Nebraska Department of Insurance Director Bruce R. Ramge issues Notice on Surplus Lines Requirements that could affect all insurers eligible to write Nonadmitted Insurance in Nebraska and all Licensed Surplus Lines Brokers

 

Nebraska Department of Insurance Director Bruce R. Ramge issued a Notice on October 28, 2011 on surplus lines requirements that could affect all insurers eligible to write Nonadmitted Insurance in Nebraska, all licensed Surplus Lines brokers, and all insureds independently procuring Nonadmitted Insurance.

For policies whose risks are located entirely within the State of Nebraska, the Department intends to allow the surplus lines licensees to choose to either utilize the Clearinghouse or submit quarterly reports and quarterly payment of taxes directly to the Department. A surplus lines licensee choosing to submit reports directly to the Department must continue to do so throughout the remainder of the year.

As details are finalized with the other participatory states and the Clearinghouse, additional notices will be issued.

The following items address questions received by Department staff in regards to surplus lines insurance reform. If a particular issue of interest is not addressed herein, please contact the Department with your question.

 

ITEM #1 – Required Filings and Payments by Surplus Lines Brokers

 

Each surplus lines licensee shall complete two separate quarterly reports for the 3^rd quarter of 2011. The first report shall cover the period of July 1, 2011 through and including July 20, 2011, and shall take into account the appropriate tax rate for that time period. The second report shall cover the remainder of the third quarter, i.e., the period of July 21, 2011 through and including September 30, 2011, and shall apply the newly adopted tax rate as set forth in Neb.Rev.Stat. §44-5506(4). Please note, because the Clearinghouse will not be operational until 2012, all third and fourth quarter filings and tax payments for the 2011 calendar year shall be filed with the Department.

All 3rd quarter reports for 2011 must be filed by November 15, 2011, unless notified otherwise by the Department. Under the previous statutes, the filing would have been due as of October 30, 2011.

All 4th quarter reports for 2011 must be filed by February 15, 2012, unless notified otherwise by the Department. Under the previous statutes, the filing would have been due as of January 31, 2012.

 

Policies effective before July 21, 2011

Surplus lines insurance policies, new and/or renewal in nature, with an effective date on or before July 20, 2011, will be governed by the Nebraska Surplus Lines Insurance Act as it existed prior to July 21, 2011. If the policy involves a risk with exposure in two or more states, only the portion of the risk physically located in Nebraska will be reported in Nebraska. Policy endorsements or premium audits will not affect the status of the policy or the laws under which it is regulated.

 

Transition of Statutory Law

For transactions effective or occurring between July 1, 2011 through and including July 20, 2011, a quarterly report must be filed by November 15, 2011. Surplus lines licensees shall file the quarterly report in the manner consistent with the Nebraska Surplus Lines Insurance Act as it existed prior to July 21, 2011.

The Department requests surplus lines licensees file the 2011 annual premium tax report on or before February 15, 2012, and remit their annual tax payment in a manner consistent with the Nebraska Surplus Lines Insurance Act as it existed prior to July 21, 2011. In more practical terms, all surplus lines licensees must file an annual report for 2011 on or before February 15, 2012, which encompasses all surplus lines business transacted between the period of January 1, 2011 through and including July 20, 2011.

Transactions occurring before July 21, 2011, which were not previously filed with the Department or were filed inaccurately, remain subject to prior statutory and regulatory procedures, including an interest penalty on any payments received late.

 

Policies effective on or after July 21, 2011

New and renewal policies with an effective date on or after July 21, 2011, as well as any modifications to said policies, will be subject to the laws of Nebraska if it is determined that Nebraska is the home state of the insured as defined by Neb.Rev.Stat. §44-5502(7).

The reporting requirements set forth in Neb.Rev.Stat. §44-5506 now require both quarterly reporting and quarterly payment of the taxes and fees. As previously indicated, Nebraska officially executed the Nonadmitted Insurance Multi-State Agreement on July 21, 2011, and became a participating NIMA state. Accordingly, Neb.Rev.Stat. §44-5506 and NIMA require the filing of quarterly surplus lines tax filings and payments by surplus lines licensees on the due dates below for the following quarters:

 

Months in Quarterly Report Due Date

• January, February, March May 15
• April, May, June August 15
• July, August, September November 15
• October, November, December February 15

Surplus lines licensees must make the appropriate tax filings and payments by the above-referenced dates. Individual surplus lines licensees who work on behalf of a firm are not required to file a quarterly report, although the firm must include all business transacted on its required quarterly report. This report will include all transaction details written for the quarter. The initial quarterly report and premium tax remittance due under the recently amended Nebraska Surplus Lines Insurance Act is effective for the third quarter report for all transactions occurring from July 21, 2011 through and including September 30, 2011. This report must be filed by all surplus lines licensees with the Department on or before November 15, 2011. An interest penalty may be assessed on any quarterly tax payment received late. Starting with the reporting period which begins July 21, 2011, the Department will no longer require quarterly reports from a surplus lines licensee that has not placed, procured, or effected insurance for or on behalf of an insured in the State of Nebraska with a nonadmitted insurer.

