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Text of the Nonadmitted and Reinsurance Reform Act of 2007

This bill was introduced on March 20, 2007, in a previous session of Congress, but was not enacted. The text of the bill below is as of Mar 20, 2007 (Introduced).

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Source: GPO

II

110th CONGRESS

1st Session

S. 929

IN THE SENATE OF THE UNITED STATES

March 20, 2007

(for himself and Mr. Nelson of Florida) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To streamline the regulation of nonadmitted insurance and reinsurance, and for other purposes.

1.

Short title; table of contents

(a)

Short title

This Act may be cited as the Nonadmitted and Reinsurance Reform Act of 2007.

(b)

Table of Contents

The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Effective date.

TITLE I—NONADMITTED INSURANCE

Sec. 101. Reporting, payment, and allocation of premium taxes.

Sec. 102. Regulation of nonadmitted insurance by insured’s home State.

Sec. 103. Participation in national producer database.

Sec. 104. Uniform standards for surplus lines eligibility.

Sec. 105. Streamlined application for commercial purchasers.

Sec. 106. GAO study of nonadmitted insurance market.

Sec. 107. Definitions.

TITLE II—REINSURANCE

Sec. 201. Regulation of credit for reinsurance and reinsurance agreements.

Sec. 202. Regulation of reinsurer solvency.

Sec. 203. Definitions.

TITLE III—RULE OF CONSTRUCTION

Sec. 301. Rule of Construction.

2.

Effective date

Except as otherwise specifically provided in this Act, this Act shall take effect upon the expiration of the 12-month period beginning on the date of enactment of this Act.

I

NONADMITTED INSURANCE

101.

Reporting, payment, and allocation of premium taxes

(a)

Home State’s Exclusive Authority

No State other than the home State of an insured may require any premium tax payment for nonadmitted insurance.

(b)

Allocation of Nonadmitted Premium Taxes

(1)

In general

The States may enter into a compact or otherwise establish procedures to allocate among the States the premium taxes paid to an insured’s home State described in subsection (a).

(2)

Effective date

Except as expressly otherwise provided in such compact or other procedures, any such compact or other procedures—

(A)

if adopted on or before the expiration of the 330-day period that begins on the date of the enactment of this Act, shall apply to any premium taxes that, on or after such date of enactment, are required to be paid to any State that is subject to such compact or procedures; and

(B)

if adopted after the expiration of such 330-day period, shall apply to any premium taxes that, on or after January 1 of the first calendar year that begins after the expiration of such 330-day period, are required to be paid to any State that is subject to such compact or procedures.

(3)

Report

Upon the expiration of the 330-day period referred to in paragraph (2), the NAIC may submit a report to the Committee on Financial Services and Committee on the Judiciary of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate identifying and describing any compact or other procedures for allocation among the States of premium taxes that have been adopted during such period by any States.

(4)

Nationwide system

The Congress intends that each State adopt a nationwide or uniform procedure, such as an interstate compact, that provides for the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance consistent with this section.

(c)

Allocation Based on Tax Allocation Report

To facilitate the payment of premium taxes among the States, an insured’s home State may require surplus lines brokers and insureds who have independently procured insurance to annually file tax allocation reports with the insured’s home State detailing the portion of the nonadmitted insurance policy premium or premiums attributable to properties, risks or exposures located in each State. The filing of a nonadmitted insurance tax allocation report and the payment of tax may be made by a person authorized by the insured to act as its agent.

102.

Regulation of nonadmitted insurance by insured’s home State

(a)

Home State Authority

Except as otherwise provided in this section, the placement of nonadmitted insurance shall be subject to the statutory and regulatory requirements solely of the insured’s home State.

(b)

Broker Licensing

No State other than an insured’s home State may require a surplus lines broker to be licensed in order to sell, solicit, or negotiate nonadmitted insurance with respect to such insured.

(c)

Enforcement Provision

Any law, regulation, provision, or action of any State that applies or purports to apply to nonadmitted insurance sold to, solicited by, or negotiated with an insured whose home State is another State shall be preempted with respect to such application.

(d)

Workers’ Compensation Exception

This section may not be construed to preempt any State law, rule, or regulation that restricts the placement of workers’ compensation insurance or excess insurance for self-funded workers’ compensation plans with a nonadmitted insurer.

103.

