were made five times; 1) Sept. 18, 1994; 2) Dec. 16, 1996; 3) March 18, 1998; 4) Dec. 6, 1999; and 5) Sept. 10, 2002. The 2002 modifications were the result of the passage of the Gramm-Leach-Bliley Act. Currently, 31 states have adopted Model 870.

Activity

The most recent activity regarding Model 870 was with regard to the Nonadmitted and Reinsurance Reform Act (NRRA) of 2010. Model 870 was not modified as a result of the implementation of the NRRA. On October 11, 2011, the Nonadmitted Insurance Reform Sample Bulletin (Attachment B), which was distributed to the state insurance departments, was adopted by Executive/Plenary. The Bulletin outlined nationwide regulatory changes that impact the placement of nonadmitted insurance. Specifically, the Bulletin addressed the scope of the NRRA, the application of “Home State” for purposes of jurisdictional authority and paying premium tax, licensure requirements for brokers, diligent search requirements, and eligibility requirements for nonadmitted insurers.

At the time of the NRRA implementation, the Surplus Lines (C) Task Force and NAIC staff were working on state tax-sharing collection proposals. The two primary tax-sharing proposals on the table were the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) and the Nonadmitted Insurance Multi-State Agreement (NIMA). SLIMPACT was enacted by nine states, but failed to draw an additional state for proposed implementation. NIMA was only able to draw twelve states for support and it was dissolved in 2016. As a result of the efforts with regard to the two proposals at that time, the decision was made to draft the Bulletin rather than amend Model 870.

Given the above and the need for Model 870 to reflect the current requirements under the NRRA, the following provides three potential options to consider:

1. Model Law Request (Attachment C) – The Surplus Lines Task Force could direct staff to develop a modellaw request for consideration at the next NAIC National Meeting. The following are examples of the mostsignificant sections of Model 870 that need to be amended, such as, Section 5 – Surplus Lines Insurance (e.g.,trust fund requirements and surplus lines tax).

2. Directive to Develop a Drafting Group under the Surplus Lines (C) Task Force – The drafting groupwill produce a summary document that outlines the significant updates to modernize model 870 and presenta recommendation to the Task Force at a future NAIC National Meeting.

3. No Action – Do not amend the Model and rely on the 2011 Bulletin for guidance.

Attachment Three

NONADMITTED INSURANCE MODEL ACT

Table of Contents

Section 1. Short Title Section 2. Purpose—Necessity for Regulation Section 3. Definitions Section 4. Placement of Insurance Business Section 5. Surplus Lines Insurance Section 6. Insurance Independently Procured—Duty to Report and Pay Tax Section 7. Penalties Section 8. Violations Section 9. Service of Process Section 10. Legal or Administrative Procedures Section 11. Enforcement Section 12. Suits by Nonadmitted Insurers Section 13. Separability of Provisions Section 14. Effective Date

Section 1. Short Title

This Act shall be known and may be cited as “The Nonadmitted Insurance Act.”

Section 2. Purpose—Necessity for Regulation

This Act shall be liberally construed and applied to promote its underlying purposes which include:

A. Protecting persons seeking insurance in this state;

B. Permitting surplus lines insurance to be placed with reputable and financially sound nonadmitted insurersand exported from this state pursuant to this Act;

C. Establishing a system of regulation which will permit orderly access to surplus lines insurance in this stateand encourage admitted insurers to provide new and innovative types of insurance available to consumers inthis state;

D. Providing a system through which persons may purchase insurance other than surplus lines insurance, fromnonadmitted insurers pursuant to this Act;

E. Protecting revenues of this state; and

F. Providing a system pursuant to this Act which subjects nonadmitted insurance activities in this state to thejurisdiction of the insurance commissioner and state and federal courts in suits by or on behalf of the state.

Section 3. Definitions

As used in this Act:

A. “Admitted insurer” means an insurer licensed to do an insurance business in this state.

B. “Capital,” as used in the financial requirements of Section 5, means funds paid in for stock or otherevidence of ownership.

C. “Commissioner” means the insurance commissioner of [insert name of state] , or the commissioner’sdeputies or staff, or the Commissioner, Director or Superintendent of Insurance in any other state.

Drafting Note: Insert the title of the chief insurance regulatory official wherever the term “commissioner” appears.

Attachment Three-A

D. “Eligible surplus lines insurer” means a nonadmitted insurer with which a surplus lines licensee may placesurplus lines insurance pursuant to Section 5 of this Act.

E. “Export” means to place surplus lines insurance with a nonadmitted insurer.

F. “Foreign decree” means any decree or order in equity of a court located in any United States jurisdiction,including a federal court of the United States, against any person engaging in the transaction of insurance inthis state.

G. “Insurer” means any person, corporation, association, partnership, reciprocal exchange, interinsurer, Lloydsinsurer, insurance exchange syndicate, fraternal benefit society, and any other legal entity engaged in thebusiness of insurance.

H. “Kind of insurance” means one of the types of insurance required to be reported in the annual statementwhich must be filed with the commissioner by admitted insurers.

I. “Nonadmitted insurer” means an insurer not licensed to do an insurance business in this state.

J. “Person” means any natural person or other entity, including, but not limited to, individuals, partnerships,associations, trusts or corporations.

K. “Policy” or “contract” means any contract of insurance, including but not limited to annuities, indemnity,medical or hospital service, workers’ compensation, fidelity or suretyship.

L. “Reciprocal state” means a state that has enacted provisions substantially similar to:

(1) Sections 5F, 5I(5), 5Q(10), 5R(4) and Section 6; and

(2) The allocation schedule and reporting form contained in [cite the regulation on surplus linestaxation].

M. “Surplus,” as used in the financial requirements of Section 5, means funds over and above liabilities andcapital of the company for the protection of policyholders.

N. “Surplus lines insurance” means any property and casualty insurance in this state on properties, risks orexposures, located or to be performed in this state, permitted to be placed through a surplus lines licenseewith a nonadmitted insurer eligible to accept such insurance, pursuant to Section 5 of this Act.

Drafting Note: If a state chooses to adopt the alternative Section 5B, this definition of “surplus lines insurance” should be consistent with the acceptable coverage listed in Section 5B. States may choose to extend the definition of “surplus lines insurance” beyond property/casualty insurance.

O. “Surplus lines licensee“ means an individual, firm or corporation licensed under Section 5 of this Act toplace insurance on properties, risks or exposures located or to be performed in this state with nonadmittedinsurers eligible to accept such insurance.

P. “Transaction of insurance”

(1) For purposes of this Act, any of the following acts in this state effected by mail or otherwise by anonadmitted insurer or by any person acting with the actual or apparent authority of the insurer, onbehalf of the insurer, is deemed to constitute the transaction of an insurance business in or fromthis state:

(a) The making of or proposing to make, as an insurer, an insurance contract;

(b) The making of or proposing to make, as guarantor or surety, any contract of guaranty orsuretyship as a vocation and not merely incidental to any other legitimate business oractivity of the guarantor or surety;

Attachment Three-A

(c) The taking or receiving of an application for insurance;

(d) The receiving or collection of any premium, commission, membership fees, assessments,dues or other consideration for insurance or any part thereof;

(e) The issuance or delivery in this state of contracts of insurance to residents of this state orto persons authorized to do business in this state;

(f) The solicitation, negotiation, procurement or effectuation of insurance or renewalsthereof;

(g) The dissemination of information as to coverage or rates, or forwarding of applications,or delivery of policies or contracts, or inspection of risks, the fixing of rates orinvestigation or adjustment of claims or losses or the transaction of matters subsequent toeffectuation of the contract and arising out of it, or any other manner of representing orassisting a person or insurer in the transaction of risks with respect to properties, risks orexposures located or to be performed in this state;

(h) The transaction of any kind of insurance business specifically recognized as transactingan insurance business within the meaning of the statutes relating to insurance;

(i) The offering of insurance or the transacting of insurance business; or

(j) Offering an agreement or contract which purports to alter, amend or void coverage of aninsurance contract.

(2) The provisions of this subsection shall not operate to prohibit employees, officers, directors orpartners of a commercial insured from acting in the capacity of an insurance manager or buyer inplacing insurance on behalf of the employer, provided that the person’s compensation is not basedon buying insurance.

(3) The venue of an act committed by mail is at the point where the matter transmitted by mail isdelivered or issued for delivery or takes effect.

Drafting Note: States may need to alter this subsection to reflect their decision as to whether they intend to permit citizens to directly purchase coverage within the state from a nonadmitted insurer, or if self-procurement of coverage will be permitted only when it occurs outside the state. States electing to allow direct procurement will need to insert an appropriate exemption in Section 4A of this Act. Additionally, states should consider whether the preceding definition of “transaction of insurance” is consistent with other statutory definitions of this phrase in the state. Finally, states may want to consider whether group insurance purchases or the maintenance of insurance books and records in this state should fall within the scope of the definition of “transaction of insurance.”

Q. “Type of insurance” means coverage afforded under the particular policy that is being placed.

R. “Wet marine and transportation insurance” means:

(1) Insurance upon vessels, crafts, hulls and other interests in them or with relation to them;

(2) Insurance of marine builder’s risks, marine war risks and contracts of marine protection andindemnity insurance;

(3) Insurance of freight and disbursements pertaining to a subject of insurance within the scope of thissubsection; and

Attachment Three-A

(4) Insurance of personal property and interests therein, in the course of exportation from orimportation into any country, or in the course of transportation coastwise or on inland waters,including transportation by land, water or air from point of origin to final destination, inconnection with any and all risks or perils of navigation, transit or transportation, and while beingprepared for and while awaiting shipment, and during any incidental delays, transshipment, orreshipment; provided, however, that insurance of personal property and interests therein shall notbe considered wet marine and transportation insurance if the property has:

(a) Been transported solely by land; or

(b) Reached its final destination as specified in the bill of lading or other shipping document;or

(c) The insured no longer has an insurable interest in the property.

Comment: The language added in 1994 to the end of the definition of “wet marine and transportation insurance” {Subparagraphs 4(a), 4(b), and 4(c)} is intended to clarify the scope of the definition, which ultimately affects the exemption of certain risks from this Act. The 1994 amendments address current regulatory concerns and concerns raised by those who drafted the 1983 amendments to the Model Surplus Lines Law. The 1983 drafters wrote: “Several [drafters] felt the term ‘storage’ should not appear in... [the wet marine definition] to ensure that warehousemen and other types of insurance covering risks of storage are not interpreted to be within the purview of this definition. The term ‘delays’ is sufficiently broad to cover temporary storage while in the course of transit.”

Drafting Note: In addition to the definitions provided in this section, individual states may wish to consider adopting definitions for “agent,” “broker” or “producer” in a manner consistent with its other laws. Additionally, states may want to cross-reference the definition of “insurance” as it appears elsewhere in the state insurance code. The definition of insurance should reach illegal unauthorized activities.

Section 4. Placement of Insurance Business

A. An insurer shall not engage in the transaction of insurance unless authorized by a license in force pursuantto the laws of this state, or exempted by this Act or otherwise exempted by the insurance laws of this state.

B. A person shall not engage in a transaction of insurance or shall in this state directly or indirectly act as agentfor, or otherwise represent or aid on behalf of another, a nonadmitted insurer in the solicitation, negotiation,procurement or effectuation of insurance, or renewals thereof, or forwarding of applications, or delivery ofpolicies or contracts or inspection of risks, or fixing of rates, or investigation or adjustment of claims orlosses, or collection or forwarding of premiums, or in any other manner represent or assist the insurer in thetransaction of insurance.

C. A person who represents or aids a nonadmitted insurer in violation of this section shall be subject to thepenalties set forth in Section 7 of this Act. No insurance contract entered into in violation of this sectionshall preclude the insured from enforcing his rights under the contract in accordance with the terms andprovisions of the contract of insurance and the laws of this state, to the same degree those rights would havebeen enforceable had the contract been lawfully procured.

D. If the nonadmitted insurer fails to pay a claim or loss within the provisions of the insurance contract and thelaws of this state, a person who assisted or in any manner aided directly or indirectly in the procurement ofthe insurance contract, shall be liable to the insured for the full amount under the provisions of the insurancecontract.

E. Section 4B or 4D shall not apply to a person in regard to an insured who independently procures insuranceas provided under Section 6. This section shall not apply to a person, properly licensed as an agent orbroker in this state who, for a fee and pursuant to a written agreement, is engaged solely to offer to theinsured advice, counsel or opinion, or service with respect to the benefits, advantages or disadvantagespromised under any proposed or in-force policy of insurance if the person does not, directly or indirectly,participate in the solicitation, negotiation or procurement of insurance on behalf of the insured;

Drafting Note: If a state collects tax on unlicensed transactions which violate this Act, it may consider imposing liability for payment of those taxes on persons who violate this Act by assisting in the procurement of nonadmitted insurance.

Drafting Note: Some states permit other licensed professionals to engage in these activities as provided in their insurance statutes or other state statutes. Those states may want to amend Section 4E to include those professionals, to the extent they act within the scope of their licenses.

Attachment Three-A

F. This section shall not apply to a person acting in material compliance with the insurance laws of this state inthe placement of the types of insurance identified in Paragraphs (1), (2), (3) and (4) below:

(1) Surplus lines insurance as provided in Section 5. For the purposes of this subsection, a licenseeshall be deemed to be in material compliance with the insurance laws of this state, unless thelicensee committed a violation of Section 5 that proximately caused loss to the insured;

(2) Transactions for which a certificate of authority to do business is not required of an insurer underthe insurance laws of this state;

Drafting Note: A number of states exempt from licensing and premium taxation nonprofit educational insurers insuring only nonprofit educational institutions and their employees. Some states require certificates of authority while others require licensing, and the appropriate language should be used in Paragraph (2) above. Additionally, some states may want to consider adding language to establish an option of allowing persons to file for an exemption with the Department of Insurance.

(3) Reinsurance provided that, unless the commissioner waives the requirements of this subsection:

(a) The assuming insurer is authorized to do an insurance or reinsurance business by itsdomiciliary jurisdiction and is authorized to write the type of reinsurance in itsdomiciliary jurisdiction; and

(b) The assuming insurer satisfies all legal requirements for such reinsurance in the state ofdomicile of the ceding insurer;

(4) The property and operation of railroads or aircraft engaged in interstate or foreign commerce, wetmarine and transportation insurance;

(5) Transactions subsequent to issuance of a policy not covering properties, risks or exposures located,or to be performed in this state at the time of issuance, and lawfully solicited, written or deliveredoutside this state.

Drafting Note: States may also wish to consider exempting from Section 4A of this Act self-procured insurance or industrial insurance purchased by a sophisticated buyer who does not necessarily require the same regulatory protections as an average insurance buyer. Additionally, some states allow other insurance transactions with nonadmitted insurers. Examples include certain aviation and railroad risks. Other states may want to narrow the scope of the exemptions above or reserve the right to approve exemptions on a case-by-case basis.

Section 5. Surplus Lines Insurance

A. Surplus lines insurance may be placed by a surplus lines licensee if:

(1) Each insurer is an eligible surplus lines insurer; and

(2) Each insurer is authorized to write the type of insurance in its domiciliary jurisdiction; and

(3) The full amount or type of insurance cannot be obtained from insurers who are admitted to dobusiness in this state. The full amount or type of insurance may be procured from eligible surpluslines insurers, provided that a diligent search is made among the insurers who are admitted totransact and are actually writing the particular type of insurance in this state if any are writing it;and

(4) All other requirements of this Act are met.

Drafting Note: States may prefer to reference “kind of insurance” rather than “type of insurance” in Section 5A(3). The term utilized should be defined within the Act.

The diligent search requirement of Section 5A(3) must be satisfied in accordance with the statutes and regulations of the governing state. Such statutes and regulations might vary from state to state in terms of the number of declinations required and the person designated to conduct the search.

Section 5A(3) does not prohibit a regulatory system in which a surplus lines licensee may place with an eligible nonadmitted insurer any coverage listed on a current “export list” maintained by the commissioner. The export list would identify types of insurance for which no admitted market exists. The commissioner may waive the diligent search requirement for any such type of insurance.

Attachment Three-A

Drafting Note: Utilizing the “full amount” standard in Section 5A(3) of this Act may have certain market implications. An alternative to this approach would be to require that whatever part of the coverage is attainable through the admitted market be placed in the admitted market and only the excess part of the coverage may be exported.

B. Subject to Section 5A(3) of this Act, a surplus lines licensee may place any coverage with a nonadmittedinsurer eligible to accept the insurance, unless specifically prohibited by the laws of this state.

[Alternative Subsection B]

[B. Subject to Section 5A(3) of this Act, a surplus lines licensee may place only the following types of coverage with a nonadmitted insurer eligible to accept insurance: {list acceptable coverage}.]

Drafting Note: The two statutory alternatives described in Section 5B represent different regulatory approaches to defining those coverages which may be placed in the nonadmitted market and they would impact the admitted market in different manners.