For policies with installment premiums, the Department is aware of questions regarding the manner in which those premiums should be reported to the Department. This matter is currently under advisement. Further information will be forthcoming.

 

ITEM #2 – Calculation of Premium Tax and Filing Fees beginning July 21, 2011

 

For new and renewal policies, when Nebraska is the insured’s home state, with an effective date on or after July 21, 2011, the tax and fees paid to Nebraska will be calculated as follows:

When a policy covers properties, risks, or exposures located or to be performed solely in the State of Nebraska on behalf of an insured whose home state is the State of Nebraska, the sum payable shall be based on an amount equal to three percent (3%) of premium.

When a policy covers properties, risks, or exposures located or to be performed both in and out of this state, the amount of premium tax to be remitted shall be computed based on:

(i) For purposes of the portion that is attributable to risks located in Nebraska, an amount and rate equal to three percent (3%); plus

(ii) For purposes of the portion that is attributable to risks located outside of Nebraska, an amount equal to the portion of the premiums allocated to each of the other states or territories and at a rate as established by each state or territory as being applicable to the properties, risks, or exposures located or performed outside of Nebraska.

For out-of-state risks, questions have arisen regarding whether the amount of premium tax to be remitted to Nebraska should consist of a particular state’s base tax rate as well as any applicable fees, i.e., stamping fees, set forth by that state. This matter is currently under advisement and notice will be provided as soon as possible which shall also set forth the applicable rate for each state and territory for purposes of Neb.Rev.Stat. §44-5506(4).

 

ITEM #3 – New forms

 

Once the Clearinghouse is operational, additional information and details will be provided.

The Department’s website at http://www.doi.ne.gov/surplus_lines/sl_index.htm will be updated with current forms and instructions as soon as possible. Please note, in addition to providing quarterly reporting form for transactions occurring on or after July 21, 2011, a separate quarterly reporting form for transactions effective on or before July 20, 2011 will be made available as soon as possible. The annual report forms, to be used for business transacted between January 1, 2011 through and including July 20, 2011, will remain on the website until March of 2012.

 

ITEM #4 – Licensing Requirements for Surplus Lines Brokers

 

No person (including corporate surplus lines licensees), other than an exempt commercial purchaser, shall place, procure, or effect insurance for or on behalf of an insured whose home state is the State of Nebraska in any nonadmitted insurer until such person has first been issued a surplus lines license from the Department as provided in Neb.Rev.Stat. §44-5503. Application for a surplus lines license shall be made to the Department on forms designated and furnished by the Department and shall be accompanied by a license fee, as established by the director, not to exceed two hundred fifty dollars for each individual and corporate surplus lines license.

A corporate surplus lines license shall list all officers or employees of the corporation who currently hold an insurance producer license or meet the requirements for an individual surplus lines license, and who have authority to transact surplus lines business on behalf of the corporation. Only individuals listed on the corporate surplus lines license shall transact surplus lines business on behalf of the corporate licensee.

 

ITEM #5 – Eligibility requirements for Surplus Lines Insurers

 

The Nonadmitted and Reinsurance Reform Act of 2010 (NRRA) restricts the requirements Nebraska may impose on a company to be eligible as a nonadmitted insurer. A nonadmitted insurer writing in Nebraska is subject to the following requirements:

• Must be authorized to write such insurance in its domiciliary jurisdiction;
• Must have established satisfactory evidence of good repute and financial integrity; and
• Must possess capital and surplus or its equivalent under the laws of its domiciliary jurisdiction that equals the greater of the minimum capital and surplus requirements under the laws of this state, or $15,000,000, or by affirmative findings of acceptability by the director.

A non-United States insurer (alien) is considered eligible to write insurance on an unauthorized basis in Nebraska if it is listed on the quarterly listing of alien insurers maintained by the National Association of Insurance Commissioners (NAIC).

To view the official Notice, click here.

 

 

Should you have any comments or questions, please contact Colodny Fass.