Home State of the Insured NRRA definition (without “affiliated groups”
provision)
Premium Tax Multistate allocation agreement authorized
following public notice and comment; 100% to MA at rate of state where risk is located unless/until MA enters agreement
Exempt Commercial Purchaser NRRA approach (by default)
Eligible Insurer NRRA approach (by preemption)
Producer Licensing License required only for placements for MA
insureds; silent on participation in a producer database
Effective Date July 11, 2011
MA H 3535
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Defining “Home State of the Insured”
The home state is where an insured maintains its principal place of business or if the insured is an individual, the individual’s principal residence. Principal place of business is the state where the insured maintains its headquarters and where the insured’s high-level officers direct, control and coordinate the business activities of the insured. However, if 100% of the insured risk is located outside of the state of the principal place of business or principal residence, the home state is the state that collects the greatest percentage of the insured’s taxable premium. §175.168(a). The statute does not include the “affiliated groups” provision of the NRRA definition.
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Multi-State Risk Surplus Lines Premium Taxes
The statute authorizes the commissioner to enter into a multi-state agreement for tax allocation purposes following a period for public notice and comment. In determining whether to enter into such an agreement, the commissioner may consider: efficiencies to be achieved, revenue to be generated, or any other material factor. Prior to entering into any agreement or compact, the commissioner shall provide public notice and an opportunity for comment thereon. § 175.168(e).
Unless and until Massachusetts enters into a multi-state agreement for tax allocation purposes, for policies that cover risk or exposures located or to be performed both in and out of the state, Massachusetts will tax 100% of the premium at the rate of the state where the risk or exposure is located. For the portion of the risks allocated to Massachusetts, the rate is 4%. § 175.168(d).
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Exempt Commercial Purchasers
The Massachusetts statute recognizes a diligent search exemption for commercial policyholders. § 175.168(b)(iii) – (iv). However, the exemption does not match the NRRA approach to exempt commercial purchasers. Therefore, both the Massachusetts exemption and the NRRA exemption will be in effect beginning July 21, 2011.
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 67 Under the NRRA, an exempt commercial purchaser is a purchaser that procures insurance coverage through a
qualified risk manager, paid at least $100,000 in property and casualty insurance premiums in the last year, and meets one of the following criteria:
o Had a net worth of over $20 million at the end of the preceding fiscal year;
o Had net revenues or sales over $50 million at the end of the preceding fiscal year;
o Has more than 500 full-time employees per individual company, or is a member of an affiliated group employing more than 1,000 employees in the aggregate;
o Is a municipality with a population of more than 50,000 people; or
o Is a nonprofit organization or public entity generating annual budgeted expenditures of at least $30 million
Brokers procuring or placing insurance for an exempt commercial purchaser are not required to make a due diligence search to determine whether the full amount or type of insurance sought by the exempt commercial purchaser can be obtained from an admitted insurer if:
o The broker discloses to the exempt commercial purchaser that such insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight; and
o The exempt commercial purchaser has subsequently requested in writing the broker to procure or place such insurance for a nonadmitted insurer.
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Surplus Line Insurer Eligibility Criteria
The Massachusetts statute imposes foreign insurer eligibility requirements. §175.168(c)(i). However, the requirements under the statute do not match the requirements under the NRRA. Therefore, as of July 21, 2011, the Massachusetts requirements will be preempted by the NRRA.
Under the NRRA, if a state chooses to impose eligibility restrictions on foreign insurers, the only requirements the state may impose are:
o Requiring the insurer be licensed in its domiciliary jurisdiction; and
o Requiring the insurer to possess capital and surplus – or its equivalent under the laws of its domiciliary jurisdiction – equal to the greater of the minimum capital and surplus requirements under the laws of the home state or $15 million.
Under the NRRA, an insurance commissioner may waive the minimum capital and surplus requirement for a
nonadmitted insurer if he makes an affirmative finding of acceptability after considering: quality of management, capital and surplus of a parent company, company underwriting profit and investment trends, market availability, and company record and reputation within the industry. But the commissioner may not make a finding of acceptability if the insurer’s capital and surplus is under $4.5 million.
Under the NRRA, a state cannot prohibit surplus lines producers from placing insurance with alien insurers that appear on the quarterly listing of alien insurers maintained by the NAIC. § 384.021. Therefore, Massachusetts may maintain separate requirements for alien insurers (§ 175.168(c)(iii)), but the state cannot prevent placement of insurance with those that appear on the NAIC list.
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 68
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National Producer Database
The statute is silent as to whether Massachusetts will participate in the NAIC producer database or some other equivalent uniform national database for producer licensing and renewals. Under the NRRA, Massachusetts may not collect any fees relating to licensing of an individual or entity as a surplus lines broker in Massachusetts unless the state has in effect by July 21, 2012, laws or regulations that provide for participation by the state in the national producer database of the NAIC, or any other equivalent uniform national database, for the licensure of surplus lines brokers and renewal of such licenses.
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 69