Home State of the Insured NRRA definition & Principal Place of Business & Principal Residence
Premium Tax Signed NIMA; until NIMA is operational, will tax portion
allocable to LA at 5% + portion allocable to other NIMA states at rate of state where risk is located
Exempt Commercial Purchaser NRRA approach after July 21
Eligible Insurer NRRA approach after July 21
Producer Licensing License required only for placements for LA insureds; LA law silent regarding participation in electronic licensing database
Effective Date July 1, 2011 (Date LA joins NIMA, per statute) / July 21, 2011 (DOI Guidance)
LA H 469
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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. La. Rev. Stat. Ann. § 22:439(F). 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. If more than one insured from an affiliate group are named insureds on a single nonadmitted insurance contract, the home state is the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract.
According to Insurance Department guidance issued on July 21, 2011, “principal place of business” means (a) the state where the insured maintains its headquarters and where the insured’s high-level officers direct, control and
coordinate the business of activities; or (b) if the insured’s high-level officers direct, control and coordinate the business activities in more than one state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated; or (c) if the insured maintains its headquarters or the insured’s high-level offices direct, control and coordinate the business activities outside any state, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated. “Principal residence” means (a) the state where the insured resides for the greatest number of days during a calendar year; or (b) if the insured’s principal residence is located outside any state, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is
allocated.
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Multi-State Risk Surplus Lines Premium Taxes
Under La. Rev. Stat. Ann. § 22:439, the Commission shall on behalf of the state of Louisiana enter into NIMA or other cooperative agreements with other states for tax allocation purposes (this provision became effective upon the Governor signing the bill). Pursuant to the statute, Louisiana has signed NIMA.
According to guidance issued by the Insurance Department, for policies effective between July 1 and July 20, 2011, where Louisiana is the home state of the insured, Louisiana will only collect surplus lines premium taxes on the portion of the risk allocated to that state (i.e., on a pro rata basis). For policies effective on or after July 21, 2011, Louisiana will tax
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 60 according to the following formula: the portion allocated to Louisiana at a rate of 5%, PLUS the portion allocated to other NIMA states at the rate of the NIMA state where the risk is located, LESS returned premiums, and LESS the taxes on risks located in non-NIMA states.
Until NIMA is operational, however, existing law will apply. Currently, where a policy covers risks or exposures only partially in the state, the tax is payable upon the portion of the premium that is properly allocable to the risks or exposures in the state. The tax rate is 5%. La. Rev. Stat. Ann. § 22:439(A)(2) & (C).
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Exempt Commercial Purchasers
Louisiana’s statute is silent on exempt commercial purchasers. Therefore, as of July 21, 2011, the NRRA approach will apply by default. 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
Under the NRRA, a surplus lines broker seeking to procure or place nonadmitted insurance in Louisiana for an exempt commercial purchaser shall not be required to satisfy any state requirement to make a due diligence search to determine whether the full amount or type of insurance sought by such exempt commercial purchaser can be obtained from admitted insurers 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
Louisiana does impose eligibility requirements on foreign insurers. Therefore, beginning July 21, Louisiana will have to comply with the NRRA approach to eligibility requirements. Under the NRRA, a state may only impose the following eligibility requirements for nonadmitted insurers domiciled in a U.S. jurisdiction:
o the insurer must be authorized to write the type of insurance in its domiciliary jurisdiction; and
o the insurer must have capital and surplus or its equivalent under the laws of its domiciliary jurisdiction which equals the greater of:
The minimum capital and surplus requirements under the law of Louisiana; or
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 61 The insurance commissioner may waive the minimum capital and surplus requirements above if the commissioner 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. The commissioner may not make a finding of acceptability if the insurer’s capital and surplus is under $4.5 million.
In addition, under the NRRA, Louisiana may not prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the U.S. that is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the NAIC.
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National Producer Database
Louisiana’s law is silent on joining the NAIC producer database or any other uniform national database for producer licensing and renewal of licenses. Under the NRRA, Louisiana may not collect any fees relating to licensing of an individual or entity as a surplus lines broker in Louisiana 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 62
Maine
Home State of the Insured NRRA definition
Premium Tax Authorizes multistate allocation agreement following a study;
ME keeps 100% (at a rate of 3%) unless/until agreement becomes effective
Exempt Commercial Purchaser NRRA approach
Eligible Insurer NRRA approach
Producer Licensing License required only for placements for ME insureds; ME law silent regarding participation in electronic licensing database
Effective Date July 21, 2011
ME H 993
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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. 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. If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the home state is the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract. § 24-A MRSA § 2003(7).
