Large States’ Avoidance of SLIMPACT May Doom Compact

The following article was posted to the Property Casualty 360° website on April 4, 2011:

Large States’ Avoidance of SLIMPACT may Doom Compact

By Arthur D. Postal

In the wake of New York’s decision not to join a nationwide compact on sharing of surplus-lines taxes, industry officials believe such compacts may be doomed.

Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices Ltd., voices such concern after the New York State Legislature passed legislation to bring state laws into compliance with the Nonadmitted and Reinsurance Reform Act passed by Congress last July. The New York legislation removed provisions that would have authorized the state to join a tax compact.

Bouhan says California is likely to take similar action, and it is unclear whether Florida and Texas will decide to pass legislation implementing the revised Surplus Lines Insurance Multistate Compliance Compact, referred to as “SLIMPACT-Lite.”

Bouhan says that in 2009 these four states reported approximately $16 billion of the $32 billion in surplus-lines premiums generated nationally.

He says the Florida Legislature has not approved legislation to allow the state to join a compact.

Texas, however, may join. The state comptroller already has authority to have the state join a compact, and the Legislature is considering a proposal  to join  SLIMPACT-Lite.

“Along with California’s expected decision not to include compact language in their NRRA compliance legislation, New York’s action brings into question whether large states are willing to participate in an allocation compact,” Bouhan says. “Without the large states, a compact might not be practical.”

The legislation passed by the New York Legislature provides for the state to tax 100 percent of each surplus-lines policy’s written premium when New York is the home state of the insured. The bill was signed into law by Gov. Andrew Cuomo last Thursday.

The underlying federal legislation mandates that beginning July 21 the insured’s home state will be the only state with jurisdiction over surplus-lines transactions and the only state that can require a tax be paid by the broker.

To comply, states are revising their laws, Bouhan says, with many states also considering forming a tax compact to share surplus-lines premium taxes.

However, as in New York and probably California, the federal law does not mandate that a state is required to join a compact.

Find this article here:  http://www.propertycasualty360.com/2011/04/04/large-states-avoidance-of-slimpact-may-doom-compac