Participation in national producer database

After the expiration of the 2-year period beginning on the date of the enactment of this Act, a State may not collect any fees relating to licensing of an individual or entity as a surplus lines broker in the State unless the State has in effect at such time laws or regulations that provide for participation by the State in the national insurance producer database of the NAIC, or any other equivalent uniform national database, for the licensure of surplus lines brokers and the renewal of such licenses.

104.

Uniform standards for surplus lines eligibility

A State may not—

(1)

impose eligibility requirements on, or otherwise establish eligibility criteria for, nonadmitted insurers domiciled in a United States jurisdiction, except in conformance with section 5A(2) and 5C(2)(a) of the Non-Admitted Insurance Model Act; and

(2)

prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the United States that is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the NAIC.

105.

Streamlined application for commercial purchasers

A surplus lines broker seeking to procure or place nonadmitted insurance in a State 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—

(1)

the broker procuring or placing the surplus lines insurance has disclosed 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

(2)

the exempt commercial purchaser has subsequently requested in writing the broker to procure or place such insurance from a nonadmitted insurer.

106.

GAO study of nonadmitted insurance market

(a)

In General

The Comptroller General of the United States shall conduct a study of the nonadmitted insurance market to determine the effect of the enactment of this title on the size and market share of the nonadmitted insurance market for providing coverage typically provided by the admitted insurance market.

(b)

Contents

The study shall determine and analyze—

(1)

the change in the size and market share of the nonadmitted insurance market and in the number of insurance companies and insurance holding companies providing such business in the 18-month period that begins upon the effective date of this Act;

(2)

the extent to which insurance coverage typically provided by the admitted insurance market has shifted to the nonadmitted insurance market;

(3)

the consequences of any change in the size and market share of the nonadmitted insurance market, including differences in the price and availability of coverage available in both the admitted and nonadmitted insurance markets;

(4)

the extent to which insurance companies and insurance holding companies that provide both admitted and nonadmitted insurance have experienced shifts in the volume of business between admitted and nonadmitted insurance; and

(5)

the extent to which there has been a change in the number of individuals who have nonadmitted insurance policies, the type of coverage provided under such policies, and whether such coverage is available in the admitted insurance market.

(c)

Consultation With NAIC

In conducting the study under this section, the Comptroller General shall consult with the NAIC.

(d)

Report

The Comptroller General shall complete the study under this section and submit a report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate regarding the findings of the study not later than 30 months after the effective date of this Act.

107.

Definitions

For purposes of this title, the following definitions shall apply:

(1)

Admitted insurer

The term admitted insurer means, with respect to a State, an insurer licensed to engage in the business of insurance in such State.

(2)

Exempt commercial purchaser

The term exempt commercial purchaser means any person purchasing commercial insurance that meets the following requirements:

(A)

The person employs or retains a qualified risk manager to negotiate insurance coverage.

(B)

The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months.

(C)

The person meets at least one of the following criteria:

(i)

The person possesses a net worth in excess of $20,000,000.

(ii)

The person generates annual revenues in excess of $50,000,000.

(iii)

The person employs more than 500 full time or full time equivalent employees per individual insured or is a member of affiliated group employing more than 1,000 employees in the aggregate.

(iv)

The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000.

(v)

The person is a municipality with a population in excess of 50,000 persons.

(3)

Home state

The term home State means the State in which an insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence.

(4)

Independently procured insurance

The term independently procured insurance means insurance procured directly by an insured from a nonadmitted insurer.

(5)

NAIC

The term NAIC means the National Association of Insurance Commissioners, or any successor entity.

(6)

Nonadmitted insurance

The term nonadmitted insurance means any property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance.

(7)

Non-admitted insurance model act

The term Non-Admitted Insurance Model Act means the provisions of the Non-Admitted Insurance Model Act, as adopted by the NAIC on August 3, 1994, and amended on September 30, 1996, December 6, 1997, October 2, 1999, and June 8, 2002.

(8)

Nonadmitted insurer

The term nonadmitted insurer means, with respect to a State, an insurer not licensed to engage in the business of insurance in such State.

(9)

Qualified risk manager

The term qualified risk manager means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:

(A)

The person is an employee of, or third party consultant retained by, the commercial policyholder.

(B)

The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance.

(C)

The person possesses at least two of the following credentials:

(i)

An advanced degree in risk management issued by an accredited college or university.

(ii)

At least 5 years of experience in one or more of the following areas of commercial property insurance or commercial casualty insurance:

(I)

Risk financing.

