Section G Regulation of Insurance: Emmanual (formerly Drearie)

Question 1

Purpose of the NRRA:

Nonadmitted and Reinsurance Reform Act

Answer 1

🟢 Limit the regulatory authority of surplus lines transactions to the Home State of the insured in order to create a more simplified and efficient surplus lines system

🟢 Establish federal standards for:

 🔹 The collection of surplus lines Premium Taxes
 🔹 Insurer eligibility 
 🔹 Commercial purchaser exemptions

Question 2

Definition of home state of insured:

Answer 2

🏡 State in which insured maintains its principal place of business, or

🗺 If 100% of the risk is located outside of the state mentioned above, the state to which the greatest percentage of the insureds taxable premium is allocated

Question 3

How does NRRA facilitate the allocation of premium taxes:

Answer 3

🏘 NRRA allows the insureds home state to require surplus lines brokers (and insureds that have independently purchased insurance) to file annual tax allocation reports that allocate the premium to exposures in each state.

Question 4

NRRA definition of a sophisticated commercial purchaser of non-admitted insurance:

Answer 4

One that meets the following requirements at the time of placement:

🔹 Employs a qualified risk manager to negotiate insurance coverage

🔹 Has paid aggregate nationwide commercial P&C premiums in excess of $100k in the previous 12 months

🔹 Meets at least one of the following criteria:

🔻Net-worth exceeding $23.8M

🔻Generates annual revenues exceeding $59.5M

🔻Employs more than 500 full time/ full time equivalent employees or is a member of an affiliated group employing more than 1,000 employees total

🔻Not-for-profit organization or public entity generating annual budgeted expenditures of at least $35.7M

🔻Municipality with population exceeding 50k people

Question 5

Criteria by which brokers for Exempt Commercial Purchasers are not required to satisfy diligent search requirements

Answer 5

▫️Broker discloses to the insurance purchaser that insurance may be available in the admitted market that provides greater protection with more regulatory oversight

▫️Purchaser subsequently requests in writing that the broker place the coverage with a non-admitted insurer

Question 6

Describe the National Association of Registered Agents and Brokers (NARAB):

Answer 6

A national clearinghouse which is a one stop licensing system for agents/brokers operating outside of their home state. NARAB is governed by a board of state insurance commissioners and industry representatives.

The purpose of NARAB is to apply licensing, continuing education and non-resident insurance producer standards on a multi-state basis, while preserving the laws of the individual states. If agents/brokers become members of the Association, they must meet strict standards and ethical requirements.

Question 7

Purpose of export lists:

Answer 7

Relieves the broker from first having to try to place the business with licensed carriers.

Question 8

Which eligibility requirements can states impose on foreign surplus lines insurers:

Answer 8

• Standards that conform with the Model Act
• Nationwide uniform requirements, forms and procedures that are enacted based on an agreement among the states

Question 9

Requirements of Model Act for foreign surplus lines insurers:

Answer 9

🟡 Be authorized in its domiciliary state to write the type of insurance that it is looking to offer as surplus lines coverage

🔵 Have capital and surplus under the laws of its domiciliary jurisdiction that exceed the greater of:

🔹Minimum capital and surplus requirement under the law of the home state of the insured

🔹$15M

Question 10

Alternative method available (in addition to surplus lines) to access the non-admitted market:

Answer 10

Direct placement/ independently procured placement.

Question 11

Describe a Direct placement/independently procured placement.

Answer 11

The insured purchases the insurance directly from an unauthorized carrier either directly or via a broker/agent that is not licensed in the jurisdiction in which the risk is located

Question 12

Direct placement is protected from state regulation if which circumstances apply:

Answer 12

🟢 The insured does not access the non-admitted market via a resident agent/broker

🟢 There is no activity by the insurer in the state either in the making or performance of the contract

🟢 The transaction takes place solely (or principally for NY) outside of the state where the insured is located

Question 13

Purpose of NAICs national insurer producer database:

Answer 13

Provides details of the licensure of surplus lines brokers