State NRRA Compliance Review
Legislation: HB 1052: NOTE: HB 1052 EFFECTIVE JUNE 1, 2011. Applies to policies effective after July 1, 2011. NRRA effective July 21, 2011
Bulletins/Regulations/Rules: Oct. 21, 2011 - Implementation of federal NRRA in Hawaii
June 21, 2012 - Memorandum 2012-4E - Withdrawal from the Non-Admitted Insurance Multi-State Agreement
Compact, NIMA, other: "May enter an agreement" Signed NIMA on June 15, 2011 but withdrew in June 2012. See Memorandum 2012-4E
The commissioner may:
(1) Enter into a cooperative agreement, reciprocal agreement, or compact with other states to facilitate and provide for the collection, allocation, and disbursement of premium taxes attributable to the placement of surplus lines insurance;
(2) Provide for uniform methods of allocation and reporting among surplus lines insurance risk classifications;
(3) conform to the requirements of the federal Nonadmitted and Reinsurance Reform Act of 2010;
(4) Share information among states relating to surplus lines insurance premium taxes; and
(5) Utilize a method adopted in cooperation with other states to allocate risk and compute the tax due on the portion of premium attributable to each risk classification and to each state where properties, risks, or exposures are located.
Home State Definition: Hawaii is the Home State if the insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence here. Hawaii’s requirements regarding the placement of such business will apply if Hawaii is considered the Home State. However, if 100% of the insured risk is located outside of Hawaii, then the Home State is the State to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated. If more than 1 insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the term ‘‘Home State’’ means the Home State, as determined pursuant to subparagraph (A), of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.
Hawaii further defines the term “Home State” in relation to group policyholders: if a group policyholder pays 100% of the premium from its own funds, the Home State of the group policyholder is the state in which the group policyholder maintains its principal place of business, or if a group policyholder does not pay 100% of the premiums from its own funds, the Home State of the group member is the state in which the insured maintains the individual's principal residence.
“Principal place of business” means, with respect to determining the home state of the insured:
(1) The state where the insured maintains the insured’s headquarters and where the insured’s high-level officers direct, control, and coordinate the business activities;
(2) If the insured’s high-level officers direct, control, and coordinate the business activities in more than one state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated; or
(3) If the insured maintains the insured’s headquarters or the insured’s high-level officers direct, control, and coordinate the business activities outside any state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
“Principal residence” means, with respect to determining the home state of the individual insured:
(1) The state where the individual insured resides for the greatest number of days during a calendar year; or
(2) If the insured’s principal residence is located outside any state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
These definitions apply to transactions where the insured’s Home State is Hawaii and are not contained in the NRRA. CAUTION: THESE DEFINITIONS ARE NOT IN MEMORANDUM 2011-4E BUT ARE IN HB1052.
Exempt Commercial Purchaser: Surplus lines brokers seeking to procure or place nonadmitted insurance on behalf of an “exempt commercial purchaser” are not required to perform a diligent search if: 1) the broker has disclosed to the exempt commercial purchaser that insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight; and 2) the exempt commercial purchaser has subsequently requested in writing for the broker to procure or place such insurance from a nonadmitted insurer. “Exempt commercial purchaser” is defined in HB 1052 consistent with the NRRA. “Qualified risk manager” is not defined in HB 1052 and the NRRA definition will apply.
Eligibility: Brokers are permitted to place nonadmitted insurance with U.S. domestic insurers that are eligible in Hawaii provided they are authorized to write such business in their State of Domicile and maintain minimum capital and surplus of $15 million or the minimum capital and surplus amount required in Hawaii, whichever is greater.
HB 1052 provides that the commissioner may find insurers acceptable under other circumstances, including joining an agreement under which nationwide standards for eligibility may be determined. At this writing, the commissioner has neither joined such an agreement, nor have standards been developed.
Tax Reporting Status: HB 1052 IS EFFECTIVE JUNE 1, 2011. THE NRRA EFFECTIVE DATE IS JULY 21, 2011
Each surplus lines broker shall file with the commissioner on or before September 15, 2011, a verified statement of all surplus lines insurance transacted after December 31, 2010, and before July 1, 2011.
After July 1 June 30, 2011, each surplus lines broker and insureds who independently procure insurance shall file with the commissioner within forty-five days of the end of each calendar quarter a verified statement of all surplus lines insurance transacted as follows:
(1) The statement for the quarter ending March 31 shall be filed on or before May 15;
(2) The statement for the quarter ending June 30 shall be filed on or before August 15;
(3) The statement for the quarter ending September 30 shall be filed on or before November 15, and
(4) The statement for the quarter ending December 31 shall be filed on or before February 15.
The NRRA provides: “…an insured’s home state may require surplus lines brokers and insured’s who have independently procured insurance to annually file tax allocation reports with the insured’s home state detailing portions of the nonadmitted insurance policy premium or premiums attributable to properties risks or exposures located in each state”
Note: BROKERS MAY WISH TO CONSIDER LANGUAGE FROM MEMORANDUM 2011-4E AND THE FOLLOWING FROM HB 1052:
(b) The commissioner shall collect the taxes and tees on independently procured surplus lines insurance and from surplus lines licensees and disburse to the other states the funds earned by each state; provided that the other state has a reciprocal allocation and disbursement procedure for the benefit of this State. To the extent that other states, where portions of the properties, risks, or exposures reside, have failed to establish a reciprocal allocation and disbursement procedure with this State, the net premium tax collected shall
be retained by this State.
Tax Processing Fee: The commissioner shall assess the insured for the cost of the cooperative agreement, reciprocal agreement, or compact to collect and distribute the premium taxes.
Department Contact: Commissioner of Insurance - Hawaii Insurance Division - Department of Commerce & Consumer Affairs - 335 Merchant Street, Room 213 - Honolulu, HI 96813 - (808) 586-2790 (Albert Yamane, Insurance Examiner & Gale Miyazaki, Insurance Examiner)