C. A surplus lines licensee shall not place coverage with a nonadmitted insurer, unless, at the time ofplacement, the surplus lines licensee has determined that the nonadmitted insurer:

(1) Has established satisfactory evidence of good repute and financial integrity; and

(2) Qualifies under one of the following subparagraphs:

(a) Has capital and surplus or its equivalent under the laws of its domiciliary jurisdictionwhich equals the greater of:

(i) (I) The minimum capital and surplus requirements under the law of this state; or

(II) $15,000,000;

Drafting Note: States that have not previously increased capital and surplus requirements may wish to consider implementation of the capital and surplus requirements in this subparagraph in a series of phases over a period of up to three (3) years. In some circumstances, implementation of a $15,000,000 capital and surplus requirement may represent a dramatic increase over existing requirements. States may wish to allow insurers which are eligible under existing law some period of time to increase their capital and surplus to meet the new standards.

(ii) The requirements of Subparagraph (a)(i) may be satisfied by an insurer’spossessing less than the minimum capital and surplus upon an affirmative findingof acceptability by the commissioner. The finding shall be based upon suchfactors as quality of management, capital and surplus of any parent company,company underwriting profit and investment income trends, market availabilityand company record and reputation within the industry. In no event shall thecommissioner make an affirmative finding of acceptability when the nonadmittedinsurer’s capital and surplus is less than $4,500,000; or

(b) In the case of an insurance exchange created by the laws of a state other than this state:

(i) The syndicates of the exchange shall maintain under terms acceptable to thecommissioner capital and surplus, or its equivalent under the laws of itsdomiciliary jurisdiction, of not less than $75,000,000 in the aggregate; and

(ii) The exchange shall maintain under terms acceptable to the commissioner not lessthan fifty percent (50%) of the policyholder surplus of each syndicate in acustodial account accessible to the exchange or its domiciliary commissioner inthe event of insolvency or impairment of the individual syndicate; and

(iii) In addition, each individual syndicate to be eligible to accept surplus linesinsurance placements from this state shall meet either of the followingrequirements:

Attachment Three-A

(I) For insurance exchanges which maintain funds in an amount of not lessthan $15,000,000 for the protection of all exchange policyholders, thesyndicate shall maintain under terms acceptable to the commissionerminimum capital and surplus, or its equivalent under the laws of thedomiciliary jurisdiction, of not less than $5,000,000; or

(II) For insurance exchanges which do not maintain funds in an amount ofnot less than $15,000,000 for the protection of all exchangepolicyholders, the syndicate shall maintain under terms acceptable tothe commissioner minimum capital and surplus, or its equivalent underthe laws of its domiciliary jurisdiction, of not less than the minimumcapital and surplus requirements under the laws of its domiciliaryjurisdiction or $15,000,000, whichever is greater; or

Drafting Note: Some states may want to cross-reference statutory provisions in their own states which provide a grandfather clause for syndicates established with a lower capital and surplus requirement.

(c) In the case of a Lloyd’s plan or other similar group of insurers, which consists ofunincorporated individual insurers, or a combination of both unincorporated andincorporated insurers:

(i) The plan or group maintains a trust fund that shall consist of a trusteed accountrepresenting the group’s liabilities attributable to business written in the UnitedStates; and

(ii) In addition, the group shall establish and maintain in trust a surplus in theamount of $100,000,000; which shall be available for the benefit of UnitedStates surplus lines policyholders of any member of the group.

(iii) The incorporated members of the group shall not be engaged in any businessother than underwriting as a member of the group and shall be subject to thesame level of solvency regulation and control by the group’s domiciliaryregulator as are the unincorporated members.

(iv) The trust funds shall be maintained in an irrevocable trust account in the UnitedStates in a qualified financial institution, consisting of cash, securities, letters ofcredit or investments of substantially the same character and quality as thosewhich are eligible investments for the capital and statutory reserves of admittedinsurers to write like kinds of insurance in this state and, in addition, the trustrequired by item (ii) of this paragraph shall satisfy the requirements of theStandard Trust Agreement required for listing with the National Association ofInsurance Commissioners (NAIC) International Insurers Department; or

(d) In the case of a group of incorporated insurers under common administration, which hascontinuously transacted an insurance business outside the United States for at least three(3) years immediately prior to this time, and which submits to this state’s authority toexamine its books and records and bears the expense of the examination:

(i) The group shall maintain an aggregate policyholders’ surplus of$10,000,000,000; and

(ii) The group shall maintain in trust a surplus in the amount of $100,000,000; whichshall be available for the benefit of United States surplus lines policyholders ofany member of the group; and

(iii) Each insurer shall individually maintain capital and surplus of not less than$25,000,000 per company.

Attachment Three-A

(iv) The trust funds shall satisfy the requirements of the Standard Trust Agreementrequirement for listing with the NAIC International Insurers Department, andshall be maintained in an irrevocable trust account in the United States in aqualified financial institution, and shall consist of cash, securities, letters ofcredit or investments of substantially the same character and quality as thosewhich are eligible investments for the capital and statutory reserves of admittedinsurers to write like kinds of insurance in this state.

(v) Additionally, each member of the group shall make available to thecommissioner an annual certification of the member’s solvency by the member’sdomiciliary regulator and its independent public accountant; or

(e) Except for an exchange or plan complying with Subparagraph (b), (c) or (d), an insurernot domiciled in one of the United States or its territories shall satisfy the capital andsurplus requirements of Subsection C(2)(a) of this section and shall have in force a trustfund of not less than the greater of:

(i) $5,400,000; or

(ii) Thirty percent (30%) of the United States surplus lines gross liabilities,excluding aviation, wet marine and transportation insurance liabilities, not toexceed $60,000,000, to be determined annually on the basis of accountingpractices and procedures substantially equivalent to those promulgated by thisstate, as of December 31 next preceding the date of determination, where:

(I) The liabilities are maintained in an irrevocable trust account in theUnited States in a qualified financial institution, on behalf of U.S.policyholders consisting of cash, securities, letters of credit or otherinvestments of substantially the same character and quality as thosewhich are eligible investments pursuant to [cite insurance investmentlaw] for the capital and statutory reserves of admitted insurers to writelike kinds of insurance in this state. The trust fund, which shall beincluded in any calculation of capital and surplus or its equivalent, shallsatisfy the requirements of the Standard Trust Agreement required forlisting with the NAIC International Insurers Department; and

(II) The insurer may request approval from the commissioner to use thetrust fund to pay valid surplus lines claims; provided, however, that thebalance of the trust fund is never less than the greater of $5,400,000 orthirty percent (30%) of the insurer’s current gross U.S. surplus linesliabilities, excluding aviation, wet marine and transportation insuranceliabilities; and

(III) In calculating the trust fund amount required by this subsection, creditshall be given for surplus lines deposits separately required andmaintained for a particular state or U.S. territory, not to exceed theamount of the insurer’s loss and loss adjustment reserves in theparticular state or territory;

Drafting Note: The commissioner may wish to establish the authority to set a higher level on a case-by-case basis.

(f) An insurer or group of insurers meeting the requirements to do a surplus lines business inthis state at the effective date of this law shall have two (2) years from the date ofenactment to meet the requirements of Subparagraph (e), as follows:

Attachment Three-A

Year Following Enactment Trust Fund Requirement

1 15% of U.S. surplus lines liabilities, excluding aviation, wet marine and transportation insurance, with a maximum of

$30,000,000

2 30% of U.S. surplus lines liabilities, excluding aviation, wet marine and transportation insurance, with a maximum of

$60,000,000.

(g) The commissioner shall have the authority to adjust, in response to inflation, the trustfund amounts required by Subparagraph (e).

(3) In addition to all of the other requirements of this subsection, an insurer not domiciled in theUnited States or its territories shall be listed by the NAIC International Insurers Department. Thecommissioner may waive the requirement in Paragraph (3) or the requirements of Section5C(2)(e)(ii) may be satisfied by an insurer’s possessing less than the trust fund amount specified inSection 5C(2)(e)(ii) upon an affirmative finding of acceptability by the commissioner if thecommissioner is satisfied that the placement of insurance with the insurer is necessary and will notbe detrimental to the public and the policyholder. In determining whether business may be placedwith the insurer, the commissioner may consider such factors as:

(a) The interests of the public and policyholders;

(b) The length of time the insurer has been authorized in its domiciliary jurisdiction andelsewhere;

(c) Unavailability of particular coverages from authorized insurers or unauthorized insurersmeeting the requirements of this section;

(d) The size of the company as measured by its assets, capital and surplus, reserves, premiumwritings, insurance in force or other appropriate criteria;

(e) The kinds of business the company writes, its net exposure and the extent to which thecompany’s business is diversified among several lines of insurance and geographiclocations; and

(f) The past and projected trend in the size of the company’s capital and surplus consideringsuch factors as premium growth, operating history, loss and expense ratios, or otherappropriate criteria; and

(4) Has caused to be provided to the commissioner a copy of its current annual statement certified bythe insurer and an actuarial opinion as to the adequacy of, and methodology used to determine, theinsurer’s loss reserves. The statement shall be provided at the same time it is provided to theinsurer’s domicile, but in no event more than eight (8) months after the close of the period reportedupon, and shall be certified as a true and correct copy by an accounting or auditing firm licensed inthe jurisdiction of the insurer’s domicile and certified by a senior officer of the nonadmitted insureras a true and correct copy of the statement filed with the regulatory authority in the domicile of thenonadmitted insurer. In the case of an insurance exchange qualifying under Paragraph (2)(b) of thissubsection, the statement may be an aggregate combined statement of all underwriting syndicatesoperating during the period reported; and

Drafting Note: The following paragraph is for use by those states which desire to adopt a “white list” for determining the eligibility of nonadmitted insurers to write surplus lines insurance.

Attachment Three-A

(5) In addition to meeting the requirements in Paragraphs (1) to (4) of this subsection an insurer shallbe an eligible surplus lines insurer if it appears on the most recent list of eligible surplus linesinsurers published by the commissioner from time to time but at least semi-annually. Nothing inthis paragraph shall require the commissioner to place or maintain the name of any nonadmittedinsurer on the list of eligible surplus lines insurers.

(6) Notwithstanding Section 5A, only that portion of any risk eligible for export for which the fullamount of coverage is not procurable from listed eligible surplus lines insurers may be placed withany other nonadmitted insurer which does not appear on the list of eligible surplus lines insurerspublished by the commissioner pursuant to Paragraph (5) of this subsection but nonetheless meetsthe requirements set forth in Sections 5C(1) and 5C(2) and any regulations of the commissioner.The surplus lines licensee seeking to provide coverage through an unlisted nonadmitted insurershall make a filing specifying the amounts and percentages of each risk to be placed, and namingthe nonadmitted insurers with which placement is intended. Within [insert number] days afterplacing the coverage, the surplus lines licensee shall also send written notice to the insured or theproducing broker that the insurance, or a portion thereof, has been placed with the nonadmittedinsurer.

D. Insurance procured under this section shall be valid and enforceable as to all parties.

E. Withdrawal of Eligibility as a Surplus Lines Insurer

If at any time the commissioner has reason to believe that a surplus lines insurer:

(1) Is in unsound financial condition or has acted in an untrustworthy manner;

(2) No longer meets standards set forth in Section 5C of this Act;

(3) Has willfully violated the laws of this state; or

(4) Does not conduct a proper claims practice.

The commissioner may declare it ineligible. The commissioner shall promptly mail notice of all such declarations to each surplus lines licensee or surplus lines advisory organization, for distribution to all surplus lines licensees.

Drafting Note: Individual states should consider whether such declarations of ineligibility are appropriate in view of the state’s other due process and administrative procedure requirements.

F. Surplus Lines Tax

(1) In addition to the full amount of gross premiums charged by the insurer for the insurance, everyperson licensed pursuant to Section 5H of this Act shall collect and pay to the commissioner a sumequal to [insert number] percent of the gross premiums charged, less any return premiums, forsurplus lines insurance provided by the licensee pursuant to the license. Where the insurancecovers properties, risks or exposures located or to be performed both in and out of this state, thesum payable shall be computed on that portion of the gross premiums allocated to this statepursuant to Paragraph (4) of this subsection less the amount of gross premiums allocated to thisstate and returned to the insured. The tax on any portion of the premium unearned at termination ofinsurance having been credited by the state to the licensee shall be returned to the policyholderdirectly by the surplus lines licensee or through the producing broker, if any. The surplus lineslicensee is prohibited from rebating, for any reason, any part of the tax.

(2) At the time of filing the [insert monthly, quarterly, annual] report as set forth in Subsection R ofthis section, each surplus lines licensee shall pay the premium tax due for the policies writtenduring the period covered by the report.

Attachment Three-A

(3) If a surplus lines policy procured through a surplus lines licensee covers properties, risks orexposures only partially located or to be performed in this state, the tax due shall be computed onthe portions of the premiums which are attributable to the properties, risks or exposures located orto be performed in this state. In determining the amount of premiums taxable in this state, allpremiums written, procured or received in this state shall be considered written on properties, risksor exposures located or to be performed in this state, except premiums which are properlyallocated or apportioned and reported as taxable premiums of a reciprocal state. In no event shallthe tax payable to this state be less than the tax due pursuant to Paragraph (4) of this subsection;provided, however, in the event that the amount of tax due under this provision is less than $50 inany jurisdiction, it shall be payable in the jurisdiction in which the affidavit required in SubsectionK of this section is filed. The commissioner shall, at least annually furnish to the commissioner ofa reciprocal state, as defined in Section 3L, a copy of all filings reporting an allocation of taxes asrequired by this subsection.

(4) In determining the amount of gross premiums taxable in this state for a placement of surplus linesinsurance covering properties, risks or exposures only partially located or to be performed in thisstate, the tax due shall be computed on the portions of the premiums which are attributable toproperties, risks or exposures located or to be performed in this state and which relates to the kindsof insurance being placed as determined by reference to an allocation schedule duly promulgatedin a regulation by the commissioner.

(a) If a policy covers more than one classification:

(i) For any portion of the coverage identified by a classification on the AllocationSchedule, the tax shall be computed by using the Allocation Schedule for thecorresponding portion of the premium;

(ii) For any portion of the coverage not identified by a classification on theAllocation Schedule, the tax shall be computed by using an alternative equitablemethod of allocation for the property or risk;

(iii) For any portion of the coverage where the premium is indivisible, the tax shallbe computed by using the method of allocation which pertains to theclassification describing the predominant coverage.

(b) If the information provided by the surplus lines licensee is insufficient to substantiate themethod of allocation used by the surplus lines licensee, or if the commissioner determinesthat the licensee’s method is incorrect, the commissioner shall determine the equitable andappropriate amount of tax due to this state as follows:

(i) By use of the Allocation Schedule where the risk is appropriately identified inthe schedule;

(ii) Where the Allocation Schedule does not identify a classification appropriate tothe coverage, the commissioner may give significant weight to documentedevidence of the underwriting bases and other criteria used by the insurer. Thecommissioner may also consider other available information to the extentsufficient and relevant, including the percentage of the insured’s physical assetsin this state, the percentage of the insured’s sales in this state, the percentage ofincome or resources derived from this state, and the amount of premium tax paidto another jurisdiction for the policy.

Drafting Note: Subparagraph (b) above may be included in the Act or in a separate regulation at the option of the state. It is highly recommended that the model Allocation Schedule and reporting form be adopted by regulation in conjunction with the adoption of the above language. In order for the model law to work effectively, the allocation schedules used by the states should be as uniform as possible.

Attachment Three-A

G. Collection of Tax

If the tax owed by a surplus lines licensee under this section has been collected and is not paid within thetime prescribed, the same shall be recoverable in a suit brought by the commissioner against the surpluslines licensee and the surety on the bond filed under Subsection H of this section. The commissioner maycharge interest at the rate of [insert number] percent per year for the unpaid tax.

H. Surplus Lines Licenses

(1) A person shall not procure a contract of surplus lines insurance with a nonadmitted insurer unlessthe person possesses a current surplus lines insurance license issued by the commissioner.

(2) The commissioner may issue a surplus lines license to a qualified holder of a current property andcasualty agent’s or broker’s or general agent’s license but only when the broker or agent has:

(a) Remitted the $[insert amount] annual fee to the commissioner;

(b) Submitted a completed license application on a form supplied by the commissioner;

(c) Passed a qualifying examination approved by the commissioner, except that all holders ofa license prior to the effective date of this Act shall be deemed to have passed such anexamination;

(d) In the case of a resident agent, filed with the commissioner, and continues to maintainduring the term of the license, in force and unimpaired, a bond in favor of this state in thepenal sum of $[insert amount] aggregate liability, with corporate sureties approved by thecommissioner. The bond shall be conditioned that the surplus lines licensee will conductbusiness in accordance with the provisions of this Act and will promptly remit the taxes asprovided by law. No bond shall be terminated unless at least thirty (30) days prior writtennotice is given to the licensee and commissioner;

Drafting note: Under Public Law No. 106-102 (the “Gramm-Leach-Bliley Act”), it is believed that a requirement for a nonresident agent to file a bond may contravene the reciprocity provisions. The requirement for a resident agent to file a bond would not, seemingly, contravene these provisions, and there may be methodologies whereby such resident bonds could become reciprocal between states. Some states have expressed concern that their bonding requirements constitute important consumer protections, and that elimination of these simply to comply with Gramm-Leach-Bliley may result in unintended consequences, and a lack of control over possibly unscrupulous nonresident agents.

