NON-ADMITTED & REINSURANCE REFORM ACT

Question 1

SECT A: NRRA

SPECIAL CHARACTERISTICS/REQUIREMENTS IN SURPLUS LINES (8)

Answer 1

1. MAKES COVERAGE AVAILABLE & AFFORDABLE FOR RISKS THAT ARE UNIQUE, REQUIRE HIGH LIMITS
2. SURPLUS LINES INSURERS MAY NOT COMPETE DIRECTLY WITH LICENSED INSURERS; SURPLUS LINES WRITE WHAT LICENSED INS WON’T
3. SURPLUS LINES BUSINESS MUST BE “EXPORTED” BY SPECIALLY LICENSED BROKERS
4. BROKER ENSURES THE REQUIRED DILIGENT SEARCH OF LICENSED INSURERS HAS BEEN ACCOMPLISHED & FILE APPROPRIATE TAX
5. ONLY SPECIALLY LICENSED PRODUCERS ARE PERMITTED TO PLACE SURPLUS LINES BUSINESS
6. COVERAGE FOR RISK MUST BE DECLINED BY THE ADMITTED/LICENSED MARKET THROUGH A “DILIGENT SEARCH” IN THAT STATE
7. NO GUARANTY FUNDS FOR SURPLUS LINES
8. LICENSEE MUST INVESTIGATE FINANCIAL WELL-BEING OF INSURERS
9. MEET MIN PHS AMOUNTS
10. INSURER IS LICENSED IN AT LEAST ONE STATE/JURISDICTION
11. INSURER IN BUSINES FOR A MINIMUM NUMBER OF YEARS

Question 2

SECT A: NRRA

PURPOSE

Answer 2

• Simplify tax & regulation system for surplus lines insurance
o Limit state regulation of surplus lines transactions to home state of insured; brokers are regulated
o Federal standard for premium tax collection, eligibility of insurers, exempt commercial purchasers

Question 3

SECT A: NRRA

PREMIUM TAX (2)

Answer 3

• Premium tax – collected only in home state of insured from surplus lines brokers or insureds who independently procured insurance
o Home state =
1. State of principal business/residence
2. If (1) is wholly outside the state of the insured risk, then the state of risk which has the highest taxable premium in the contract

Question 4

SECT A: NRRA

EXEMPT COMMERCIAL PURCHASER (ECP) (3/2)

Answer 4

• Any person purchasing commercial insurance that meets the requirements:
1. Person employs or retains a qualified risk manager to negotiate insurance coverage
2. Person has paid aggregate nationwide commercial P&C insurance premiums > 100K in the immediately preceding 12 months
3. Person meets net worth/employer

• Partial exemption of “diligent search” requirement waived; brokers can go directly to surplus lines market if:
1. Broker disclosed that coverage may be available from the admitted market, which may provide greater protection with more regulatory oversight, AND
2. ECP requested in writing that the broker procure/place such coverage with a surplus lines insurer

Question 5

SECT A: NRRA

DILIGENT SEARCH EXCEPTIONS (2)

Answer 5

1. Waived if coverage is for ECP
2. Unnecessary if coverage is on “export” list, offered by eligible surplus lines insurers

Question 6

SECT A: NRRA

ELIGIBILITY OF INSURERS (2)

Answer 6

• Model Act requires foreign surplus lines insurer:
1. Be authorized in its domiciliary state to write the insurance that it writes as surplus lines coverage
2. Have the minimum capital & surplus (or equivalent under the laws of its domiciliary jurisdiction), equaling the greater of:
a. Min capital & surplus requirement under the laws of the insured’s home state
b. 15M

Question 7

SECT A: NRRA

ACCESS TO NON-ADMITTED MARKET

Answer 7

1. Direct placement/independently procured
   • State Board on Insurance v Todd Shipyards Corp
   o US citizens have right to leave state to get insurance free of taxation if the only contact with the state was the fact that the insured risk was located in the state where insurance is obtained
   • Direct placement/self-procurement statutes govern buyer’s actions that are “constitutionally guaranteed”
2. Surplus lines insurance