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Multi-State Risk Surplus Lines Premium Taxes
The State Tax Assessor may, in consultation with the Department of Professional and Financial Regulation, Bureau of Insurance, enter into a multi-state agreement in accordance with the NRRA for the reporting of nonadmitted insurance premiums and the collection and allocation of nonadmitted insurance taxes. The State Tax Assessor may not enter into an agreement unless the Assessor has: completed a fiscal analysis of the impact of the agreement that examines the effects on gross premium tax receipts and concluded that entering into the agreement is in the state’s best financial interests, does not significantly increase administrative burden and cost to the state, and is consistent with the requirements of the NRRA. 36 MRSA § 2532.
Unless and until Maine enters into a tax allocation agreement, Maine will keep 100% of premium taxes. 36 MRSA § 2531. All gross direct insurance premiums paid to insurers that do not have certificates of authority to do business in Maine are subject to taxation if this state is the insured’s home state. The rate of taxation is 3%. 36 MRSA § 2531(2).
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Exempt Commercial Purchasers
Under 24-A MRSA § 2003(6), 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;
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 63
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.
24-A MRSA § 2002-A(3)(E).
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Surplus Line Insurer Eligibility Criteria
According to 24-A MRSA § 2007(3), a surplus lines broker may place insurance with a nonadmitted insurer if:
o The insurer is authorized to place that type of insurance in its domiciliary jurisdiction; and
o The insurer has capital and surplus – or its equivalent under the laws of its domiciliary jurisdiction – that is the greater of the minimum capital and surplus requirements under the laws of this state or $15 million. The insurance commissioner may waive the minimum capital and surplus requirements for unauthorized foreign insurers 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. The commissioner may not make a finding of acceptability if the insurer’s capital and surplus is under $4.5 million. 24-A MRSA § 2007(4).
A surplus lines broker may place insurance with an alien insurer if that insurer is listed on the quarterly list of alien insurers maintained by the NAIC. 24-A MRSA § 2007(5).
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National Producer Database
Maine law is silent as to whether Maine will participate in the NAIC producer database or some other equivalent uniform national database for producer licensing and renewals. Under the NRRA, Maine may not collect any fees relating to licensing of an individual or entity as a surplus lines broker in Maine 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 64
Maryland
Home State of the Insured NRRA definition
Premium Tax 100% to MD at rate of 3% unless/until state joins a multistate
agreement; calls for a study of other states’ experience with agreements by Jan. 1, 2012
Exempt Commercial Purchaser MD industrial insured exemption + NRRA approach to ECPs Eligible Insurer NRRA approach: licensure in domiciliary jurisdiction +
greater of $15MM capital / surplus or minimum required by MD
Producer Licensing License required only for placements for MD insureds; requires participation in the NAIC producer database
Effective Date July 1, 2011 (tax provisions July 21, 2011)
MD H 959 / MD S 694
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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. 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. If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the home state is the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract. § 3-301(e).
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Multi-State Risk Surplus Lines Premium Taxes
The statute stipulates that premiums charged for surplus lines insurance are subject to a premium receipts tax of 3% on all gross premiums, less any returned premiums charged for surplus lines insurance. § 3-324(b). For policies effective before July 21, 2011, if the policy covers risks located or to be performed in and outside of the state, the premium receipts tax shall be computed at 3% of the premium that is properly allocable to the risks located in the state. § 3-324(c). For policies effective on or after July 21, 2011, if the state is the insured’s home state, the premium receipts tax shall be computed on the entire premium at a rate of 3%. § 3-324(d).
The statute instructs the commissioner to, on or before January 1, 2012, conduct a study of various approaches taken by other states to implement the NRRA and report the findings to the Senate Finance Committee and House Economic Matters Committee. Specifically, the study must include a review of the execution of agreements or compacts by other states, the impact on premium receipt tax revenue based on the approach taken, the impact of Maryland’s approach on premium receipt tax revenue, and guidance provided from groups such as NCOIL and NAIC. § 4-211.1(Sec. 2)(a)-(b).
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Exempt Commercial Purchasers
Maryland currently has an industrial insured exemption. That exemption will remain effective. The NRRA commercial purchaser exemption (incorporated into Maryland law) will also be in effect as of July 1, 2011.
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 65 The statute incorporates by reference the NRRA definition of exempt commercial purchaser. § 3-301(d). According to 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.
§ 3-306.1(d)(1) – (2).
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Surplus Line Insurer Eligibility Criteria
Surplus lines brokers shall not place coverage with a nonadmitted insurer unless, at the time of placement, the nonadmitted insurer:
o Is authorized to write such insurance in its domiciliary jurisdiction; and
o Possesses capital and surplus – or its equivalent under the laws of its domiciliary jurisdiction – that equals the greater of the minimum capital and surplus requirements under the laws of the domiciliary jurisdiction or $15 million.
§ 3-318(a) – (b)
The commissioner may waive the minimum capital and surplus requirement for a nonadmitted insurer if the
commissioner 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. The director may not make a finding of acceptability if the insurer’s capital and surplus is under $4.5 million. § 3-318(b)(1)-(3).
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National Producer Database
© 2011 The Council of Insurance Agents & Brokers and Steptoe & Johnson LLC 66