(e) If a resident, established and continues to maintain an office in this state; and

(f) Designated the commissioner as agent for service of process, thereby designating thecommissioner to be the licensee’s true and lawful attorney upon whom may be served alllawful process in a proceeding instituted by or on behalf of an insured or beneficiaryarising out of any contract of insurance, and shall signify its agreement that such serviceof process is of the same legal force and validity as personal service of process in thisstate upon the licensee.

(3) A nonresident person shall receive a nonresident surplus lines license if:

(a) The person is currently licensed as a surplus lines licensee and in good standing in his orher home state;

(b) The person has submitted the proper request for licensure and has paid the fees requiredby [insert appropriate reference to state law or regulation];

(c) The person has submitted or transmitted to the insurance commissioner the application forlicensure that the person submitted to his or her home state, or in lieu of the same, acompleted Uniform Application; and

Attachment Three-A

(d) The person’s home state awards nonresident surplus lines licenses to residents of this stateon the same basis.

Drafting Note: In accordance with Public Law No. 106-102 (the “Gramm-Leach-Bliley Act”) states should not require any additional attachments to the Uniform Application or impose any other conditions on applicants that exceed the information requested within the Uniform Application.

(4) The insurance commissioner may verify the person’s licensing status through the ProducerDatabase maintained by the National Association of Insurance Commissioners, its affiliates orsubsidiaries.

(5) A nonresident surplus lines licensee who moves from one state to another state or a residentsurplus lines licensee who moves from this state to another state shall file a change of address andprovide certification from the new resident state within thirty (30) days of the change of legalresidence. No fee or license application is required.

(6) The insurance commissioner shall waive any requirements for a nonresident surplus lines licenseapplicant with a valid license from his or her home state, except the requirements imposed by thissubsection, if the applicant’s home state awards nonresident surplus lines licenses to residents ofthis state on the same basis.

(7) Each surplus lines license shall expire on [insert date] of each year, and an application for renewalshall be filed before [insert date] of each year upon payment of the annual fee and compliance withother provisions of this section. A surplus lines licensee who fails to apply for renewal of thelicense before [insert date] shall pay a penalty of $[insert amount] and be subject to penaltiesprovided by law before the license will be renewed.

Drafting Note: States may wish to reference their specific licensing statutes in this section.

Drafting Note: Some states allow surplus lines licensees to hold binding authorities on behalf of eligible surplus lines insurers. States which allow such binding authorities might want to establish minimum standards for the related agreements. In addition, states might want to consider requiring surplus lines licensees with such binding authorities to submit the related agreements to state regulators for review and approval.

I. Suspension, Revocation or Nonrenewal of Surplus Lines Licensee’s License

The commissioner may suspend, revoke or refuse to renew the license of a surplus lines licensee after noticeand hearing as provided under the applicable provision of this state’s laws upon one or more of thefollowing grounds:

(1) Removal of the resident surplus lines licensee’s office from this state;

(2) Removal of the resident surplus lines licensee’s office accounts and records from this state duringthe period during which the accounts and records are required to be maintained under SubsectionQ of this section;

(3) Closing of the surplus lines licensee’s office for a period of more than thirty (30) business days,unless permission is granted by the commissioner;

(4) Failure to make and file required reports;

(5) Failure to transmit required tax on surplus lines premiums to this state or a reciprocal state towhich a tax is owing;

(6) Failure to maintain required bond;

(7) Violation of any provision of this Act; or

(8) For any cause for which an insurance license could be denied, revoked, suspended or renewalrefused under Sections [insert applicable citation].

Attachment Three-A

J. Actions Against Eligible Surplus Lines Insurers Transacting Surplus Lines Business

(1) An eligible surplus lines insurer may be sued upon a cause of action arising in this state under asurplus lines insurance contract made by it or evidence of insurance issued or delivered by thesurplus lines licensee. A policy issued by the eligible surplus lines insurer shall contain a provisionstating the substance of this section and designating the person to whom the commissioner shallmail process.

(2) The remedies provided in this section are in addition to any other methods provided by law forservice of process upon insurers.

K. Duty to File Evidence of Insurance and Affidavits

Within [insert number] days after the placing of any surplus lines insurance, each producing broker shallexecute and each surplus lines licensee shall execute where appropriate, and file a written report regardingthe insurance which shall be kept confidential by the commissioner, including the following:

(1) The name and address of the insured;

(2) The identity of the insurer or insurers;

(3) A description of the subject and location of the risk;

(4) The amount of premium charged for the insurance;

(5) Such other pertinent information as the commissioner may reasonably require; and

(6) An affidavit on a standardized form promulgated by the commissioner, as to the diligent efforts toplace the coverage with admitted insurers and the results of that effort. The affidavit shall be opento public inspection. The affidavit shall affirm that the insured was expressly advised in writingprior to placement of the insurance that:

(a) The surplus lines insurer with whom the insurance was to be placed is not licensed in thisstate and is not subject to its supervision; and

(b) In the event of the insolvency of the surplus lines insurer, losses will not be paid by thestate insurance guaranty fund.

Drafting Note: Surplus lines licensees will frequently communicate with the insured through a producing broker rather than communicate with the insured directly. In preparing affidavit forms, states may wish to recognize that, as a result of communications passing through the producing broker, the surplus lines licensee may not be in a position to affirm, based upon personal knowledge, that the insured received from the producing broker the written information required by this subsection.

L. Surplus Lines Advisory Organizations

(1) There is hereby created a nonprofit association to be known as the [insert name]. All surplus lineslicensees shall be deemed to be members of the association. The association shall perform itsfunctions under the plan of operation established pursuant to Paragraph (3) of this subsection andmust exercise its powers through a board of directors established under Paragraph (2) of thissubsection. The association shall be supervised by the commissioner. The association shall beauthorized and have the duty to:

Drafting Note: The preceding paragraph provides that all surplus lines licensees are “deemed” to be members of the association. Some states, however, may choose not to establish a surplus lines advisory organization; in those states Subsection L would not be necessary.

(a) Receive, record, and subject to Subparagraph (b) of this paragraph, stamp all surplus linesinsurance documents which surplus lines brokers are required to file with the associationpursuant to the plan of operation;

Attachment Three-A

Drafting Note: Subparagraph (a) of this paragraph authorizes the association to receive, record and stamp all surplus lines documents which must be submitted to the association pursuant to the plan of operation. Documents to be submitted to the association for stamping are likely to vary by state.

(b) Refuse to stamp submitted insurance documents, if the association determines that anonadmitted insurer does not meet minimum state financial standards of eligibility, or thecommissioner orders the association not to stamp insurance documents pursuant toParagraph (9) of this subsection. The association shall notify the commissioner andprovide an explanation for any refusal to stamp submitted insurance documents other thana refusal based upon the order of the commissioner;

(c) Prepare and deliver annually to each licensee and to the commissioner a report regardingsurplus lines business. The report shall include a delineation of the classes of businessprocured during the preceding calendar year, in the form the board of directors prescribes;

(d) Encourage compliance by its members with the surplus lines law of this state and the rulesand regulations of the commissioner relative to surplus lines insurance;

(e) Communicate with organizations of agents, brokers and admitted insurers with respect tothe proper use of the surplus lines market;

(f) Employ and retain persons as necessary to carry out the duties of the association;

(g) Borrow money as necessary to effect the purposes of the association;

(h) Enter contracts as necessary to effect the purposes of the association; and

(i) Provide such other services to its members as are incidental or related to the purposes ofthe association.

(2) The association shall function through a board of directors elected by the association members,and officers who shall be elected by the board of directors.

(a) The board of directors of the association shall consist of not less than five (5) nor morethan nine (9) persons serving terms as established in the plan of operation. The plan ofoperation shall provide for the election of a board of directors by the members of theassociation from its membership. The plan of operation shall fix the manner of voting andmay weigh each member’s vote to reflect the annual surplus lines insurance premiumwritten by the member.

(b) The board of directors shall elect officers as provided for in the plan of operation.

(3) The association shall establish a plan of operation. The plan of operation shall provide for theformation, operation and governance of the association. The plan and any amendments shall beeffective upon approval by the commissioner, which shall not be unreasonably withheld ordelayed. All association members shall comply with the plan of operation or any amendments to it.Failure to comply with the plan of operation or any amendments shall constitute a violation of theinsurance law and the commissioner may issue an order requiring discontinuance of the violation.

(4) The association shall file with the commissioner:

(a) A copy of its plan of operation and any amendments to it;

(b) A current list of its members revised at least annually;

Attachment Three-A

(c) The name and address of a resident of this state upon whom notices or orders of thecommissioner or processes issued at the direction of the commissioner may be served;and

(d) An agreement that the commissioner may examine the association in accordance with theprovisions of Paragraph (5) of this subsection.

(5) The commissioner shall, at least once in [insert number] years, make or cause to be made anexamination of the association. The reasonable cost of an examination shall be paid by theassociation upon presentation to it by the commissioner of a detailed account of each cost. Theofficers, managers, agents, and employees of the association may be examined at any time, underoath, and shall exhibit all books, records, accounts, documents or agreements governing its methodof operation. The commissioner shall furnish a copy of the examination report to the associationand shall notify the association that it may request a hearing within thirty (30) days on the report oron any facts or recommendations contained in it. If the commissioner finds the association to be inviolation of this section, the commissioner may issue an order requiring the discontinuance of theviolation. A director may be removed from the association’s board of directors by thecommissioner for cause, stated in writing, after an opportunity has been given to the director to beheard.

(6) There shall be no liability on the part of and no causes of action of any nature shall arise againstthe association, its directors, officers, agents or employees for any action taken or omitted by themin the performance of their powers and duties under this section, absent gross negligence or willfulmisconduct.

(7) Within [insert number] days after a surplus lines policy is procured, a licensee shall submit to theassociation for recording and stamping all documents which surplus lines brokers are required tofile with the association. Every insurance document submitted to the association pursuant to thissubsection shall set forth:

(a) The name and address of the insured;

(b) The gross premium charged;

(c) The name of the nonadmitted insurer; and

(d) The class of insurance procured.

Drafting Note: The appropriate time limits for submitting documents required for stamping will vary by state.

(8) It shall be unlawful for an insurance agent, broker or surplus lines broker to deliver in this state anyinsurance document which surplus lines brokers are required to file with the association unless theinsurance document is stamped by the association or is exempt from such requirements. However,a licensee’s failure to comply with the requirements of this subsection shall not affect the validityof the coverage.

(9) The services performed by the association shall be funded by a stamping fee assessed for eachpremium-bearing document submitted to the association. The stamping fee shall be established bythe board of directors of the association from time to time. The stamping fee shall be paid by theinsured.

(10) The commissioner may declare a nonadmitted insurer ineligible and order the association not tostamp insurance documents issued by the nonadmitted insurer and issue any other appropriateorder.

Attachment Three-A

M. Evidence of the Insurance and Subsequent Changes to the Insurance

(1) Upon placing surplus lines insurance, the surplus lines licensee shall promptly deliver to theinsured or the producing broker the policy, or if the policy is not then available, a certificate asdescribed in Paragraph (4) of this subsection, cover note, binder or other evidence of insurance.The certificate described in Paragraph (4) of this subsection, cover note, binder or other evidenceof insurance shall be executed by the surplus lines licensee and shall show the description andlocation of the subject of the insurance, coverages including any material limitations other thanthose in standard forms, a general description of the coverages of the insurance, the premium andrate charged and taxes to be collected from the insured, and the name and address of the insuredand surplus lines insurer or insurers and proportion of the entire risk assumed by each, and thename of the surplus lines licensee and the licensee’s license number.

(2) A surplus lines licensee shall not issue or deliver any evidence of insurance or purport to insure orrepresent that insurance will be or has been written by any eligible surplus lines insurer, or anonadmitted insurer pursuant to Section 5C(4), unless the licensee has authority from the insurer tocause the risk to be insured, or has received information from the insurer in the regular course ofbusiness that the insurance has been granted.

(3) If, after delivery of any evidence of insurance, there is any change in the identity of the insurers, orthe proportion of the risk assumed by any insurer, or any other material change in coverage asstated in the surplus lines licensee’s original evidence of insurance, or in any other material as tothe insurance coverage so evidenced, the surplus lines licensee shall promptly issue and deliver tothe insured or the original producing broker an appropriate substitute for, or endorsement of theoriginal document, accurately showing the current status of the coverage and the insurersresponsible for the coverage.

(4) As soon as reasonably possible after the placement of the insurance, the surplus lines licensee shalldeliver a copy of the policy or, if not available, a certificate of insurance to the insured orproducing broker to replace any evidence of insurance previously issued. Each certificate or policyof insurance shall contain or have attached a complete record of all policy insuring agreements,conditions, exclusions, clauses, endorsements or any other material facts that would regularly beincluded in the policy.

(5) A surplus lines licensee who fails to comply with the requirements of this subsection shall besubject to the penalties provided in this Act.

(6) The surplus lines licensee shall give the following consumer notice to every person applying forinsurance with a nonadmitted insurer. The notice shall be printed in 16-point type on a separatedocument affixed to the application. The applicant shall sign and date a copy of the notice toacknowledge receiving it. The surplus lines licensee shall maintain the signed notice in its file for aperiod of five (5) years from expiration of the policy. The surplus lines licensee shall tender a copyof the signed notice to the insured at the time of delivery of each policy the licensee transacts witha nonadmitted insurer. The copy shall be a separate document affixed to the policy.

“Notice: 1. An insurer that is not licensed in this state is issuing the insurance policy that youhave applied to purchase. These companies are called “nonadmitted” or “surplus lines” insurers.2. The insurer is not subject to the financial solvency regulation and enforcement that applies tolicensed insurers in this state. 3. These insurers generally do not participate in insurance guarantyfunds created by state law. These guaranty funds will not pay your claims or protect your assets ifthe insurer becomes insolvent and is unable to make payments as promised. 4. Some statesmaintain lists of approved or eligible surplus lines insurers and surplus lines brokers may use onlyinsurers on the lists. Some states issue orders that particular surplus lines insurers can not beused. 5. For additional information about the above matters and about the insurer, you should askquestions of your insurance agent, broker or surplus lines broker. You may also contact yourinsurance department consumer help line.”

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Drafting Note: This notice is intended to inform personal lines customers and smaller commercial risks of the nature of the coverage they are purchasing. A state may wish to add language to this statute providing that this notice need not be given to commercial risks meeting defined criteria for size and insurance expertise.

N. Licensee’s Duty to Notify Insured

(1) No contract of insurance placed by a surplus lines licensee under this Act shall be binding upon theinsured and no premium charged shall be due and payable until the surplus lines licensee or theproducing broker shall have notified the insured in writing, in a form acceptable to thecommissioner, a copy of which shall be maintained by the licensee or the producing broker withthe records of the contract and available for possible examination, that:

(a) The insurer with which the licensee places the insurance is not licensed by this state and isnot subject to its supervision; and

(b) In the event of the insolvency of the surplus lines insurer, losses will not be paid by thestate insurance guaranty fund.

(2) Nothing herein contained shall nullify any agreement by any insurer to provide insurance.

Drafting Note: To ensure the meaningfulness of the notice required by this subsection, the commissioner might want to establish criteria related to readability, type-face and type-size of the notice.

O. Effect of Payment to Surplus Lines Licensee

A payment of premium to a surplus lines licensee acting for a person other than itself in procuring,continuing or renewing any policy of insurance procured under this section shall be deemed to be paymentto the insurer, whatever conditions or stipulations may be inserted in the policy or contract notwithstanding.

P. Surplus Lines Licensees May Accept Business from Other Producers

A surplus lines licensee may originate surplus lines insurance or accept such insurance from any otherproducing broker duly licensed as to the kinds of insurance involved, and the surplus lines licensee maycompensate the producing broker for the business.

Q. Records of Surplus Lines Licensee

Each surplus lines licensee shall keep in this state a full and true record of each surplus lines insurancecontract placed by or through the licensee, including a copy of the policy, certificate, cover note or otherevidence of insurance showing each of the following items applicable:

(1) Amount of the insurance, risks and perils insured;

(2) Brief description of the property insured and its location;

(3) Gross premium charged;

(4) Any return premium paid;

(5) Rate of premium charged upon the several items of property;

(6) Effective date and terms of the contract;

(7) Name and address of the insured;

(8) Name and address of the insurer;

Attachment Three-A

(9) Amount of tax and other sums to be collected from the insured;

(10) Allocation of taxes by state as referred to in Subsection F of this section; and

(11) Identity of the producing broker, any confirming correspondence from the insurer or itsrepresentative, and the application.

