HR 1065, The Non-Admitted and Reinsurance Reform Act

HR 1065, The Non-Admitted and Reinsurance Reform Act has, again, passed the House, but much slower progress is expected in the Senate.  NAPSLO and our Washington, D.C. representative, B&D Consulting, are leading an industry coalition to secure passage of S 929 in the Senate.  Unfortunately, the Senate has many other insurance issues before it including the Terrorism Risk and Insurance Act Extension (TRIRAE) and the Flood Insurance program.   Both programs expire at the end of this year and this has distracted the Senate from work on HR 1065 / S 929.

Some issues have been raised by state associations about provisions of HR 1065/ S 929.   NAPSLO has presented those issues and the suggestions made by the state groups to the other coalition members working with NAPSLO on this legislation.  However, until there are hearings there will be no incentive among the members of this coalition group to discuss amending the legislation.  Hearings are expected sometime soon.

The Insurance Competition Act (S 618)

The Bill, sponsored by Senators Trent Lott, Patrick Leahy, and Arlen Specter, would repeal much of the antitrust exemptions currently provided to the industry by the McCarran-Ferguson Act.  If enacted, it would bring the Federal Trade Commission (FTC) into the regulation/oversight of insurance.  How such oversight would impact the surplus lines market in which risks are underwritten and priced in a very different manner than the standard market would likely be problematic for the industry.  NAPSLO is watching this bill very closely, but there has been very little activity in the Senate.    

The National Insurance Act

(S 40, HR 3200)

The National Insurance Act, commonly referred to as the Optional Federal Charter Bill has been introduced in the House and the Senate.

Both bills contain language that would apply to “non-admitted insurance,” but not to surplus lines. This language is neither helpful to insurers writing insurance as eligible surplus lines carriers nor to their wholesale broker partners.  Therefore, NAPSLO has not endorsed the language.  NAPSLO has offered and would prefer language in NAI that would create a separate national broker’s license for surplus lines brokers to brokers using that license the flexibility to overcome the multi-state tax and compliance issues

NAPSLO believes it is important that any OFC legislation allow a holding company to own both state and federally chartered insurance companies including a state chartered surplus lines insurance company.  This provision is contained in both the House and Senate versions of the NAI. NAPSLO has taken no position on the NAI.

Federal Catastrophe Funds

The House has been trying to pass legislation creating Federal Catastrophe funds, while the Senate appears to just study the issue.  Of the proposals in the House, two are gaining momentum.  The first is the Homeowners Insurance Defense Act (HR 3355).

In September 2007, following hearings, the bill passed out of the Financial Services Committee.  Industry trade associations provided input prior to its drafting, although the final product includes provisions beyond the industry recommendations.  This Bill provides for states to pool their catastrophe funds, with the federal government providing liquidity assurance through loans and bonds.  It is a complex proposal consisting of various payment triggers to determine for who-pays-what-when.

The second proposal is the Federal Flood Insurance Program which expires at the end of this year.  The Flood Insurance Reform and Modernization Act (HR 3121) passed the House and was sent to the Senate in early September.   This would re-authorize the Federal Flood Insurance program and expand the national flood program to include multi-peril policies, including wind coverage.  The White House has threatened a veto.

On the Senate side, the Banking Committee passed a Bill which establishes a committee to study and recommend possible federal solutions and legislation to address natural disasters.  This Bill includes 18 points of consideration and 16 appointees to the committee.  The Treasury Department is opposed to the Bill.

The Terrorism Risk and Insurance Revision and Extension Act (HR 2761)

In October, the Senate Banking Committee approved legislation extending Terrorism Risk and Insurance Revision Act for seven years and President Bush indicated a willingness to sign.  The House passed an expanded version in September (HR 2761) that the President said he would veto.

The Senate measure is much like the current program and generally keeps the insurance industry’s contribution at existing levels   The House Bill would make significant changes in the current program.   The Senate bill establishes a program trigger, which is the point at which the federal government would step in with payments, at its current level of $100 million.   The House bill, on the other hand, would lower the trigger to $50 million to make it less onerous for small insurers whose capital could be wiped out before losses reach the required $100 million.  The House bill also makes (mandate) coverage available for nuclear, biological, chemical and radiological attacks (NBCR), expands coverage to include group life and extends the program for 15 years.  The Senate bill does not include the NCBR mandate and only extends the program for seven years. 

Since the Senate Bill differs markedly from the House Bill, a Conference Committee will likely establish the final provisions.  The original TRIA Bill in 2002 was the product of a Conference Committee, and some of the most egregious provisions of the current Terrorism Act were not in either the original House or the Senate Bill, but came from the Conference Committee.  The President’s threatened veto of the House Bill may have a major influence on the Conference Committees final provisions, however.