House Committee Advances Surplus Lines Regulatory Reform

July 27, 2006

The House Financial Services Committee has approved legislation that would apply single-state regulation and uniform standards to the nonadmitted insurance and reinsurance marketplace.

Chairman Michael G. Oxley (Ohio) convened a full committee markup yesterday at which H.R. 5637, the Nonadmitted and Reinsurance Reform Act of 2006 was approved.

The legislation was introduced by Reps. Ginny Brown-Waite (Fla.) and Dennis Moore (Kan.) on June 19 and has moved along quickly. Supporters said the measure represents the first step in modernizing regulation of all lines of insurance.

Rep. Brown-Waite said her bill provides “common-sense solutions to the non-admitted and reinsurance market.” She also maintained that “simplifying and streamlining the insurance market will bring savings to consumers and companies doing business across state lines.”

For non-admitted insurance, H.R. 5637 would give sole regulatory and enforcement authority to the insured’s home state for governing the placement of non-admitted insurance. It also would: create a uniform system for the collection and allocation of premium tax obligations related to nonadmitted insurance, streamline eligibility requirements for nonadmitted insurers, and would allow sophisticated commercial purchasers to directly access the surplus lines market.

The legislation directs states to create compacts or other procedural mechanism for allocating nonadmitted insurance premium taxes among the several states before the bill’s effective date.

Chairman Oxley said, “This is an important piece of legislation that would create a more efficient marketplace for nonadmitted insurance and reinsurance. The removal of unnecessary and often conflicting regulatory burdens will benefit insurance consumers by giving them the flexibility they need when seeking coverage for their businesses.”

For reinsurance, the bill would give the ceding insurer’s state of domicile sole authority to govern reinsurance contracts and determining whether or not a particular reinsurance contract qualifies for credit for reinsurance. It would also prohibit states from applying their laws in an extra-territorial manner and provide uniform regulation of reinsurer solvency based upon National Association of Insurance Commissioner accreditation standards.

“This legislation is an important first step in reforming the system of insurance regulation in this country and I look forward to its passage on the House floor,” Rep. Moore said.

Nonadmitted insurance and reinsurance providers have cited several regulatory problems, including extra-territorial application of state law, conflicting licensing requirements that discriminate against non-resident brokers, and archaic state declination rules that deny sophisticated entities direct access to the surplus lines markets.

The Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises approved H.R. 5637 by voice vote on July 19.

A manager’s amendment offered by Chairman Oxley and approved by voice vote would make technical changes.

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