The record of each contract shall be kept open at all reasonable times to examination by the commissioner without notice for a period not less than five (5) years following termination of the contract. In lieu of maintaining offices in this state, each nonresident surplus lines licensee shall make available to the commissioner any and all records that the commissioner deems necessary for examination.

Drafting Note: States may wish to extend the five-year period prescribed for open access to insurance records because of the long-term nature of this business.

R. Reports—Summary of Exported Business

On or before the end of the month following each [insert month, quarter, year], each surplus lines licenseeshall file with the commissioner, on forms prescribed by the commissioner, a verified report in duplicate ofall surplus lines insurance transacted during the preceding period, showing:

(1) Aggregate gross premiums written;

(2) Aggregate return premiums;

(3) Amount of aggregate tax remitted to this state; and

(4) Amount of aggregate tax due or remitted to each other state for which an allocation is madepursuant to Subsection F of this section.

Drafting Note: States desiring to have taxes remitted annually may call for more frequent detailed listing of business.

Section 6. Insurance Independently Procured—Duty to Report and Pay Tax

A. Each insured in this state who procures or continues or renews insurance with a nonadmitted insurer onproperties, risks or exposures located or to be performed in whole or in part in this state, other thaninsurance procured through a surplus lines licensee, shall, within [insert number] days after the date theinsurance was so procured, continued or renewed, file a written report with the commissioner, upon formsprescribed by the commissioner, showing the name and address of the insured or insureds, name andaddress of the insurer, the subject of the insurance, a general description of the coverage, the amount ofpremium currently charged, and additional pertinent information reasonably requested by the commissioner.

For the purposes of this subsection, properties, risks or exposures only partially located or to be performedin this state, which are covered under a multi-state policy placed by a surplus lines licensee in another state,shall be deemed to be insurance independently procured unless the insurer is an admitted insurer.

Drafting Note: Subsection A may need to be revised in those states exempting from taxation insurance procured by nonprofit educational institutions and their employers, from nonprofit educational insurers.

B. Gross premiums charged for the insurance, less any return premiums, are subject to a tax at the rate of[insert number] percent. At the time of filing the report required in Subsection A of this section, the insuredshall pay the tax to the commissioner, who shall transmit the same for distribution as provided in this Act.

Drafting Note: Existing state laws and procedures may require that the tax report be forwarded to another state agency, such as the Department of the Treasury, rather than to the commissioner. In addition, some states may require the tax to be paid on a periodic basis (e.g. annually) rather than at the time of the filing required by Subsection A. Subsections A and B may need to be revised in these states.

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C. If an independently procured policy covers properties, risks or exposures only partially located or to beperformed in this state, the tax payable shall be computed on the portion of the premium properlyattributable to the properties, risks or exposures located or to be performed in this state, as set forth inSections 5F(3) and 5F(4) of this Act.

D. Delinquent taxes hereunder shall bear interest at the rate of [insert number] percent per year.

E. This section does not abrogate or modify, and shall not be construed or deemed to abrogate or modify anyother provision of this Act.

Section 7. Penalties

A. A person who in this state represents or aids a nonadmitted insurer in violation of this Act may be foundguilty of a criminal act and subject to a fine not in excess of $[insert amount].

Drafting Note: Some states might want to specify “misdemeanor” or “felony” rather than “criminal act” in Section 7A.

B. In addition to any other penalty provided herein or otherwise provided by law, including any suspension,revocation or refusal to renew a license, any person, firm, association or corporation violating any provisionof this Act shall be liable to a civil penalty not exceeding $[insert amount] for the first offense, and notexceeding $[insert amount] for each succeeding offense.

C. The above penalties are not exclusive remedies. Penalties may also be assessed under [insert citation totrade practices and fraud statute] of the insurance code of this state.

Section 8. Violations

Whenever the commissioner believes, from evidence satisfactory to him or her, that a person is violating or about to violate the provisions of this Act, the commissioner may cause a complaint to be filed in the [insert appropriate court] Court for restitution and to enjoin and restrain the person from continuing the violation or engaging in or doing any act in furtherance thereof. The court shall have jurisdiction of the proceeding and shall have the power to make and enter an order of judgment awarding such preliminary or final injunctive relief and restitution as in its judgment is proper.

Section 9. Service of Process

A. Any act of transacting insurance by an unauthorized person or a nonadmitted insurer is equivalent to andshall constitute an irrevocable appointment by the unauthorized person or insurer, binding upon it, itsexecutor or administrator, or successor in interest of the [insert title of appropriate state official] or his orher successor in office, to be the true and lawful attorney of the unauthorized person or insurer upon whommay be served all lawful process in any action, suit or proceeding in any court by the commissioner or bythe state and upon whom may be served any notice, order, pleading or process in any proceeding before thecommissioner and which arises out of transacting insurance in this state by the unauthorized person orinsurer. Any act of transacting insurance in this state by a nonadmitted insurer shall signify its acceptance ofits agreement that any lawful process in such court action, suit or proceeding and any notice, order, pleadingor process in such administrative proceeding before the commissioner so served shall be of the same legalforce and validity as personal service of process in this state upon the unauthorized person or insurer.

B. Service of process in the action shall be made by delivering to and leaving with the [insert title ofappropriate state official], or some person in apparent charge of the office, two (2) copies thereof and bypayment to the [insert title of appropriate state official] of the fee prescribed by law. Service upon the[insert title of appropriate state official] as attorney shall be service upon the principal.

Drafting Note: Existing state laws and procedures may require that service of process be made upon either the commissioner or another state official.

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C. The [insert title of appropriate state official] shall forward by certified mail one of the copies of the processor notice, order, pleading or process in proceedings before the commissioner to the defendant in the courtproceeding or to whom the notice, order, pleading or process in the administrative proceeding is addressedor directed at its last known principal place of business and shall keep a record of all process so served onthe commissioner which shall show the day and hour of service. Service is sufficient, provided:

(1) Notice of service and a copy of the court process or the notice, order, pleading or process in theadministrative proceeding are sent within ten (10) days by certified mail by the plaintiff or theplaintiff’s attorney in the court proceeding or by the commissioner in the administrative proceedingto the defendant in the court proceeding or to whom the notice, order, pleading or process in theadministrative proceeding is addressed or directed at the last known principal place of business ofthe defendant in the court or administrative proceeding; and

(2) The defendant’s receipt or receipts issued by the post office with which the letter is registered,showing the name of the sender of the letter and the name and address of the person or insurer towhom the letter is addressed, and an affidavit of the plaintiff or the plaintiff’s attorney in a courtproceeding or of the commissioner in an administrative proceeding, showing compliance are filedwith the clerk of the court in which the action, suit or proceeding is pending or with thecommissioner in administrative proceedings, on or before the date the defendant in the court oradministrative proceeding is required to appear or respond, or within such further time as the courtor commissioner may allow.

D. A plaintiff shall not be entitled to a judgment or a determination by default in any court or administrativeproceeding in which court process or notice, order, pleading or process in proceedings before thecommissioner is served under this section until the expiration of forty-five (45) days from the date of filingof the affidavit of compliance.

E. Nothing in this section shall limit or affect the right to serve any process, notice, order or demand upon anyperson or insurer in any other manner now or hereafter permitted by law.

F. Each nonadmitted insurer assuming insurance in this state, or relative to property, risks or exposures locatedor to be performed in this state, shall be deemed to have subjected itself to this Act.

G. Not withstanding conditions or stipulations in the policy or contract, a nonadmitted insurer may be suedupon any cause of action arising in this state, or relative to property, risks or exposures located or to beperformed in this state, under any insurance contract made by it.

H. Not withstanding conditions or stipulations in the policy or contract, a nonadmitted insurer subject toarbitration or other alternative dispute resolution mechanism arising in this state or relative to property,risks or exposures located or to be performed in this state under an insurance contract made by it shallconduct the arbitration or other alternative dispute resolution mechanism in this state.

Drafting Note: Provisions of a state’s constitution, statutes, regulations, and public policy may necessitate amendment of the prior subsection.

I. A policy or contract issued by the nonadmitted insurer or one which is otherwise valid and contains acondition or provision not in compliance with the requirements of this Act is not thereby rendered invalidbut shall be construed and applied in accordance with the conditions and provisions which would haveapplied had the policy or contract been issued or delivered in full compliance with this Act.

Section 10. Legal or Administrative Procedures

A. Before any nonadmitted insurer files or causes to be filed any pleading in any court action, suit orproceeding or in any notice, order, pleading or process in an administrative proceeding before thecommissioner instituted against the person or insurer, by services made as provided in this Act, the insurershall either:

Attachment Three-A

(1) Deposit with the clerk of the court in which the action, suit or proceeding is pending, or with theCommissioner of Insurance in administrative proceedings before the commissioner, cash orsecurities, or file with the clerk or commissioner a bond with good and sufficient sureties, to beapproved by the clerk or commissioner in an amount to be fixed by the court or commissionersufficient to secure the payment of any final judgment which may be rendered in the action oradministrative proceeding; or

(2) Procure a certificate of authority to transact the business of insurance in this state. In consideringthe application of an insurer for a certificate of authority, for the purposes of this paragraph thecommissioner need not assert the provisions of [insert sections of insurance laws relating toretaliation] against the insurer with respect to its application if the commissioner determines thatthe company would otherwise comply with the requirements for a certificate of authority.

B. The Commissioner of Insurance, in any administrative proceeding in which service is made as provided inthis Act, may in the commissioner’s discretion, order such postponement as may be necessary to afford thedefendant reasonable opportunity to comply with the provisions of Subsection A of this section and todefend the action.

C. Nothing in Subsection A of this section shall be construed to prevent a nonadmitted insurer from filing amotion to quash a writ or to set aside service thereof made in the manner provided in this Act, on the groundthat the nonadmitted insurer has not done any of the acts enumerated in the pleadings.

D. Nothing in Subsection A of this section shall apply to placements of insurance which were lawful in thestate in which the placement took place and which were not unlawful placements under the laws of thisstate. Without limiting the generality of the foregoing, nothing in Subsection A shall apply to a placementmade pursuant to Section 5 of this Act.

Section 11. Enforcement

The commissioner shall have the authority to proceed in the courts of this state or any other United States jurisdiction to enforce an order or decision in any court proceeding or in any administrative proceeding before the commissioner of Insurance.

A. Filing and Status of Foreign Decrees

A copy of a foreign decree authenticated in accordance with the statutes of this state may be filed in theoffice of the clerk of any [insert proper court] Court of this state. The clerk, upon verifying with thecommissioner that the decree or order qualifies as a “foreign decree” shall treat the foreign decree in thesame manner as a decree of a [insert proper court] Court of this state. A foreign decree so filed has the sameeffect and shall be deemed a decree of a [insert proper court] Court of this state, and is subject to the sameprocedures, defenses and proceedings for reopening, vacating or staying as a decree of a [insert propercourt] Court of this state and may be enforced or satisfied in like manner.

B. Notice of Filing

(1) At the time of the filing of the foreign decree, the plaintiff shall make and file with the clerk of thecourt an affidavit setting forth the name and last known post office address of the defendant.

(2) Promptly upon the filing of the foreign decree and the affidavit, the clerk shall mail notice of thefiling of the foreign decree to the defendant at the address given and to the commissioner of thisstate and shall make a note of the mailing in the docket. In addition, the plaintiff may mail a noticeof the filing of the foreign decree to the defendant and to the commissioner of this state and mayfile proof of mailing with the clerk. Lack of mailing notice of filing by the clerk shall not affect theenforcement proceedings if proof of mailing by the plaintiff has been filed.

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(3) No execution or other process for enforcement of a foreign decree filed hereunder shall issue untilthirty (30) days after the date the decree is filed.

Drafting Note: This section presumes that the commissioner has authority to proceed without the cooperation of the state’s attorney general. Governing state laws might require that a person other than the commissioner or the attorney general serve as the plaintiff. The title of that person shall be substituted for “commissioner” or “plaintiff” in Section 11 whenever required by state law.

C. Stay of the Foreign Decree

(1) If the defendant shows the [insert proper court] Court that an appeal from the foreign decree ispending or will be taken, or that a stay of execution has been granted, the court shall stayenforcement of the foreign decree until the appeal is concluded, the time for appeal expires, or thestay of execution expires or is vacated, upon proof that the defendant has furnished the security forthe satisfaction of the decree required by the state in which it was rendered.

(2) If the defendant shows the [insert proper court] Court any ground upon which enforcement of adecree of any [insert proper court] Court of this state would be stayed, the court shall stayenforcement of the foreign decree for an appropriate period, upon requiring the same security forsatisfaction of the decree which is required in this state.

D. It shall be the policy of this state that the insurance commissioner shall cooperate with regulatory officials inother United States jurisdictions to the greatest degree reasonably practicable in enforcing lawfully issuedorders of such other officials subject to public policy and the insurance laws of the state. Without limitingthe generality of the foregoing, the commissioner may enforce an order lawfully issued by other officialsprovided the order does not violate the laws or public policy of this state.

Section 12. Suits by Nonadmitted Insurers

A nonadmitted insurer may not commence or maintain an action in law or equity, including arbitration or any other dispute resolution mechanism, in this state to enforce any right arising out of any insurance transaction except with respect to:

A. Claims under policies lawfully written in this state;

B. Liquidation of assets and liabilities of the insurer (other than collection of new premium), resulting from itsformer authorized operations in this state;

C. Transactions subsequent to issuance of a policy not covering domestic risks at the time of issuance, andlawfully procured under the laws of the jurisdiction where the transaction took place;

D. Surplus lines insurance placed by a licensee under authority of Section 5 of this Act;

E. Reinsurance placed under the authority of [insert citations of state’s reinsurance intermediary act and otherreinsurance laws];

F. The continuation and servicing of life insurance, health insurance policies or annuity contracts remaining inforce as to residents of this state where the formerly authorized insurer has withdrawn from the state and isnot transacting new insurance in the state;

G. Servicing of policies written by an admitted insurer in a state to which the insured has moved but in whichthe company does not have a certificate of authority until the term expires;

H. Claims under policies covering wet marine and transportation insurance;

I. Placements of insurance which were lawful in the jurisdiction in which the transaction took place and whichwere not unlawful placements under the laws of this state.

Drafting Note: Provisions of a state’s constitution, statutes, regulations, and public policy may necessitate amendment of the opening paragraph of this section.

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Section 13. Separability of Provisions

If any provisions of this Act, or the application of the provision to any person or circumstance, shall be held invalid, the remainder of the Act and the application of the provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby.

Section 14. Effective Date

This Act shall take effect [insert appropriate date].

___________________________________

Chronological Summary of Actions (all references are to the Proceedings of the NAIC).

1994 Proc. 3rd Quarter 14, 16-17, 24, 28-46 (adopted). 1996 Proc. 3rd Quarter 9, 42, 1110, 1168, 1169-1173, 1189-1190 (amended). 1997 Proc. 4th Quarter 25, 27-28, 1004, 1029 (amended). 1999 Proc. 3rd Quarter 25, 26, 1080, 1135, 1151-1153 (amended). 2002 Proc. 2nd Quarter 14, 250-251, 344, 347, 349-350 (amended).

This model draws from and replaces three earlier NAIC models:

Model Surplus Lines Law 1983 Proc. I 6, 36, 834, 900, 913-922 (adopted). 1985 Proc. II 11, 24, 702, 722, 723-724 (amended). 1986 Proc. I 9-10, 24, 799, 813, 814-821 (amended). 1990 Proc. I 6, 30, 840-841, 897-898, 900-901 (amended). 1991 Proc. I 9, 18, 908, 949, 950, 952-961 (amended and reprinted).

Unauthorized Insurers Model Act 1969 Proc. I 168, 218, 222-227, 271 (adopted). 1978 Proc. I 13, 15, 348, 350 (amended). 1990 Proc. II 7, 13-14, 159-160, 187-191 (amended and reprinted).

Model Nonadmitted Insurance Act 1983 Proc. 1 6, 36, 834, 899-900, 923-926 (adopted).

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This chart is intended to provide readers with additional information to more easily access state statutes, regulations, bulletins or administrative rulings related to the NAIC model. Such guidance provides readers with a starting point from which they may review how each state has addressed the model and the topic being covered. The NAIC Legal Division has reviewed each state’s activity in this area and has determined whether the citation most appropriately fits in the Model Adoption column or Related State Activity column based on the definitions listed below. The NAIC’s interpretation may or may not be shared by the individual states or by interested readers.

This chart does not constitute a formal legal opinion by the NAIC staff on the provisions of state law and should not be relied upon as such. Nor does this state page reflect a determination as to whether a state meets any applicable accreditation standards. Every effort has been made to provide correct and accurate summaries to assist readers in locating useful information. Readers should consult state law for further details and for the most current information.

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KEY:

MODEL ADOPTION: States that have citations identified in this column adopted the most recent version of the NAIC model in a substantially similar manner. This requires states to adopt the model in its entirety but does allow for variations in style and format. States that have adopted portions of the current NAIC model will be included in this column with an explanatory note.

