LL Surplus Lines Series (Entry 14): NAIC Surplus Lines Task Force Considers Blanks Proposal for Home State Direct Premiums Written

At the National Association of Insurance Commissioners Summer National Meeting in New York, the Surplus Lines Task Force discussed a new Blanks proposal regarding home state direct premium written.  The Task Force notes that the intent of the new Blank is to provide “a basis for state regulators to reconcile broker reported surplus lines premium with company provided information to better ensure that states are receiving the proper amount of surplus lines premium taxes.  Premium taxes on surplus lines premiums are based on the total policy premium and paid by surplus lines brokers solely to the “Home State” of the insured as defined in Section 527 of the Non-Admitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.”

At the National Meeting, the Task Force indicated that it receives numerous inquiries from state insurance departments regarding resources available to reconcile surplus lines premium taxes.  The resource currently available to states is Schedule T – Exhibit of Premiums Written, which allocates premium by geographic concentration of risk.  As a result of these inquiries, earlier this year, the Task Force surveyed insurance departments regarding the extent to which they conduct surplus lines premium tax reconciliations, the frequency of such reconciliations, and whether the departments were in favor of capturing data on a home state direct premium basis.  A total of 24 states, or 73% of the survey participants, were in favor of capturing the data, and the Task Force believes the least burdensome method would be to add a new Part 3 to Schedule T.

Following comments from interested parties at the National Meeting, the Task Force agreed to allow for a comment period of 60 days after exposure of the draft Part 3 of Schedule T.  The draft was exposed on August 6, 2019 with the comment period ending on October 4, 2019.  The draft Blanks proposal can be found on the Surplus Lines Task Force webpage under the Exposure Drafts tab here. The intent is to require the new Part 3 of Schedule T as part of the year-end 2020 annual statement.

The question for insurers will be whether their current operational systems capture such data or to determine what would be needed to comply with the proposal.  We will continue to follow this issue.

*Locke Lord is proud to publish the Locke Lord Excess and Surplus Lines Manual on an annual basis, located here.

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