Surplus Insurance and Reinsurance Reforms (§§ 522, 523, & 532)

The legislation streamlines the regulation of surplus lines insurance and reinsurance by providing that only the state in which a policyholder resides or is headquartered will have the power to collect and allocate premium tax obligations related to surplus lines insurance. The placement of surplus lines insurance will be exclusively subject to the legal requirements of that state (including as to producer licensing). Congress has also provided incentives for states to participate in the national insurance producer database of the National Association of Insurance Commissioners (NAIC) by preventing states from collecting licensing fees if they do not, and has also provided a streamlined process for the placement of surplus insurance for certain large commercial purchasers.

Perhaps most important in terms of streamlining, if a ceding insurer is domiciled in an NAIC-accredited state or has solvency requirements substantially similar to those required for NAIC accreditation, then a non-domiciliary state may not deny credit for reinsurance. Non-domiciliary states also may not do any of the following:

  • restrict or eliminate the rights of reinsurers to resolve disputes pursuant to contractual arbitration clauses
  • restrict or eliminate choice of law contractual agreements
  • enforce reinsurance contracts on different terms than those set forth in the reinsurance contract

Under the legislation, the domiciliary state of the reinsurer possesses the exclusive authority to regulate the financial solvency of the reinsurer. Consequently, surplus lines insurers and reinsurers are now subject to the regulatory authority of only one state, thereby avoiding potentially conflicting regulation in this arena from competing jurisdictions. This new single-state regime is designed to promote certainty and efficiency, and some believe it is the first logical step toward direct federal regulation of insurance companies in the United States.