RELATED STATE ACTIVITY: Examples of Related State Activity include but are not limited to: older versions of the NAIC model, statutes or regulations addressing the same subject matter, or other administrative guidance such as bulletins and notices. States that have citations identified in this column only (and nothing listed in the Model Adoption column) have not adopted the most recent version of the NAIC model in a substantially similar manner.

NO CURRENT ACTIVITY: No state activity on the topic as of the date of the most recent update. This includes states that have repealed legislation as well as states that have never adopted legislation.

NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

Alabama ALA. CODE §§ 27-10-1 to 27-10-3 (1963/1971); §§ 27-10-20 to 27-10-38 (1963/1994); §§ 27-10-35 to 27-10-36 (1963/1971); §§ 482-1-036-.01 to 482-1-036-.08 (2008); BULLETIN3-18-2010 (2010); BULLETIN 2013-03 (2013).

Alaska ALASKA STAT. §§ 21.34.010 to 21.34.900 (1984/2009).

ALASKA STAT. §§ 21.33.037 to 21.33.065 (1968/1996); ALASKA ADMIN. CODE tit. 3, §§ 25.010 to 25.900 (1991/2014); BULLETIN2008-8 (2008); BULLETIN 2009-6 (2009);BULLETIN 2011-3 (2011); BULLETIN 2012-6(2012); BULLETIN 2012-7 (2012); BULLETIN2013-1 (2013); BULLETIN 2013-8 (2013).

American Samoa AM. SAMOA CODE ANN. §§ 29.0401 to 29.0413.

Arizona ARIZ. REV. STAT. ANN. §§ 20-401 to 20-401.07 (1972/2011); §§ 20-407 to 20-420(1954/2012); ARIZ. ADMIN. CODE§§ 054-00.024 (2010); BULLETIN 2011-6(2011).

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NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

Arkansas ARK. CODE ANN. §§ 23-65-101 to 23-65-104 (1959/2011); §§ 23-65-301 to 23-65-320 (1959/2013); BULLETIN 5-2011 (2011).

California CAL. INS. CODE §§ 1760 to 1780 (1935/2012); CAL. REV. & TAX. CODE §§ 13201 to 13222 (1993/1994).

Colorado COLO. REV. STAT. §§ 10-3-901 to 10-3-910 (1963/2014); COLO. REV. STAT. §§ 10-5-101 to 10-5-119 (1963/2012) (portions of model).

3 COLO. CODE REGS. § 2-4-1 (1991/2012); BULLETIN B-2.10 (2011).

Connecticut CONN. GEN. STAT. §§ 38a-271 to 38a-278 (1970/1979).

CONN. AGENCIES REGS. §§ 38a-740-1 to 38a-740-11 (1985/1996); § 38-271 (1969/1997); BULLETIN SL-1 (2009); BULLETIN SL-2 (2011); BULLETIN SL-3 (2012); BULLETIN FS-4SL-2012; BULLETIN SL-4 (2013); BULLETIN FS-4SL-2014 (2014).

Delaware DEL. CODE ANN. tit. 18, §§ 1901 to 1919 (1953/1995); BULLETIN 45 (2011); Surplus Lines 12 (2012).

District of Columbia BULLETIN 2010-001-IB (2010).

Florida FLA. STAT. §§ 626.901 to 626.903 (1982/1995); §§ 626.913 to 626.937 (1959/2009); §§ 626.938 to 626.939 (1959/2001); BULLETIN 2011-2 (2011); BULLETIN 2012-2 (2012); BULLETIN 2012-3 (2012).

Georgia GA. CODE ANN. §§ 33-5-20 to 33-5-35 (1960/2011); § 33-5-33 (1933/1960); § 33-23-37 (2011); BULLETIN 11-EX-3(2011).

Guam GUAM GOV’T. CODE §§ 43125 to 43134; §§ 43260 to 43266 (1966) (“surplus linebroker or agents”).

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NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

Hawaii HAW. REV. STAT. §§ 431:8-201 to 431:8-213 (1988/2012); §§ 431:8-300 to 431:8-320 (1988/2012).

HAW. REV. STAT. § 431:8-205 (1987/2011); Memorandum 2012-4 (2012); Memorandum 2013-1 (2013).

Idaho IDAHO CODE ANN. §§ 41-1211 to 41-1232 (1961/2011); §§ 44-1233 to 41-1234 (1961/1993); BULLETIN 2006-4 (2006).

Illinois 215 ILL. COMP. STAT. 5/121 to 5/121-19 (1977/1998).

215 ILL. COMP. STAT. 5/445 to 5/445.1 (1980/2012); BULLETIN 2011-9 (2011).

Indiana IND. CODE §§ 27-4-5-1 to 27-4-5-8 (1969/2011).

Iowa IOWA CODE §§ 507A.1 to 507A.11 (1967/1998).

IOWA ADMIN. CODE r. 191-21.1 to 191-21.6 (1963/2009); r. 515I.1 to 515.15 (2012).

Kansas KAN. STAT. ANN. §§ 40-2701 to 40-2709 (1969/1992).

KAN. STAT. ANN. §§ 40-246 to 40-246e (1982/2011).

Kentucky KY. REV. STAT. ANN. §§ 304.11-010 to 304.11-050 (1970/2010).

KY. REV. STAT. §§ 304.10-010 to 304.10-210 (1970/2014).

Louisiana LA. REV. STAT. ANN. §§ 22:431 to 22:446 (2009/2013).

LA. REV. STAT. ANN. §§ 22:1257 to 22:1270 (1958/1999); § 44-5510 (2012); Advisory Letter 2006-5 (2006); BULLETIN 7-21-2011 (2011); BULLETIN 6-14-2012 (2012).

Maine ME. REV. STAT. ANN. tit. 24-A, §§ 2001 to 2019 (1970/2011); § 2113(1969/1973).

Maryland MD. CODE ANN., INS. §§ 4-201 to 4-212(1968/1997).

MD. CODE ANN., INS. §§ 3-301 to 3-327(1963/2011); MD. CODE REGS. 31.03.06(2012); BULLETIN 2011-26 (2011).

Massachusetts MASS. GEN. LAWS ANN. ch. 175, § 168 and 168A (1950/2018).

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NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

Michigan MICH. COMP. LAWS §§ 500.1901 to 500.1955 (1981/2012); BULLETIN 2010-12-INS. (2010).

Minnesota MINN. STAT. §§ 72A.40 to 72A.44 (1967/1994).

MINN. STAT. §§ 60A.195 to 60A.209 (1981/2009); BULLETIN 2010-3 (2010).

Mississippi BULLETIN 2011-1 (2011); AGO No. 2006-00351 (2006); BULLETIN 2011-8 (2011); BULLETIN 2012-4 (2012); BULLETIN 2012-2 (2012); BULLETIN 2012-3 (2012).

Missouri MO. REV. STAT. §§ 375.786 to 375.790 (1972/1998); §§ 384.011 to 384.071 (1987/2011).

MO. CODE REGS. ANN. tit. 20, §§ 200-6.100 to 200-6.400 (1987/2006) (includes allocationformula);

Montana MONT. CODE ANN. §§ 33-2-301 to 33-2-326 (1959/2011).

MONT. CODE ANN. § 33-2-706 (1959/1989); MONT. ADMIN. R. 6.6.2801 to 6.6.2810 (2011).

Nebraska NEB. REV. STAT. §§ 44-2001 to 44-2008 (1969/1995).

NEB. REV. STAT. §§ 44-5501 to 44-5514 (1992/2012); BULLETIN CB-126 (2011).

Nevada NEV. REV. STAT. §§ 685B.020 to 685B.080 (1997/2003).

NEV. REV. STAT. §§ 685A.010 to 685A.220 (1971/2012); BULLETIN 2012-005 (2012).

New Hampshire N.H. REV. STAT. ANN. §§ 406B:1 to 406B:17 (1967/2012).

BULLETIN 11-011-AB (2011).

New Jersey N.J. STAT. ANN. §§ 17:22-6.40 to 17:22-6.69 (1960/2003); NOTICE 4-4-2006 (# 3) (2006); BULLETIN 2010-19 (2010); 2010-27 (2010); 2011-21 (2011); 2011-11 (2011).

New Mexico N.M. STAT. ANN. §§ 59A-15-1 to 59A-15-10(1985).

N.M. STAT. ANN. §§ 59A-14-1 to 59A-14-18(1985/2003).

Attachment Three-A

NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

New York N.Y. COMP. CODES R. & REGS. tit. 11, §§ 27.0 to 27.23 (1994/2014) (Regulation No. 41); N.Y. INS. LAW §§ 2117 to 2118 (1984/2000).

North Carolina N.C. GEN. STAT. §§ 58-21-1 to 58-21-105(1985/2009); §§ 58-28-1 to 58-28-40(1967/2013).

BULLETIN 2011-B-7 (2011); Memorandum 7-2-2012 (2012).

North Dakota N.D. CENT. CODE §§ 26.1-02-05 to26.1-02-19 (1983/1999).

N.D. CENT. CODE §§ 26.1-44-01 to26.1-44-09 (1985/2015); N.D. ADMIN. CODE45-09-01 to 45-09-01-05 (1982/2012).

Northern Marianas 4 N. MAR. ISLAND CODE § 7305 (1984). 4 N. MAR. ISLAND CODE § 7304 (1984).

Ohio OHIO REV. CODE ANN. §§ 3901.17 to 3901.18 (1955-1956/1997).

BULLETIN 2011-8 (2011).

Oklahoma OKLA. STAT. tit. 36, §§ 1101 to 1120 (1957/2014); BULLETIN 9-30-2011 (2011).

Oregon OR. REV. STAT. §§ 735.400 to 735.495 (1987/2005); §§ 746.310 to 746.370 (1967/1995).

BULLETIN 2011-1 (2011).

Pennsylvania 40 PA. CONS. STAT. §§ 15-101 to 15-125 (1992/2002).

Puerto Rico P.R. LAWS ANN. tit. 26, §§ 1001 to 1006 (1977); §§ 1007 to 1018 (1961/1980).

Rhode Island R.I. GEN. LAWS §§ 27-16-1.1 to 27-16-2.4(1973/2002).

R.I. GEN. LAWS §§ 27-3-38 to 27-3-42(1959/20130); §§ 27-75-1 to 27-75-3 (2011).

South Carolina S.C. CODE ANN. §§ 38-25-10 to 38-25-570(1988/1998).

S.C. CODE ANN. §§ 38-45-10 to 38-45-195(1987/2013); BULLETIN 2012-08.

Attachment Three-A

NAIC MEMBER MODEL ADOPTION RELATED STATE ACTIVITY

South Dakota S.D. CODIFIED LAWS §§ 58-8-1 to58-8-5 (1966/1978).

S.D. CODIFIED LAWS §§ 58-32-1 to 58-32-58(1966/2015); BULLETIN 2012-3 (2012).

Tennessee TENN. CODE ANN. §§ 56-2-601 to 56-2-704 (1955/1971).

TENN. CODE ANN. §§ 56-14-101 to 56-14-117 (1969/2013).

Texas TEX. INS. CODE ANN. §§ 101.001 to 101.301 (1999/2001).

TEX. INS. CODE ANN. §§ 225.001 to 225.013 (2005/2013).

Utah UTAH CODE ANN. §§ 31A-15-101 to 31A-15-102 (1985/2014); §§ 31A-2-309 to 31A-2-311 (1985/1995).

UTAH CODE ANN. §§ 31A-15-103 to 31A-15-110 (1986/2003); BULLETIN 2011-4 (2011); BULLETIN 2012-4 (2012).

Vermont VT. STAT. ANN. tit. 8, §§ 3368 to 3370 (1968/1996); §§ 5021 to 5040 (1979/2002); BULLETIN 163 (2011); BULLETIN 169 (2012).

Virgin Islands V.I. CODE ANN. tit. 22, §§ 651 to 652(1968/1987); §§ 653 to 667 (1968/1999).

Virginia VA. CODE ANN. §§ 38.2-4800 to 38.2-4815 (1986/2013).

14 VA. ADMIN. CODE §§ 5-350-10 to 5-350-350 (2011).

Washington WASH. REV. CODE ANN. § 48.03.020 (2009); §§ 48.15.020 to 48.15.030 (1947/2009);§§ 48.15.040 to 48.15.170 (1947/2009);§§ 284-15-010 to 284-15-090 (2006/2013).

West Virginia W. VA. CODE §§ 33-12C-1 to 33-12C-15(2003).

W. VA. CODE R. §§ 114-20-1 to 114-20-4(1984/2012).

Wisconsin WIS. STAT. §§ 618.40 to 618.41 (1971/2012); §§ 618.47 to 618.61 (1971/2012); § 6.17(1971/2012); BULLETIN 5-29-2012 (2012).

Wyoming WYO. STAT. ANN. §§ 26-11-101 to 26-11-122 (1983/2012); §§ 26-12-102 to 26-12-103 (1967/1983); Memorandum 02-2012 (2012).

Attachment Three-A

NONADMITTED INSURANCE REFORM SAMPLE BULLETIN

TO: All insurers eligible to write nonadmitted insurance in [State], all licensed surplus lines brokers, [all insureds independently procuring nonadmitted insurance and stamping office]

FROM: [Commissioner, Director, Superintendent]

DATE: [Insert Date]

RE: Implementation of federal Nonadmitted and Reinsurance Reform Act in [State]

The purpose of this bulletin is to outline nationwide regulatory changes that will affect the placement of nonadmitted insurance in [State]. The Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), 15 U.S.C. § 8201 et seq., provides that only an insured’s “Home State” may require the payment of premium tax for nonadmitted insurance. Moreover, the NRRA subjects the placement of nonadmitted insurance solely to the statutory and regulatory requirements of the insured’s Home State, and provides that only the insured’s Home State may require a surplus lines broker to be licensed to sell, solicit or negotiate nonadmitted insurance with respect to such insured. 15 U.S.C. § 8202(a), (b). “Nonadmitted insurance,” as defined in 15 U.S.C. § 8206(9), applies only to property and casualty insurance (excluding workers ‘compensation).

The NRRA becomes effective on July 21, 2011. For nonadmitted insurance business placed on or after July 21, 2011, the following information is provided for the benefit of insurers, brokers, [insureds and stamping offices]:

What is the scope of the NRRA?

The NRRA states that “the placement of nonadmitted insurance is subject to the statutory and regulatory requirements solely of the insured’s home state” and that the NRRA “may not be construed to preempt any State law, rule, or regulation that restricts the placement of workers’ compensation insurance or excess insurance for self-funded workers’ compensation plans with a nonadmitted insurer.” 15 U.S.C. § 8202. The NRRA does not expand the scope of the kinds of insurance that an insurer may write in the nonadmitted insurance market and each state continues to determine which kinds of insurance an insurer may write in that state. Although the NRRA preempts certain state laws with respect to nonadmitted insurance, it does not have any impact on insurance offered by insurers licensed or authorized in this state.

What is the insured’s Home State for purposes of a particular placement? [State] is the insured’s Home State if the insured maintains its principal place of business here or, in the case of an individual, the individual’s principal residence is here. If [State] is considered the insured’s Home State, only [State’s] requirements regarding the placement of such business will apply. If 100% of the insured risk is located outside of [State], then the insured’s Home

Attachment Three-B

State is the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.

[If the state wishes to provide additional guidance on the interpretation of “principal residence” or “principal place of business,” the state may consider inserting definitions of these terms consistent with the Nonadmitted Insurance Multi-State Agreement.]

If more than one insured from an affiliate group are named insureds on a single nonadmitted insurance placement, [State] will be considered the Home State for that placement if [State] is the Home State of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.

How will these rules be applied?

New and renewal policies with an effective date prior to July 21, 2011 will be subject to the laws and regulations of [State] and other jurisdictions, as applicable, as of the policy effective date. The laws and regulations of [State] and other jurisdictions, as applicable, as of the effective date of such a policy will also apply to any modification to that policy during the policy period, such as all endorsements (including risk and premium-bearing endorsements), installment payments and premium audits. New and renewal policies with an effective date on or after July 21, 2011, and any modifications thereto, will be subject only to the laws and regulations of [State] if [State] is the Home State of the insured.

What are the requirements for premium tax allocation and payment in this [State]?

As of July 21, 2011, the NRRA permits only the insured’s Home State to require the payment of premium tax for nonadmitted insurance. Until July 21, 2011, the laws and regulations of [State] and other jurisdictions, as applicable, will continue to apply to premium tax due on multi-state placements.

[Optional] It is the intent of the Department to issue additional bulletins if and when [State] begins participating in a tax sharing arrangement. Until additional bulletins are issued, the [State] tax rate should be applied to new and renewal policies with an effective date on or after July 21, 2011, when [State] is the insured’s Home State. [Note: If the state intends to apply an alternate formula for computing the premium tax on multistate policies for which it is the Home State, that information should be inserted here.]

