State NRRA Compliance Review
Legislation: SB1, Article 18, NOTE: MATERIALS CONTAINED HEREIN, EXCEPT FOR STATUTORY REFERENCES IS FROM TX SLSOT BULLETIN BELOW. This information is provided by the Surplus Lines Stamping Office of Texas to provide general guidance on the changes resulting from the Nonadmitted and Reinsurance Reform Act (“NRRA”). It is not being provided on behalf of the Texas Department of Insurance ("TDI") or the Texas Comptroller's Office and should not be considered legal or tax advice. For further guidance on issues arising from the NRRA, surplus lines licensees should contact the appropriate state agencies directly and/or seek professional legal and tax advice.
Bulletins/Regulations/Rules: June 23, 2011- Guidelines for Texas Surplus Lines Agents – Compliance with the NRRA
December 1, 2011 - Guidelines for Premium Tax Compliance with the NRRA
Dec. 28, 2012 - Individual States Premium Reporting
January 4, 2012 - 2011 Policy Count Exhibit
Compact, NIMA, other: June 23, 2011- Guidelines for Texas Surplus Lines Agents – Compliance with the NRRAAs per the comptroller for the purpose of achieving uniformity.
Home State Definition: “Home state” is defined as:
Some other important definitions found in the NRRA helpful in determining the home state are:
From the Sept. issue of the Texas Comptroller's Tax Policy News
Exempt Commercial Purchaser: A surplus lines agent is not required to meet the Texas diligent effort law if the buyer qualifies as an exempt commercial purchaser under the NRRA. To be eligible for this exemption, the agent must first disclose to the purchaser that the coverage may or may not be available from the admitted market that may provide greater protection with more regulatory oversight. After receiving this disclosure, the exempt commercial purchaser must request in writing that the agent procure the coverage in the surplus lines market. The SLSOT bulletin defines Exempt Commercial Purchaser and Qualified Risk Manager. SB1 does not.
Eligibility: Refer to TDI’s Surplus Lines Insurers List to determine if a nonadmitted insurer is eligible in Texas. However, the NRRA restricts the ability of any state to apply its own
Tax Reporting Status: SB1: SECTION 18.04. Section 225.004, Insurance Code, is amended by adding Subsections (a-1) and (f) and amending Subsections (b), (c), and (e) to read as follows: (a-1) Consistent with 15 U.S.C. Section 8201 et seq., this state may not impose a premium tax on nonadmitted insurance premiums other than premiums paid for insurance in which this state is the home state of the insured.
SECTION 18.09. Section 226.053, Insurance Code, is amended by amending Subsections (a) and (b) and adding Subsection (d) to read as follows:
The NRRA provides that the states may enter into an interstate premium tax-sharing agreement/compact to distribute the taxes paid to the home state on a multi-state placement. Texas has not elected to participate in such an agreement at this time. Therefore, when Texas is the home state, 100% of the taxable premium under the policy, regardless of location of the risk, should be charged the Texas tax rate of 4.85%. The entirety of that premium would be reported to the Stamping Office and all of the tax paid to Texas. Also, the stamping fee would be applicable on 100% of the taxable premium.
SLSOT Tax example: (See “Breakdown” link above for form)
To help you understand the changes brought about by the NRRA when filing with the Stamping Office, here is an example of a policy with multi-state exposure.
Policy effective 07/22/10 – 07/22/11 (prior to NRRA)
Other States $ 3,500.00
Report to SLSOT Tx prem $13,500.00
Breakdown of States Summary $ 3,500.00 (new category)
For multi-state policies for which Texas is the home state and which have an effective date on or after 07/21/11, you should report the total policy premium as Texas premium, but also continue to show the amount of the policy premium that is applied to risks located outside Texas, by using the new category “Breakdown of States Summary.” This will ensure the Texas tax is charged on 100% of the policy premium, but also still allow state officials to monitor the amount of non-Texas premium written on policies when Texas is the home state. For policies effective prior to July 21, continue to report under the “Texas” category only Texas premium and report the premium allocable outside Texas under the “Other States” category. If you are among the dwindling number of agents continuing to file paper copies of policies, a revised form for reporting the allocation of premium on a multi-state policy to the Stamping Office will soon be available on SLSOT’s website, along with instructions. For a multi-year or continuous-until-cancelled policy, these rules/requirements should be applied on the policy’s first anniversary date effective on or after July 21, 2011.
Premium that is covered by a statutory tax exemption or federal preemption should still be reported using the “Exempt” category. This applies to all policies, regardless of effective date. In the event that Texas joins an agreement or compact with other states to allocate premium taxes on multi-state policies, agents will be required to report the allocation of premium for each state covered under the policy, by individual state name, when Texas is the home station a multi-state policy. This change may have very little lead time for
Tax Processing Fee: Silent
Policy Holder Notice: No change
Department Contact: Texas Department of Insurance - 333 Guadalupe, Austin 78701 - P.O. Box 149104, Austin, TX 78714 - (512) 463-6169
Surplus Lines Stamping Office of Texas - 805 Las Cimas Parkway #150 - Austin, Texas 78746 - (800) 449-6394