Emmanuel XS Lines

Question 1

NRRA purpose & how it accomplishes purpose

Answer 1

• Create a better surplus lines tax payment and regulatory system
• limits regulatory authority of surplus lines to the customer’s home state
• establishes federal standards for surplus lines regarding: premium taxes, insurer eligibility, commercial purchaser exemptions

Question 2

Key provisions of NRRA regarding surplus lines

Answer 2

• 1-state compliance (only an insured’s home state can regulate the placement of surplus lines)
• uniform eligibility standards (for an insurer to sell surplus lines coverage)
• ECPs or Exempt Commercial Purchasers (a diligent search is not required for sophisticated commercial purchasers)
• national producer database (producers must be in a database to collect licensing fees from a surplus lines insurer)

Question 3

Describe 1-state compliance

Answer 3

insured’s home state has exclusive authority to regulate the placement of nonadmitted insurance (includes surplus lines)
* only home state can require a broker’s license to sell nonadmitted insurance (note WC is an exception)
* only home state can collect premium taxes

Question 4

Describe uniform eligibility standards

Answer 4

States are empowered to create uniform eligibility standards for surplus lines insurers but all are currently using the NRRA default standards

US domiciled insurers (also called foreign insurers because they are foreign to all but the home state):
NAIC Nonadmitted Insurer’s Model Act
* must have >= 15m in capital & surplus (or the state minimum if it’s higher)
* must be authorized to write in its domiciliary jurisdiction

non-US domiciled insurers (also called alien insurers):
* if insurer is listed in the Quarterly Listing of Alien Insurers, states may not prohibit placing insurance with them

Question 5

Describe exempt commercial purchaser

Answer 5

Any person purchasing commercial insurance that:
* employs a NRRA-qualified risk manager
* has paid aggregate commercial premiums >= 100k in past 12 months
* the person’s company is “large” (high net worth >= ~20m or high revenues or lots of employees)

States can’t force a broker to do a diligent search if the purchaser is an ECP and:
* broker has diclosed to the purchaser that coverage may be available in the admitted market (which is better regulated)
* purchaser has then instructed the broker to purchase insurance in the nonadmitted market

Question 6

Describe national producer database

Answer 6

• this database (or another national equivalent) is for the licensure & renewal of surplus lines brokers
• the specific NRRA requirement: if a state doesn’t participate in such a database then they can’t collect licensing fees

Question 7

Surplus Lines Laws - General

Answer 7

• very little regulation regarding forms & rates
• regulation is focused mainly on brokers (not insurers)
• broker must perform a diligent search before exporting business from the admitted market to the nonadmitted surplus lines market; or the broker can use an “export list” which is a list of coverages deemed to be unavailable through the admitted market
• brokers submit tax and other filings

Question 8

2 methods of accessing nonadmitted market

Answer 8

1 surplus lines (use a local licensed broker to buy coverage from a nonadmitted insurer in your home state)
2 independent procurement (direct placement)
* when a US citizen leaves their home state (goes to insurer outside their home state) to insure a risk located in their home state
* and the purchase is either directly from an unauthorized insurer or a broker not licensed by the home state

Question 9

State Board of Insurance v. Todd Shipyards Corporation

Answer 9

Facts:
* the buyer purchased property coverage from an out-of-state unauthorized insurer
* the only connection between the buyer and the home state was the location of the covered property in the home state

Issue:
* can the home state tax or otherwise regulate the transaction?

Ruling:
* under McCarran-Ferguson, the home state could not tax or regulate the transaction
* because federal laws applying exclusively to insurance supersede state laws

Question 10

Wholesale broker

Answer 10

• an intermediary broker between a “regular” retail broker and an insurer
• licensing difference: wholesale broker must have a license in the home state of each insured they place with an insurer – might need many licenses

licensing requirements being addressed:
* 2015 legislation established the National Association of Registered Agents and Brokers (NARAB)
* it’s a 1-stop national licensing system for brokers operating outside of their home state
* requires submission of an application and adherence to strict standards

Question 11

Domestic Surplus Lines Insurance Companies (DSLIs)

Answer 11

Carriers that are able to write surplus lines in their state of domicile.

Criteria to become a DSLI:
* PHS >= 15m
* insurer is an eligible surplus lines insurer in a jurisdiction other than its state of domicile
* the insurer’s board of directors passes a resolution seeking to be a domestic surplus lines insurer in the state of domicile
* insurance commissioner approval and issuance of certificate of authority