The NRRA defines “affiliated groups” but does not define “unaffiliated groups”. Some states have enacted legal definitions of “unaffiliated groups.” These laws range from states which define an insured’s home state, in the context of unaffiliated groups, as (1) the state of each group member, or (2) the state of a purchasing group’s domicile, when the purchasing group has paid the premium for such policy, and (3) by other methods. [Optional] The laws and

Attachment Three-B

regulations of [State] regarding unaffiliated groups are as follows [insert that information here, including citations.]

What are the license requirements for brokers? Only the insured’s Home State may require a surplus lines broker to be licensed to sell, solicit or negotiate nonadmitted insurance with respect to a particular placement. If [State] is the insured’s Home State, the surplus lines broker must be licensed in [State]. The NRRA provides that [State] may not collect licensing fees for surplus lines brokers as of July 21, 2012, unless [State] participates in the NAIC’s national insurance producer database or any other equivalent uniform national database. 15 U.S.C. § 8203. [State] participates in the National Insurance Producer Registry (NIPR), which provides such a database. [Note: If the state does not participate in NIPR, the state should describe its broker licensing requirements.]

When are the requirements for a diligent search and when is a diligent search not required? [Insert general diligent search requirements for state].

On or after July 21, 2011, a surplus lines broker seeking to procure or place nonadmitted insurance on behalf of an “exempt commercial purchaser” is not required to perform a diligent search if: 1) the broker has disclosed to the exempt commercial purchaser that insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight; and 2) the exempt commercial purchaser has subsequently requested in writing for the broker to procure or place such insurance from a nonadmitted insurer. “Exempt commercial purchaser” is defined in [insert State statute consistent with NRRA definition].

What are the eligibility requirements for nonadmitted insurers? The NRRA restricts the eligibility requirements a state may impose on nonadmitted insurers. See 15 U.S.C. § 8204. For nonadmitted insurers domiciled in a U.S. jurisdiction, a broker is permitted to place nonadmitted insurance with such insurers provided they are authorized to write such business in their state of domicile and maintain minimum capital and surplus of $15 million [or the minimum capital and surplus amount required in State, whichever is greater]. [Note: If the state maintains a list of eligible insurers, the state may indicate where such information is available and/or how an insurer can be added to such a list.] For nonadmitted insurers domiciled outside the U.S., a broker may place business with such insurers provided the insurer is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the NAIC.

What are the key definitions from the NRRA? The NRRA includes several definitions relevant to [State’s] implementation of its requirements. Key definitions include the following:

-“Affiliated Group”:

The term "affiliated group" means any group of entities that are all affiliated

Attachment Three-B

- “Exempt commercial purchaser”:

The term ‘‘exempt commercial purchaser’’ means any person purchasing commercial insurance that, at the time of placement, meets the following requirements:

(A) The person employs or retains a qualified risk manager to negotiate insurancecoverage.(B) The person has paid aggregate nationwide commercial property and casualtyinsurance premiums in excess of $100,000 in the immediately preceding 12 months.(C) (i) The person meets at least 1 of the following criteria:(I) The person possesses a net worth in excess of $20,000,000, as such amount isadjusted pursuant to clause (ii).(II) The person generates annual revenues in excess of $50,000,000, as suchamount is adjusted pursuant to clause (ii).(III) The person employs more than 500 full-time or full-time equivalentemployees per individual insured or is a member of an affiliated groupemploying more than 1,000 employees in the aggregate.(IV) The person is a not-for-profit organization or public entity generatingannual budgeted expenditures of at least $30,000,000, as such amount isadjusted pursuant to clause (ii).(V) The person is a municipality with a population in excess of 50,000 persons.(ii) Effective on the fifth January 1 occurring after the date of the enactment of thissubtitle and each fifth January 1 occurring thereafter, the amounts in subclauses (I), (II),and(IV) of clause (i) shall be adjusted to reflect the percentage change for such 5-yearperiod in the Consumer Price Index for All Urban Consumers published by the Bureau ofLabor Statistics of the Department of Labor. 15 U.S.C. § 8206(5).

- “Home State”:

(A) In General.—Except as provided in subparagraph (B), the term ‘‘home State’’ means,with respect to an insured—(i) the State in which an insured maintains its principal place of business or, in the case ofan individual, the individual’s principal residence; or(ii) if 100 percent of the insured risk is located out of the State referred to in clause (i),the State to which the greatest percentage of the insured’s taxable premium for thatinsurance contract is allocated.(B) Affiliated Groups.—If more than 1 insured from an affiliated group are namedinsureds on a single nonadmitted insurance contract, the term ‘‘home State’’ means thehome State, as determined pursuant to subparagraph (A), of the member of the affiliatedgroup that has the largest percentage of premium attributed to it under such insurancecontract. 15 U.S.C. § 8206(6).

- “Independently procured insurance”:

Attachment Three-B

The term “independently procured insurance’’ means insurance procured directly by an insured from a nonadmitted insurer. 15 U.S.C. § 8206(7).

- “Nonadmitted insurance”:

The term ‘‘nonadmitted insurance’’ means any property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance. 15 U.S.C. § 8206(9).

- “Nonadmitted insurer”:

The term ‘‘nonadmitted insurer’’— (A) means, with respect to a State, an insurer not licensed to engage in the business ofinsurance in such State; but(B) does not include a risk retention group, as that term is defined in section 2(a)(4) of theLiability Risk Retention Act of 1986 (15 U.S.C. 3901(a)(4)). 15 U.S.C. § 8206(11).

- “Premium tax”:

The term ‘‘premium tax’’ means, with respect to surplus lines or independently procured insurance coverage, any tax, fee, assessment, or other charge imposed by a government entity directly or indirectly based on any payment made as consideration for an insurance contract for such insurance, including premium deposits, assessments, registration fees, and any other compensation given in consideration for a contract of insurance. 15 U.S.C. § 8206(12).

- “Qualified risk manager”:

The term ‘‘qualified risk manager’’ means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:

(A) The person is an employee of, or third-party consultant retained by, the commercialpolicyholder.(B) The person provides skilled services in loss prevention, loss reduction, or risk andinsurance coverage analysis, and purchase of insurance.(C) The person—(i) (I) has a bachelor’s degree or higher from an accredited college or university inrisk management, business administration, finance, economics, or any otherfield determined by a State insurance commissioner or other State regulatoryofficial or entity to demonstrate minimum competence in risk management; and(II) (aa) has 3 years of experience in risk financing, claims administration,loss prevention, risk and insurance analysis, or purchasing commerciallines of insurance; or(bb) has—(AA) a designation as a Chartered Property and CasualtyUnderwriter (in this subparagraph referred to as ‘‘CPCU’’)issued by the American Institute for CPCU/Insurance Institute of America;

Attachment Three-B

(BB) a designation as an Associate in Risk Management (ARM) issued by the American Institute for CPCU/Insurance Institute of America; (CC) a designation as Certified Risk Manager (CRM) issuedby the National Alliance for Insurance Education & Research;(DD) a designation as a RIMS Fellow (RF) issued by the Global Risk ManagementInstitute; or(EE) any other designation, certification, or license determined by a State insurancecommissioner or other State insurance regulatory official or entity to demonstrateminimum competency in risk management;(ii) (I) has at least 7 years of experience in risk financing, claims administration,loss prevention, risk and insurance coverage analysis, or purchasing commerciallines of insurance; and(II) has any 1 of the designations specified in subitems (AA) through (EE) ofclause (i)(II)(bb);(iii) has at least 10 years of experience in risk financing, claims administration, lossprevention, risk and insurance coverage analysis, or purchasing commercial lines ofinsurance; or(iv) has a graduate degree from an accredited college or university in risk management,business administration, finance, economics, or any other field determined by a Stateinsurance commissioner or other State regulatory official or entity to demonstrateminimum competence in risk management. 15 U.S.C. § 8206(13).

- “Surplus lines broker”:

The term ‘‘surplus lines broker’’ means an individual, firm, or corporation which is licensed in a State to sell, solicit, or negotiate insurance on properties, risks, or exposures located or to be performed in a State with nonadmitted insurers. 15 U.S.C. § 8206(15).

- “State”:

The term ‘‘State’’ includes any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa. 15 U.S.C. § 8206(16).

Attachment Three-B

REQUEST FOR NAIC MODEL LAW DEVELOPMENT

This form is intended to gather information to support the development of a new model law or amendment to an existing model law. Prior to development of a new or amended model law, approval of the respective Parent Committee and the NAIC’s Executive Committee is required. The NAIC’s Executive Committee will consider whether the request fits the criteria for model law development. Please complete all questions and provide as much detail as necessary to help in this determination.

Please check whether this is: New Model Law or Amendment to Existing Model

1. Name of group to be responsible for drafting the model:

2. NAIC staff support contact information:

3. Please provide a brief description of the proposed new model or the amendment(s) to the existing model.If you are proposing a new model, please also provide a proposed title. If an existing model law, pleaseprovide the title, attach a current version to this form and reference the section(s) proposed to beamended.

4. Does the model law meet the Model Law Criteria? Yes or No (Check one)

(If answering no to any of these questions, please reevaluate charge and proceed accordingly to addressissues).

a. Does the subject of the model law necessitate a national standard and require uniformityamongst all states? Yes or No (Check one)

If yes, please explain why

b. Does Committee believe NAIC members should devote significant regulator and Associationresources to educate, communicate and support this model law?

Yes or No (Check one)

5. What is the likelihood that your Committee will be able to draft and adopt the model law within one yearfrom the date of Executive Committee approval?

1 2 3 4 5 (Check one)

High Likelihood Low Likelihood

Explanation, if necessary:

Attachment Three-C

6. What is the likelihood that a minimum two-thirds majority of NAIC members would ultimately vote toadopt the proposed model law?

1 2 3 4 5 (Check one)

High Likelihood Low Likelihood

Explanation, if necessary:

7. What is the likelihood that state legislatures will adopt the model law in a uniform manner within threeyears of adoption by the NAIC?

1 2 3 4 5 (Check one)

High Likelihood Low Likelihood

Explanation, if necessary:

8. Is this model law referenced in the NAIC Accreditation Standards? If so, does the standard require themodel law to be adopted in a substantially similar manner?

9. Is this model law in response to or impacted by federal laws or regulations? If yes, please explain.

Attachment Three-C

NAIC BLANKS (E) WORKING GROUP

Blanks Agenda Item Submission Form

DATE: 7/12/2019

CONTACT PERSON: Andy Daleo/Bob Schump – NAIC staff

TELEPHONE: (816)783-8141/(816) 783-8437

EMAIL ADDRESS: adaleo@naic.org/rschump@naic.org

ON BEHALF OF: Surplus Lines (C) Working Group

NAME: Stewart Guerin

TITLE: Chair of Surplus Lines (C) Working Group

AFFILIATION: Louisiana Department of Insurance

ADDRESS:

FOR NAIC USE ONLY Agenda Item # Year 2020 Changes to Existing Reporting [ ] New Reporting Requirement [ X ]

REVIEWED FOR ACCOUNTING PRACTICES AND PROCEDURES IMPACT

No Impact [ X ] Modifies Required Disclosure [ ]

DISPOSITION

[ ] Rejected For Public Comment [ ] Referred To Another NAIC Group [ ] Received For Public Comment [ ] Adopted Date [ ] Rejected Date [ ] Deferred Date [ ] Other (Specify)

BLANK(S) TO WHICH PROPOSAL APPLIES

[ X ] ANNUAL STATEMENT [ X ] INSTRUCTIONS [ X ] CROSSCHECKS [ ] QUARTERLY STATEMENT [ X ] BLANK

[ ] Life, Accident & Health/Fraternal [ ] Separate Accounts [ ] Title [ X ] Property/Casualty [ ] Protected Cell [ ] Other ______________________ [ ] Health [ ] Health (Life Supplement)

Anticipated Effective Date: 2020 Annual

IDENTIFICATION OF ITEM(S) TO CHANGE

Add a new Schedule T – Part 3 to the Property/Casualty blank for the purpose of collecting direct premiums written data allocated by “home State.”

REASON, JUSTIFICATION FOR AND/OR BENEFIT OF CHANGE**

The intent is to provide a basis for state regulators to reconcile broker reported surplus lines premium with company provided information to better ensure that states are receiving the proper amount of surplus lines premium taxes. Premium taxes on surplus lines premiums are based on the total policy premium and paid by surplus lines brokers solely to the “home State” of the insured as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Currently, the only resource available to the state for tax reconciliation is Schedule T – Exhibit of Premiums Written, which allocates premium by geographic concentration of risk. Collecting premium information within the annual blank for “Home State Direct Premiums Written” provides the state a starting point for surplus lines premium tax reconciliation. Throughout the year NAIC staff receives frequent inquiries regarding assistance with surplus lines premium tax reconciliation and cannot provide a resource to the state. This blanks proposal will provide significant value to the states/territories regarding surplus lines tax reconciliation.

NAIC STAFF COMMENTS

Comment on Effective Reporting Date:

Other Comments:

___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 7/18/2018

Attachment Four

ANNUAL STATEMENT INSTRUCTIONS – PROPERTY

SCHEDULE T – PART 3 EXHIBIT OF PREMIUMS WRITTEN

ALLOCATED BY HOME STATES AND TERRITORIES

This schedule is intended to report surplus lines premiums written to a state or territory of the insured that conforms to the definition of “home State” as provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Allocation of surplus lines premiums reported on this schedule should be based on the “home State” of the insured, regardless of jurisdiction where the risks are located

All U.S. surplus lines business must be allocated to the “home State” of the insured, regardless of license status or concentration of risk.

Column 1 – Active Status

Use the following codes to identify the reporting entity’s status for each state or territory in whichsurplus lines premium is to be reported in the schedule as of the end of the reporting period. Enter thecode that applies to the reporting entity’s status in the state or territory.

L – Licensed or Chartered (Licensed Insurance Carrier and Domiciled Risk Retention Groups referred to in some states as admitted.)

R – Registered (Non-domiciled Risk Retention Groups)

E – Eligible (Reporting Entities eligible or approved to write Surplus Lines in the state (other than their state of domicile – see DSLI). In some states referred to as nonadmitted.)

Q – Qualified (Qualified or Accredited Reinsurer)

D – DSLI (Domestic Surplus Lines Insurer (DSLI) – Reporting Entities authorized to write Surplus Lines in the state of domicile)

N – None of the above (Not allowed to write business in the state or none of the above codes apply)

Column 2 – Home State Direct Premiums Written

The following is provided to illustrate appropriate allocation bases for surplus lines of business:

• All surplus lines policy premiums are to be allocated to the appropriate state that conforms to the“home State” definition as provided in Section 527 of the Nonadmitted and Reinsurance ReformAct within the Dodd-Frank Wall Street Reform and Consumer Protection Act:

Definition:

(6)HOME STATE.(A) IN GENERAL.—Except as provided in subparagraph (B), the term “home State”

means, with respect to an insured—(i) the State in which an insured maintains its principal place of business or, in the

case of an individual, the individual’s principal residence; or(ii) if 100 percent of the insured risk is located out the State referred to in clause (i),

the State to which the greatest percentage of the insured’s taxable premium forthat insurance contract is allocated.

Attachment Four

(B) AFFILIATED GROUPS.—If more than 1 insured from an affiliated group are namedinsureds on a single nonadmitted insurance contract, the term “home State” meansthe home State, as determined pursuant to subparagraph (A), of the member of theaffiliated group that has the largest percentage of premium attributed to it under suchinsurance contract.

Column 3 – Percentage of Total Home State Direct Premiums Written

Amount represents the percentage of the individual line items in Column 2 to the Total Home StateDirect Premiums Written amount presented in Column 2, Line 59.

Line 59 should equal 100%.

The allocation method established by the reporting entity in compliance with these instructions and the instructions of the domiciliary state should be consistently applied to all policies and reporting periods.

The data reported in Schedule T – Part 3 of the annual statement may or may not be used for the calculation of the amount of premium tax due to a state/jurisdiction. Individual states/jurisdictions may require a separate schedule to support premium tax calculations.

NOTE: Existing state laws and regulations need to be considered when applying these instructions.

Footnote (a):

Provide the total of each active status code in Column 1. The sum of all the counts of all active status codes should equal 57.

