Florida Surplus Lines Service Office Board of Governors Approves NIMA Clearinghouse License and Service Agreements

 

At its meeting yesterday, April 16, 2012, the Florida Surplus Lines Service Office (“FSLSO”) Board of Governors (“Board”) approved the License and Service Agreements for its Surplus Lines Clearinghouse (“Clearinghouse”), which will ultimately collect and distribute premium taxes pursuant to surplus lines reform provisions of the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”).  The FSLSO’s Clearinghouse will primarily be a technology, operations and administrative service provider to state insurance regulators and tax authorities that are parties to the Non-Admitted Insurance Multi-State Agreement (“NIMA”), one of the two state compacts created in response to the NRRA’s surplus lines reform provisions.

The initial purpose of the Clearinghouse is to facilitate the tax-sharing arrangement contemplated by NIMA.  Based upon payments received, the Clearinghouse will calculate the net amount due to each state under NIMA and facilitate the routing of those funds into the proper participating state lockbox account.  The Clearinghouse will provide service only to NIMA states participating on a collective and individual basis, and will offer them a standardized pricing and licensing model. 

Some of the following risks relative to the success of the Clearinghouse were discussed, along with competition, budgetary constraints, legal liability, insufficient revenue and the collection of transaction fees.

As FSLSO Executive Director Gary Pullen described the NIMA Clearinghouse Service Agreement, he noted some items within it:

• Under no circumstance shall the FSLSO be considered a party to the NIMA Agreement or subject to any provisions of the NIMA Agreement.
• The FSLSO shall be responsible for payment of expenses incurred by NIMA, Inc. in implementing the Service Agreement, provided that such expenses do not exceed $1,000 on an annual basis beginning on the effective date of the Service Agreement
• NIMA, Inc. shall establish a depository lockbox account in order for the FSLSO to provide Clearinghouse Services under the Service Agreement, as well as for the purpose of facilitating the collection of surplus lines premium tax. The FSLSO shall be responsible for any fees associated with the establishment, use and maintenance of the lockbox to the extent that any credits provided to NIMA, Inc. by the banking institution that provides the lockbox depository account are insufficient to cover such fees.
• The FSLSO shall have only read-only electronic access to NIMA, Inc.’s depository lockbox account and such other depository account information as is necessary for the FSLSO to provide Clearinghouse Services under the Service Agreement.
• The FSLSO shall not have signatory authority.

Mr. Pullen explained that the FSLSO was seeking a five-year contract, but settled with a three-year contract that will automatically renew for subsequent terms of two years per term, unless one party gives the other party written notice of its intent not to renew 90 days prior to the start of the renewal term. 

A motion was made to approve the Clearinghouse License and Service Agreements.  It passed by a vote of 6 to 1.

After approving the minutes from its January 23, 2012 meeting, the Board also reviewed the FSLSO Audit Report as part of the agenda.  According to the FSLSO auditor, the audit process was smooth and timely, and yielded nothing outstanding or out of the ordinary such as significant or unusual transactions, or significant accounting policies.  The Board approved the audit recommendation to add the Clearinghouse allocations to the financial expenses. 

FSLSO Chief Financial Officer Jim Godfrey discussed the organization’s financial activity for the period ending December 31, 2011.  He explained the basic financial statements required of the FSLSO, which include statements of net assets, statements of activities and changes in net assets and statements of cash flows. 

The FSLSO’s total net assets decreased to $25.7 million from $27.8 million, representing a $2.1 million decrease from the prior year.  Its total operating expenditure decreased to $5,250,636 from $5,709,974, representing a decrease of $459,338 over the prior year.  Due to the decline in premium, the FSLSO has experienced a corresponding decrease in the amount of service fee revenue collected.

A summary was given on pertinent legislation from the recently concluded 2012 Florida Legislative Session.  In regard to HB 725 relating to Insurance Agents and Adjusters, it was explained that the language in the bill pertaining to continuing education (s. 626.2815, F.S.) changes the number of elective continuing education hours required, depending on an agents’ experience and designations. 

House Bill 1101 relating to notice of cancellation or non-renewal also was discussed, as was House Bill 1127 relating to Citizens Assessments, which reduces the maximum regular assessment authority for Citizens Property Insurance Corporation’s Coastal Account from six percent to two percent.

With no further business, the meeting was adjourned.

 

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