(II)

Claims administration.

(III)

Loss prevention.

(IV)

Risk and insurance coverage analysis.

(iii)

At least one of the following designations:

(I)

A designation as a Chartered Property and Casualty Underwriter (in this clause referred to as CPCU) issued by the American Institute for CPCU/Insurance Institute of America.

(II)

A designation as an Associate in Risk Management (ARM) issued by American Institute for CPCU/Insurance Institute of America.

(III)

A designation as a Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education & Research.

(IV)

A designation as a RIMS Fellow (RF) issued by the Global Risk Management Institute.

(V)

Any other designation, certification, or license determined by a State insurance commissioner or other State insurance regulatory official or entity to demonstrate minimum competency in risk management.

(10)

Premium tax

The term premium tax means, with respect to surplus lines or independently procured insurance coverage, any tax, fee, assessment, or other charge imposed by a State on an insured based on any payment made as consideration for an insurance contract for such insurance, including premium deposits, assessments, registration fees, and any other compensation given in consideration for a contract of insurance.

(11)

Surplus lines broker

The term surplus lines broker means an individual, firm, or corporation which is licensed in a State to sell, solicit, or negotiate insurance on properties, risks, or exposures located or to be performed in a State with nonadmitted insurers.

(12)

State

The term State includes any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa.

II

REINSURANCE

201.

Regulation of credit for reinsurance and reinsurance agreements

(a)

Credit for Reinsurance

If the State of domicile of a ceding insurer is an NAIC-accredited State, or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, and recognizes credit for reinsurance for the insurer’s ceded risk, then no other State may deny such credit for reinsurance.

(b)

Additional Preemption of Extraterritorial Application of State Law

In addition to the application of subsection (a), all laws, regulations, provisions, or other actions of a State other than those of the State of domicile of the ceding insurer are preempted to the extent that they—

(1)

restrict or eliminate the rights of the ceding insurer or the assuming insurer to resolve disputes pursuant to contractual arbitration to the extent such contractual provision is not inconsistent with the provisions of title 9, United States Code;

(2)

require that a certain State’s law shall govern the reinsurance contract, disputes arising from the reinsurance contract, or requirements of the reinsurance contract;

(3)

attempt to enforce a reinsurance contract on terms different than those set forth in the reinsurance contract, to the extent that the terms are not inconsistent with this title; or

(4)

otherwise apply the laws of the State to reinsurance agreements of ceding insurers not domiciled in that State.

202.

Regulation of reinsurer solvency

(a)

Domiciliary State Regulation

If the State of domicile of a reinsurer is an NAIC-accredited State or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, such State shall be solely responsible for regulating the financial solvency of the reinsurer.

(b)

Nondomiciliary States

(1)

Limitation on financial information requirements

If the State of domicile of a reinsurer is an NAIC-accredited State or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, no other State may require the reinsurer to provide any additional financial information other than the information the reinsurer is required to file with its domiciliary State.

(2)

Receipt of information

No provision of this section shall be construed as preventing or prohibiting a State that is not the State of domicile of a reinsurer from receiving a copy of any financial statement filed with its domiciliary State.

203.

Definitions

For purposes of this title, the following definitions shall apply:

(1)

Ceding insurer

The term ceding insurer means an insurer that purchases reinsurance.

(2)

Domiciliary state

The terms State of domicile and domiciliary State means, with respect to an insurer or reinsurer, the State in which the insurer or reinsurer is incorporated or entered through, and licensed.

(3)

Reinsurance

The term reinsurance means the assumption by an insurer of all or part of a risk undertaken originally by another insurer.

(4)

Reinsurer

(A)

In general

The term reinsurer means an insurer to the extent that the insurer—

(i)

is principally engaged in the business of reinsurance;

(ii)

does not conduct significant amounts of direct insurance as a percentage of its net premiums; and

(iii)

is not engaged in an ongoing basis in the business of soliciting direct insurance.

(B)

Determination

A determination of whether an insurer is a reinsurer shall be made under the laws of the State of domicile in accordance with this paragraph.

(5)

State

The term State includes any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa.

III

RULE OF CONSTRUCTION

301.

Rule of Construction

Nothing in this Act or the amendments to this Act shall be construed to modify, impair, or supersede the application of the antitrust laws. Any implied or actual conflict between this Act and any amendments to this Act and the antitrust laws shall be resolved in favor of the operation of the antitrust laws.