Attachment Four

ANNUAL STATEMENT BLANK – PROPERTY

SCHEDULE T – PART 3

EXHIBIT OF SURPLUS LINES PREMIUMS WRITTEN Allocated by Home States and Territories

1 2

Home State Direct Premiums

Written

3

Percentage of Total Home State Direct Premiums Written

States, Etc. Active Status (a)

1. Alabama ...................................................................................................... AL 2. Alaska ......................................................................................................... AK 3. Arizona ........................................................................................................ AZ 4. Arkansas ...................................................................................................... AR 5. California..................................................................................................... CA 6. Colorado ...................................................................................................... CO 7. Connecticut...................................................................................................CT8. Delaware ..................................................................................................... DE 9. Dist. Columbia ............................................................................................. DC

10. Florida .......................................................................................................... FL 11. Georgia ........................................................................................................ GA 12. Hawaii .......................................................................................................... HI 13. Idaho ............................................................................................................ ID 14. Illinois ........................................................................................................... IL 15. Indiana .......................................................................................................... IN 16. Iowa ............................................................................................................. IA 17. Kansas ..........................................................................................................KS 18. Kentucky ..................................................................................................... KY 19. Louisiana ..................................................................................................... LA 20. Maine .......................................................................................................... ME 21. Maryland .................................................................................................... MD 22. Massachusetts ............................................................................................. MA 23. Michigan ...................................................................................................... MI 24. Minnesota ................................................................................................... MN 25. Mississippi ................................................................................................... MS 26. Missouri ..................................................................................................... MO 27. Montana ...................................................................................................... MT 28. Nebraska ...................................................................................................... NE 29. Nevada ........................................................................................................ NV 30. New Hampshire ........................................................................................... NH 31. New Jersey ................................................................................................... NJ 32. New Mexico ............................................................................................... NM 33. New York .................................................................................................... NY 34. No. Carolina ................................................................................................ NC 35. No. Dakota .................................................................................................. ND 36. Ohio ............................................................................................................ OH 37. Oklahoma .................................................................................................... OK 38. Oregon ......................................................................................................... OR 39. Pennsylvania .................................................................................................PA 40. Rhode Island .................................................................................................. RI 41. So. Carolina .................................................................................................. SC 42. So. Dakota ....................................................................................................SD 43. Tennessee .................................................................................................... TN 44. Texas ........................................................................................................... TX 45. Utah ............................................................................................................. UT 46. Vermont ...................................................................................................... VT 47. Virginia ....................................................................................................... VA 48. Washington................................................................................................. WA 49. West Virginia ............................................................................................. WV 50. Wisconsin .....................................................................................................WI 51. Wyoming .................................................................................................... WY 52. American Samoa...........................................................................................AS 53. Guam ........................................................................................................... GU 54. Puerto Rico ................................................................................................... PR 55. U.S. Virgin Islands ....................................................................................... VI 56. Northern Mariana Islands ............................................................................. MP 57. Canada ...................................................................................................... CAN 58. Aggregate other alien ................................................................................... OT

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XXX

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59. Totals XXX

(a) Active Status Counts:

L – Licensed or Chartered - Licensed insurance carrier or domiciled RRG .......................................................................................... ________________ R – Registered - Non-domiciled RRGs .............................................................................................................................................. ________________ E – Eligible - Reporting entities eligible or approved to write surplus lines in the state (other than their state of domicile – See DSLI) ________________ Q – Qualified - Qualified or accredited reinsurer ................................................................................................................................. ________________ D – Domestic Surplus Lines Insurer (DSLI) – Reporting entities authorized to write surplus lines in the state of domicile. .................. ________________ N – None of the above – Not allowed to write business in the state ...................................................................................................... ________________

Attachment Four

March 12, 2020

Commissioner Jim Donelon Commissioner Al Redmer, Jr. Chair, NAIC Surplus Lines (C) Task Force Vice Chair, NAIC Surplus Lines (C) Task Force

Sent in care of Andy Daleo, adaleo@naic.org

Dear Commissioners Donelon and Redmer,

Thank you for the opportunity to follow-up with additional details from the Task Force’s December 7, 2019 discussion of the proposal to revise the manner by which surplus lines carriers report their annual premium in Schedule T. Based on that discussion, we further developed our commentary to include specific illustrations that we believe can be helpful as the Task Force continues to consider this proposal.

Since the Austin meeting, we have analyzed surplus lines tax revenue data from Business Insurance (collected annually through a survey of state regulators and stamping offices) with surplus lines premium data from the NAIC Insurance Department Resources Report. Based on our analysis and comparison of these data sources, we expanded the comments of our October 4, 2019 letter to highlight three more specific comments with examples and illustrations, which follow in the attached materials.

We reiterate that we understand the motivation for states to reconcile carrier and broker premium reports. However, as you will see in the attached materials, we find that, when comparing taxes collected and premium reported on a nationwide basis, the variances are small considering the known and valid differences between carrier reporting and broker tax requirements. We believe this analysis illustrates that surplus lines premium taxes are being appropriately remitted and collected across the nation. Therefore, before implementing an imperfect, potentially time-consuming and costly reconciliation process, we encourage the NAIC and the Task Force to consider conducting similar analysis as that outlined in the attached.

We look forward to discussing our analysis with the Task Force on the April 9 conference call. If you or other members have questions or need any additional information, we are happy to assist in any way.

Sincerely,

Brady R. Kelley Keri Kish John Meetz Executive Director Director of Government Relations Senior State Relations Manager

Attachment Four-A

Comment One: A comparison of surplus lines premium tax through the comparison of premium reported by surplus lines carriers on the NAIC Schedule T to the premium reported and taxes remitted by surplus lines brokers will not result in an accurate or conclusive reconciliation.

Examples: Exhibit I illustrates that comparing broker tax reports to carrier premium reports will often not reconcile based on a variety of factors that we outlined in our October 4, 2019 comment letter (Attachment A), the most common of which include:

• Fees. Additional fees and costs beyond the carrier’s base premium are reported by the broker only and will not bereflected in the premium reported by a carrier. Some states require that surplus lines premium tax be paid on thesefees as well, such that the tax base for the broker will be different than the premium reported by the carrier. Brokerfee reporting is denoted by line 5 of Exhibit I.

• Non-taxable premium. Not all premium is taxable in some states. For example, it is not unusual for certain risks,such as inland marine, boiler & machinery, native lands and interstate commerce related railways, to be exemptfrom taxation. These are risks that carriers would report as premium but would not be reflected in broker tax filings,further distinguishing the carrier’s premium base from the broker’s tax base and skewing any reconciliation thereof.Non-taxable premium is denoted in line 3 of Exhibit I.

• Home state. It is the statutory responsibility of the surplus lines licensee to determine and report the home state ofthe insured, and a carrier may not always underwrite and report premium based on the same determination factors.Most carrier underwriting and reporting systems are designed based upon the physical location of the risk andunderwriting requirements in those particular physical locations or states, such that carrier reporting by home statewill require significant system and process changes. Such changes seem unwarranted when their purpose will notachieve the intended result for the reasons described herein. Brokers determine the home state of the insured formulti-state policies, which is denoted in line 1 of Exhibit I, whereas the carriers allocate and report premium basedon the location of the risk as denoted in lines 1 and 2.

• Return premium, midterm endorsements and cancellations. Policies can change throughout the year and theoriginal premium reported by a carrier may differ based on the broker reporting period for these factors. This is verycommon and another key reason why reconciliation will be ineffective. Return premium and the discrepancy inreporting timeframes between the broker and the carrier are denoted in lines 6 and 7 of Exhibit I.

In addition to those variables illustrated in Exhibit I, the following factors could also provide discrepancies between broker and carrier reporting:

• Independent Procurement. Some states exempt taxation or have a different tax requirement or structure if aconsumer is allowed to procure policies without an insurance producer. These premiums are reported by carriersbut there would be no record of the transaction from a broker to cross reference. Again, these would skew anyreconciliation results.

• Reporting. States have different reporting and payment dates for surplus lines brokers, whereas all surplus linescarriers report their quarterly and annual premium at the same NAIC-required intervals.

Conclusion: Exhibit I illustrates known variances based on the difference in how surplus lines carriers report premium and how surplus lines brokers report and remit taxes. These differences are based on each parties’ regulatory responsibilities as well as underwriting standards and industry protocols. Even though both brokers and carriers each report premium, there are differences between the premium received and reported by the carrier in its Annual Statement and the premium (or tax basis) and related taxes collected and reported by the surplus lines broker. Carriers must establish premium based on the underwriting characteristics of the entire risk, which may be in many locations,

1

Attachment Four-A

and only a small portion may be in the insured’s home state. However, the broker must determine the home state of the insured (i.e., where the premium tax is to be paid). The basis upon which the broker must calculate and remit tax to the state is different from the premium reported by the carrier for the reasons illustrated in Exhibit I. Therefore, if carriers reported premium data based upon the “home state,” the carrier and broker reports would still not be an “apples to apples” comparison. Conducting a reconciliation based on two irreconcilable bases will result in significant administrative investments by regulators, carriers and brokers. As is illustrated in Exhibit II, such administrative investments are unwarranted when there is no apparent gap in tax revenues nationwide.

The known variances illustrated in Exhibit I are for one surplus lines insurance policy. Should a state try to reconcile the total difference between carrier and broker reported premium, the illustration would grow much more complex as you factor in the volume of surplus lines policies with such variances. Add to that the number of surplus lines brokers and surplus lines carriers doing business in each state, parties for which there is no one-to-one direct reporting within the Annual Statement, and the reconciliation grows more complex. Our concern is that regulators will not know if the reconciling variance is one policy, thousands of policies, one broker and carrier, or multiple brokers and carriers. In fact, we anticipate the known variances to apply to a high volume of policies and nearly all brokers and carriers, which makes the reconciliation process administratively unworkable.

While we understand the motivation for states to seek a reconciliation method, we are concerned that the proposal installs sweeping changes that will lead to a lengthy reconciliation process for a relatively small number of jurisdictions. States with surplus lines stamping offices that serve as intermediaries between surplus lines brokers and state tax collection entities have more certainty that all necessary surplus lines tax revenues are being collected. These states collectively represent 64% of all surplus lines premium written in the U.S. in 2018 according to the NAIC Insurance Department Resources Report.

Finally, we do not believe that changing the carrier’s Schedule T reporting basis will result in a starting point for states. Rather, the proposal will facilitate significant work and cost to reconcile valid differences in carrier and broker reporting. It facilitates an extensive and costly process, impacting all parties with no benefit or gain in the end.

2

Attachment Four-A

Scenario A (Policy fees are not taxable)

4% Tax

Policy Attributes Broker Report in 2019 Carrier Report in 2019

Totals Totals

Taxable premium located in home state 1,000,000$ 1) Taxable premium reported to home state 1,011,000$ 1) Premium credited to home state in Schedule T1970,554$

Taxable premium located outside home state 11,000 2) Taxable premium reported to other states - 2) Premium credited to other states in Schedule T110,676

Tax-exempt premium 10,200 3) Tax-exempt premium - 3) Tax-exempt premium (allocated above) -

Endorsement premium (taxable in 2020)210,030 4) Endorsement premium (taxable in 2020)2

- 4) Endorsement premium (allocated above)2-

Policy fees 10,004 5) Policy fees - 5) Policy fees -

Return 2018 premium3(100,000) 6) Return 2018 premium3

(100,000) 6) Return 2018 premium3-

Return 2019 premium4(50,000) 7) Return 2019 premium4

- 7) Return 2019 premium (allocated above)4-

8) Broker's tax basis reported to home state 911,000$ 8) Total premium reported in Schedule T 981,230$

9) 4% Tax on premium only 36,440$

Scenario B (Policy fees are taxable)

4% Tax

Policy Attributes Broker Report in 2019 Carrier Report in 2019

Totals Totals

Taxable premium located in home state 1,000,000$ 1) Taxable premium reported to home state 1,011,000$ 1) Premium credited to home state in Schedule T1970,554$

Taxable premium located outside home state 11,000 2) Taxable premium reported to other states - 2) Premium credited to other states in Schedule T110,676

Tax-exempt premium 10,200 3) Tax-exempt premium - 3) Tax-exempt premium (allocated above) -

Endorsement premium (taxable in 2020)210,030 4) Endorsement premium (taxable in 2020)2

- 4) Endorsement premium (allocated above)2-

Policy fees 10,004 5) Policy fees 10,004 5) Policy fees -

Return 2018 premium3(100,000) 6) Return 2018 premium3

(100,000) 6) Return 2018 premium3-

Return 2019 premium4(50,000) 7) Return 2019 premium4

- 7) Return 2019 premium (allocated above)4-

8) Broker's tax basis reported to home state 921,004$ 8) Total premium reported in Schedule T 981,230$

9) 4% Tax on premium and policy fees 36,840$

1 In this example, the carrier will credit $970,554 of premium to the home state and $10,676 of premium to other states within its 2019 Schedule T. This is

based upon the allocation of taxable, tax-exempt, endorsement and return premium proportionately between the home state and other states in which

the risk physically located.2 If policy is endorsed and premium is paid in 2019, premium may be reported by the carrier in 2019 but not reported by the broker until tax is due in 2020.3 If a policy is cancelled in 2018, premium will be returned to the consumer by the broker. However, the carrier and broker may report returned premium

in different quarters or calendar years.4 If a policy is cancelled in 2019, premium will be returned to the consumer by the broker. Again, the timing of carrier and broker reporting may vary.

Exhibit I

3

Attachment Four-A

Comment Two: Comparing carrier premium reporting within Schedule T to broker premium and tax reports will not result in substantial changes to surplus lines tax revenues for any of the states.

Example: Comparing surplus lines tax revenue data from Business Insurance (collected annually through a survey of state regulators and stamping offices) with NAIC Insurance Department Resource Report (IDRR) data (collected primarily from NAIC Schedule T filings) indicates miniscule variances in surplus lines taxes collected – variances which are expected as illustrated in Exhibit I. To illustrate this, WSIA has:

1. Estimated the tax revenue for each state based upon IDRR data from 2016 to 2018, based simply upon IDRRpremium as collected predominately from all carriers’ Schedule T reporting multiplied by the applicable surplus linestax rate in each state;

2. Calculated any variance between the tax estimated in item 1 above and the tax collected according to the BusinessInsurance survey; and

3. Calculated the 3-year average of the variances identified in item 2 above from 2016 to 2018.

From 2016 – 2018, the Business Insurance tax revenue lagged our estimated tax revenue by an average of 1.96%. However, Florida is the only state remaining to collect surplus lines taxes at rates based upon where the risk is located, rather than 100% at their 5% rate, which lowers Florida’s effective tax rate and has a fairly significant impact on the 3-year average given the size of the Florida surplus lines market. Excluding Florida illustrates actual tax revenue lagged expected revenue by only $3.7 million, or 0.22% when averaged for 2016-2018.

See Exhibit II for complete detail by state and by year.

Conclusion: Taxes collected nationwide are falling within 0.22% of WSIA’s estimate of surplus lines taxes by state. Because WSIA’s estimated revenue is based solely on carrier reported premium, the miniscule variances can be explained by the premium reporting and tax remittance responsibilities between surplus lines brokers and carriers described in Exhibit I (e.g., taxation of fees, risk and premium tax exemptions, differences in the timing of broker and carrier reporting, etc.). Implementing home state premium reporting for carriers will require them to obtain additional information from the broker, with a significant and costly compliance impact that will have no demonstrable benefit. By way of example, suppose a carrier writes 8,000 policies worth $250 million in premium in a state through 300 surplus

lines producers. To reconcile these figures, the state adds up the premium reported by all 300 surplus lines producers,

compares the result to the carrier’s Schedule T, and finds a discrepancy of $500,000. That difference could be comprised

3-Year Average

2016 - 2018

Tax WSIA Estimated NAIC IDRR BI Tax

Rate Variance % Variance Revenue Premium Collected

TOTALS (32,478,577)$ 1,689,797,891$ 43,035,404,358$ 1,657,319,314$

As % of BI Tax Collected -1.960%

TOTALS less Florida (3,695,548)$

As % of BI Tax Collected -0.223%

AVERAGE 3.569% (662,828)$ -1.972% 34,485,671$ 878,273,558$ 33,822,843$

MEDIAN 3.000% (155,369)$ -0.627% 14,904,089$ 397,046,347$ 13,748,598$

MAX 6.000% 9,661,818$ 30.061% 269,314,194$ 7,339,041,013$ 269,133,529$

MIN 1.000% (28,783,029)$ -22.077% 1,611,388$ 62,443,173$ 1,624,719$

4

Attachment Four-A

of hundreds of variances, which are not errors but known and valid differences between carrier reporting and broker tax

requirements. It’s entirely possible that a lengthy reconciliation will find overpayment of premium tax requiring refunds

and amended reductions to the overall tax revenue. Current data available, as summarized in Exhibit II, demonstrates

that taxes are being accurately remitted for surplus lines premium. Therefore, before implementing an imperfect,

potentially time-consuming and costly reconciliation process, we encourage the NAIC and the Surplus Lines Task Force

to consider conducting similar analysis as that outlined in Exhibit II, to assess the reasonableness of surplus lines tax

collections nationwide.

5

Attachment Four-A

3-Year Average

2016 - 2018

Tax WSIA Estimated NAIC IDRR BI Tax

Rate Variance % Variance Revenue Premium Collected

Alabama 6.00% (3,033,887)$ -7.71% 37,229,478$ 620,491,292$ 34,195,591$

Alaska 2.70% (662,915) -18.51% 3,519,912 130,367,127 2,856,997

Arizona 3.00% (584,185) -3.46% 16,454,987 548,499,582 15,870,802

Arkansas 4.00% 46,389 0.40% 9,989,898 249,747,441 10,036,287

California 3.00% (1,051,893) -0.51% 220,171,230 7,339,041,013 219,119,337

Colorado 3.00% 801,943 3.27% 23,948,098 798,269,933 24,750,041

Connecticut 4.00% (1,637,097) -7.00% 23,119,247 577,981,175 21,482,150

Delaware 3.00% (4,536) -0.29% 4,143,561 138,118,714 4,139,026

Dist. of Columbia 2.00% (264,647) -4.96% 5,662,154 283,107,716 5,397,507

Florida 5.00% (28,783,029) -10.79% 266,460,486 5,329,209,725 237,677,457

Georgia 4.00% 9,661,818 30.06% 38,183,300 954,582,495 47,845,118

Hawaii 4.68% (7,665) -0.04% 12,169,836 260,039,239 12,162,172

Idaho 1.50% 15,111 1.02% 1,620,617 108,041,132 1,635,728

Illinois 3.50% 3,688 0.01% 52,264,965 1,493,284,723 52,268,653

Indiana 2.50% (1,629,013) -8.24% 15,298,142 611,925,683 13,669,129

Iowa 1.00% 203,055 7.07% 2,823,203 282,320,338 3,026,258

Kansas 6.00% (25,075) -0.18% 13,773,674 229,561,226 13,748,598

Kentucky 3.00% (805,849) -10.90% 7,048,006 234,933,540 6,242,158

Louisiana 4.85% 1,488,839 2.16% 68,058,596 1,403,270,012 69,547,435

Maine 3.00% (155,369) -5.11% 3,040,756 101,358,532 2,885,387

Maryland 3.00% 195,526 1.61% 15,357,193 511,906,437 15,552,719

Massachusetts 4.00% (3,065,109) -7.51% 41,996,352 1,049,908,798 38,931,243

Michigan 2.00%

Minnesota 3.00% 551,063 3.55% 14,904,089 496,802,953 15,455,151

Mississippi 4.00% 234,780 1.58% 15,881,854 397,046,347 16,116,633

Missouri 5.00% (1,185,279) -3.48% 33,517,236 670,344,717 32,331,957

Montana 2.75% (337,407) -10.98% 3,078,874 111,959,049 2,741,467

Nebraska 3.00% 94,428 2.04% 4,811,621 160,387,352 4,906,049

Nevada 3.50% (142,854) -1.20% 11,410,872 326,024,921 11,268,018

New Hampshire 3.00% 26,399 0.16% 3,431,359 114,378,631 3,457,758

New Jersey 5.00%

New Mexico 3.00% (251,546) -6.49% 3,982,939 132,632,004 3,731,393

New York 3.60% 657,215 0.47% 143,232,904 3,978,691,765 143,890,118

North Carolina 5.00% (1,663,938) -4.64% 36,711,053 734,221,065 35,047,116

North Dakota 1.75% (26,051) -1.48% 1,889,748 107,985,576 1,863,697

Ohio 5.00% (467,266) -1.26% 40,164,050 803,281,009 39,696,785

Oklahoma 6.00% (1,669,132) -4.79% 34,313,732 571,895,527 32,644,599

Oregon 2.30% 196,972 2.56% 8,359,576 363,459,828 8,556,548

Pennsylvania 3.00% 527,871 1.45% 36,328,973 1,210,965,760 36,856,843

Rhode Island 4.00% (761,156) -12.26% 6,361,871 159,046,781 5,600,715

South Carolina 6.00% (279,007) -0.63% 40,563,094 676,051,575 40,284,088

South Dakota 2.50% 13,331 0.98% 1,611,388 64,455,521 1,624,719

Tennessee 5.00% 2,688,892 9.08% 30,506,854 610,137,080 33,195,746

Texas 4.85% (180,665) -0.06% 269,314,194 5,552,869,979 269,133,529

Utah 4.25% (594,546) -5.51% 11,651,476 274,152,373 11,056,930

Vermont 3.00% (459,004) -22.08% 2,099,503 69,983,433 1,640,499

Virginia 2.25% (499,874) -2.76% 17,275,881 767,816,940 16,776,007

Washington 2.00% 1,202,069 9.97% 17,211,952 860,597,603 18,414,021

West Virginia 4.55% (518,536) -9.54% 5,640,783 123,973,248 5,122,247

Wisconsin 3.00% (358,713) -2.85% 11,335,028 377,834,277 10,976,315

Wyoming 3.00% 17,279 1.15% 1,873,295 62,443,173 1,890,574

Totals (32,478,577)$ 1,689,797,891$ 43,035,404,358$ 1,657,319,314$

-1.96%

Florida (28,783,029)

Totals Less Florida (3,695,548)$

As % of BI Tax Collected -0.223%

Exhibit II

6

Attachment Four-A

Comment Three: Surplus lines tax revenue is increasing at a higher rate than surplus lines premium growth.

Example: Since 2010, when the Nonadmitted and Reinsurance Reform Act (NRRA) was enacted, average annual tax revenue per state has increased by 7.67%. During this time period, five states (Delaware, Oregon, South Carolina, Tennessee and West Virginia) increased their tax rates and one state (Louisiana) lowered their rate. When these six states are removed from the data, there is no significant change to an annual increase in revenue per state, which reduces the total just slightly to 7.45%. According to NAIC Insurance Department Resource Reports data, surplus lines premium grew by only 6.57% annually during the same time period and only 6.46% when the same six states are removed.

See Exhibit III for complete detail by state.

Conclusion: Surplus lines tax collection has significantly improved as a result of the clarity brought about by the passage of the NRRA in 2010. The intent of the NRRA was to simplify the taxation and regulation of the surplus lines transaction. This change has led to significant improvements for the states and the industry clarifying the brokers’ ability to clearly assign a “home state” to each surplus lines transaction. Exhibit III helps us conclude the tax revenue is growing at a faster rate than premium, which further suggests the need for some level of analysis on an annual basis, for purposes of assessing the reasonableness of surplus lines tax collections nationwide, before implementing an imperfect and potentially time-consuming and costly reconciliation process given the known causes of the variances that will exist between surplus lines broker and carrier premium reporting.

Average Tax Tax Revenue Average Premium

Revenue Change Change Premium Change Change

Since 2010 Since 2010 Per Year Since 2010 Since 2010

Average 7.67% 88.34% 6.57% 61.35%

Average Less States with

Tax Changes Since 2020 7.45% 83.24% 6.46% 61.69%

7

Attachment Four-A

Average Tax Tax Revenue Average Premium

Change in Tax IDRR Provided Broker fees Tax Revenue Change Change Premium Change Change

Rate Since 2010 by NAIC? Taxable? Rate Since 2010 Since 2010 Per Year Since 2010 Since 2010

Alabama 0% Alien Yes 6.00% 3.18% 46.10% 5.86% 55.78%

Alaska 0% Yes No 2.70% 2.05% 18.55% 2.13% 16.56%

Arizona 0% No Yes 3.00% 4.12% 56.28% 7.24% 73.43%

Arkansas 0% Yes Yes 4.00% 2.70% 41.95% 2.86% 19.97%

California 0% Yes Yes 3.00% 7.22% 116.33% 9.03% 98.81%

Colorado 0% No Yes 3.00% 8.43% 99.60% 8.16% 85.58%

Connecticut 0% Alien No 4.00% 8.06% 92.34% 6.37% 62.75%

Delaware 1% No Yes 3.00% 20.87% 322.50% 23.57% 160.59%

Dist. of Columbia 0% Yes Yes 2.00% 9.95% 96.64% 4.87% 37.03%

Florida 0% No Yes 5.00% 4.13% 47.66% 3.06% 20.03%

Georgia 0% Yes Yes 4.00% 6.59% 83.84% 10.38% 91.81%

Hawaii 0% No No 4.68% 2.42% 22.58% 2.97% 23.74%

Idaho 0% Yes Yes 1.50% 1.28% 75.30% 7.80% 77.61%

Illinois 0% No No 3.50% 5.53% 66.22% 5.69% 54.39%

Indiana 0% Yes Yes 2.50% 8.11% 57.15% 6.97% 55.13%

Iowa 0% Yes Yes 1.00% 9.04% 120.76% 7.67% 78.59%

Kansas 0% Yes Yes 6.00% 3.61% 62.65% 7.41% 66.49%

Kentucky 0% Domestic Yes 3.00% 5.98% 67.02% 6.77% 63.34%

Louisiana -0.15% Alien Yes 4.85% 1.36% 14.29% 1.79% 13.95%

Maine 0% Yes Yes 3.00% 7.25% 73.59% 7.16% 72.44%

Maryland 0% Yes No 3.00% 5.56% 72.66% 6.62% 64.61%

Massachusetts 0% Alien No 4.00% 7.21% 91.23% 7.12% 72.40%

Michigan 0% Yes No 2.00% -1.34%

Minnesota 0% Yes Yes 3.00% 9.02% 82.39% 6.21% 59.41%

Mississippi 0% Yes Yes 4.00% 1.63% 19.89% 3.42% 30.09%

Missouri 0% Yes Yes 5.00% 4.96% 53.37% 5.12% 48.08%

Montana 0% Yes No 2.75% 4.83% 43.37% 9.85% 110.89%

Nebraska 0% Yes No 3.00% 3.92% 58.81% 6.95% 68.20%

Nevada 0% No Yes 3.50% 6.13% 83.97% 8.60% 87.96%

New Hampshire 0% Yes No 3.00% 13.24% 114.71% 7.44% 61.50%

New Jersey 0% No No 5.00% 11.27%

New Mexico 0% Yes Yes 3.00% 4.01% 61.98% 7.38% 72.33%

New York 0% No Yes 3.60% 11.53% 117.25% 8.36% 88.52%

North Carolina 0% Alien No 5.00% 6.16% 52.64% 5.23% 44.55%

North Dakota 0% No Yes 1.75% 10.46% 113.10% 14.28% 150.60%

Ohio 0% Alien No 5.00% 7.02% 68.55% 5.70% 54.69%

Oklahoma 0% Yes Yes 6.00% 8.22% 79.47% 7.65% 74.69%

Oregon 0.3% Yes Yes 2.30% 6.44% 94.60% 7.21% 72.36%

Pennsylvania 0% Yes No 3.00% 4.87% 47.08% 5.33% 50.70%

Rhode Island 0% Yes No 4.00% 62.49% 587.95% 6.12% 57.35%

South Carolina 2% Yes Yes 6.00% 10.31% 112.72% 5.87% 55.83%

South Dakota 0% No Yes 2.50% 10.42% 85.40% 8.36% 82.95%

Tennessee 2.5% Yes Yes 5.00% 13.87% 171.99% 3.76% 33.22%

Texas 0% No Yes 4.85% 6.87% 82.95% 5.25% 46.73%

Utah 0% Yes Yes 4.25% 8.81% 109.74% 9.36% 102.59%

Vermont 0% Yes No 3.00% 10.85% 94.89% 1.42% 10.38%

Virginia 0% No Yes 2.25% 5.14% 51.92% 4.83% 40.95%

Washington 0% Yes Yes 2.00% 6.94% 95.73% 8.89% 79.74%

West Virginia 0.55% Alien Yes 4.55% 2.92% 33.22% 2.32% 17.43%

Wisconsin 0% Yes* Yes 3.00% 4.41% 48.96% 5.29% 38.21%

Wyoming 0% Yes Yes 3.00% 0.90% 16.77% 0.41% 1.17%

State Stamping Offices

AVERAGE 3.569% 7.67% 88.340% 6.57% 61.35%

MEDIAN 3.000%

MAX 6.000%

MIN 1.000%

Average Less States with Tax Changes Since 2010 7.45% 6.46%

Exhibit III

8

Attachment Four-A

4131 N. Mulberry Dr., Suite 200 | Kansas City, MO 64116 | 816.741.3910 | www.wsia.org

October 4, 2019

The Honorable James J. Donelon Chair, Surplus Lines (C) Task Force National Association of Insurance Commissioners 1100 Walnut Street Kansas City, MO 64106

Sent via email to: adaleo@naic.org

Re: Surplus Lines Premium Home State Blanks Proposal

Dear Commissioner Donelon:

On behalf of the Wholesale & Specialty Insurance Association (WSIA), we appreciate the opportunity to comment on the Task Force’s proposal to include “home state” reporting of surplus lines premium through Schedule T on domestic carriers’ Annual Statement filings. As the professional trade association representing the wholesale, specialty and surplus lines industry, WSIA is unique in that we represent both surplus lines brokers and surplus lines carriers. Although this proposal is directed at the reporting of premium by insurance carriers, it will impact both carriers and brokers such that we have worked with various representatives of both to conduct our analysis of the proposal and provide these comments.

Our members fully understand the motivation for this proposal is to help individual states reconcile surplus lines premium reported by surplus lines carriers to surplus lines taxes remitted by surplus lines brokers. They also understand and take seriously their surplus lines tax obligations; however, we are concerned that the proposed premium reporting changes will not yield the desired results. We are further concerned that an imperfect reconciliation process will require a significant investment of financial and human resources for all parties (i.e., carriers, brokers and regulators) and will result in no substantial change in surplus lines revenues for any of the states.

Reconciliation of surplus lines premium tax through the comparison of premium reported by surplus lines carriers to the surplus lines taxes remitted by surplus lines brokers will not result in an accurate or appropriate outcome for the regulators. Some of the most significant reasons that this approach to reconciliation will not produce accurate results are:

• Fees. Additional fees and costs beyond the carrier’s base premium are reported by the broker onlyand will not be reflected in the premium reported by a carrier. Some states require that surplus linespremium tax be paid on these fees as well, such that the tax base for the broker will be different thanthe premium reported by the carrier.

• Non-taxable premium. Not all premium is taxable in some states. For example, it is not unusual forcertain risks, such as inland marine, boiler & machinery, native lands and interstate commerce relatedrailways, to be exempt from taxation. These are risks that carriers would report as premium but would

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not be reflected in broker tax filings, further distinguishing the carrier’s premium base from the broker’s tax base and skewing any reconciliation thereof.

• Independent Procurement. Some states exempt taxation or have a different tax requirement orstructure if a consumer is allowed to procure policies without an insurance producer. These premiums are reported by carriers but there would be no record of the transaction from a broker to crossreference. Again, these would skew any reconciliation results.

• Home state. It is the statutory responsibility of the surplus lines licensee to determine and report thehome state of the insured, and a carrier may not always underwrite and report premium based onthe same determination factors. Most carrier underwriting and reporting systems are designed basedupon the physical location of the risk and underwriting requirements in those particular physicallocations or states, such that carrier reporting by home state will require significant system andprocess changes. Such changes seem unwarranted when their purpose will not achieve the intendedresult for the reasons described herein.

• Return premium, midterm endorsements and cancellations. Policies can change throughout the yearand the original premium reported by a carrier may differ based on the broker reporting period forthese factors. This is very common and another key reason why reconciliation will be ineffective.

• Reporting. States have different reporting and payment dates for surplus lines brokers, whereas allsurplus lines carriers report their annual premium at the same time each year (March 1) for the priorcalendar year.

Based on these particular examples, we know that reconciliation is not a simple undertaking for any of the impacted parties (i.e., regulators, carriers or brokers). The above factors illustrate how difficult, if not impossible, it is to get an “apples to apples” accounting to effectively reconcile surplus lines premium taxes remitted by brokers to surplus lines premium reported by carriers. Attempts at reconciliation between broker and carrier data in the past on a state-by-state basis have rarely resulted in additional tax owed.

Finally, compliance with this proposal will have a significant impact on certain carriers. For some carriers, this change may be easier to implement because they generally write single state policies or monoline business. This could also be true for larger carriers writing personal lines or casualty risks where multistate policies are less common. However, this proposal gets much more complex and potentially costly, from a systems and administration perspective, when the surplus lines products are more complex and cover risks across many state lines. Regardless of the size of the carrier, all will be required to invest in technology changes to capture this information to comply with the proposal.

In closing, states should continue to rely on broker filings, with brokers remitting surplus lines taxes on 100% of the premium to the home state of the insured at the home state’s tax rate. While we understand that states desire an easy reconciliation, we are concerned that implementing this Schedule T proposal will not yield the desired results. Before the states decide to move forward with a reconciliation approach, we encourage a more detailed discussion with the carriers and brokers regarding any underlying state concerns. We further suggest discussing reconciliation efforts with representatives from the fifteen Stamping Offices because of their significant experience in this area, either in performing reconciliations or electing not to because of their experiences. We want to work with the states to better understand any concerns and/or help identify the right solution, and, for all of the above factors, we respectfully request that the Task Force table this proposal and further study it with the industry’s help.

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We appreciate the opportunity to work with our members and provide their perspective on this proposal. Please contact us with questions of if you need any additional information.

Sincerely,

Keri Kish Brady R. Kelley John Meetz Director of Government Relations Executive Director State Relations Manager 816.799.0855 816.799.0860 816.799.0863

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