Amends the insurance and tax law in relation to excess line insurance

Summary of provisions

Section one of the bill amends Insurance Law 9107(a)(4), (16) and (39)to modify the definitions of "affiliate," "control" and "state" to conform such definitions with those set forth in the NRRA.

Section two of the bill amends Insurance Law § 2101(1) and adds new subsections (w), (x), (y), (z) and (aa). Section 2101(1) changes the current term of "home state" to "resident state" with respect to an insurance producer, distinguishing and thereby clarifying that definition from the NRRA definition of "home state." Section 2101(w) adds a new, NRRA-conforming definition for the term "affiliate." Section 2101(x) adds a new conforming definition of the term "control." Section 2101(y) adds a new conforming definition for the term "home state." Section 2101(z) adds the definition for the term "exempt commercial purchaser." Section (aa) adds a definition for the term "qualified risk manager."

Section three of the bill amends Insurance Law §2103(g)(11) to replace the term "home state" with the clarifying term "resident state" to distinguish it from the definition of the term "home state" as used in the NRRA.

Section four of the bill amends Insurance Law * 2104(e)(3)(G), again replacing the term "home state" as currently used with the new term "resident state" in deference to the NRRA's use of the term "home state."

Section five of the bill amends Insurance Law * 2105(a) and (b) to make the conforming change regarding "resident state" and "home state" noted above. Section 2105(a) also reflects the NRRA mandate that no person, firm, association or corporation is required to obtain an excess line broker's license to procure insurance for an insured whose home state is a state other than New York. Section 2105(b) prohibits the charging of excess line broker licensing fees on or subsequent to July 21, 2012, unless New York has in effect laws or regulations authorizing participation in the National Insurance Producer database of the NAIC or any equivalent uniform national database relative to licensure and renewal of excess line broker licenses.

Section six of the bill amends Insurance Law § 2106(f)(1)(B) to reflect the clarifying "resident state"/"home state" definition.

Section seven of the bill amends Insurance Law § 2110(f)(2) and (4) to reflect the "resident state"/"home state" definition clarification.

Section eight of the bill amends Insurance Law § 2118 to add a new §2118(a)(1), renumber old 9 2118(a)(1) as § 2118(a)(2), and add a new § 2118(a)(3). § 2118(a)(1) conforms the Insurance Law to the NRRA's directive that the placement of excess line insurance shall be exclusively subject to the laws and regulations of an insured's home state. § 2118(a)(3)(A) provides that the Superintendent of Insurance may not prohibit an unauthorized alien insurer from insuring New York excess line risks through a licensed excess line broker if the alien insurer is listed on the most current quarterly listing of alien insurers maintained by the International Insurers Department of the NAIC § 2118(a)(3)(B) provides that an unauthorized foreign insurer is eligible to insure risks placed by excess line brokers as long as the insurer furnishes satisfactory proof that it is permitted to write the coverage requested in the insurer's domiciliary jurisdiction and meets the minimum capital requirements (as calculated by its domiciliary jurisdiction) equal to the greater of $15 million, or an amount determined by the Superintendent and set forth in regulation.

Section nine of the bill adds a new Insurance Law § 2118(b)(3)(F) to provide that an excess line broker shall not be required to undertake a diligent effort to determine whether coverage can be obtained from authorized insurers with respect to an exempt commercial purchaser insured under certain circumstances.

Section ten of the bill amends Insurance Law § 2118(b)(5), (8) and (9). § 2118 (b) (5) is amended to permit the Superintendent to retain some discretion to allow the placement of coverage with an unauthorized insurer that does not meet the eligibility requirements under certain circumstances, with the provision that no such exception may be made where the unauthorized insurer's capital and surplus is less than $4,500,000.00. § 2118(b)(8) and (9) reflect the "resident state"/"home state" definition clarification.

Section ten-a of the bill amends Insurance Law § 2118(d)(1) to make the distinction that the excess line premium tax on policies incepting on or prior to July 20, 2011 must be allocated in accordance with current law, while for policies incepting on or after July 21, 2011, the premium tax shall not be allocated, but collected exclusively by and for New York in connection with excess lines transactions in which the insured's home state is New York.

Section eleven of the bill amends Insurance Law § 2134(b) with respect to the "resident state"/"home state" definition clarification.

Section twelve of the bill amends Insurance Law § 2136(a),(b) and (d) with respect to the "resident state"/"home state" definition clarification.

Section thirteen of the bill amends Insurance Law § 2137(e) with respect to the "resident state"/"home state" definition clarification.

Section fourteen of the bill amends Insurance Law § 9102(a)(1) and (b) to reaffirm that no allocation of premium tax attributed to excess line placements shall be made where the excess line transaction involves an insured whose home state is New York when coverage incepts on or after July 21, 2011, but requires such allocation with respect to transactions in which coverage incepts on or prior to July 20, 2011.

Section fifteen of the bill amends Tax Law § 1550(b) and adds new § 1550(d) and (e) to define the terms "independently procured insurance" and "premium tax" in conformance with the NRRA.

Section sixteen of the bill amends Tax Law § 1551 to require that the premium tax collected on independently procured insurance only applies to transactions for insured's whose home state is New York with respect to coverage that incepts on or after July 21, 2011.

Section seventeen of the bill amends Tax Law § 1552 to recognize that the tax collected on independently procured insurance in connection with coverage that incepts on or prior to July 20, 2011, is allocable.

Section eighteen of the bill provides for an effective date of July 21, 2011 and renders the provisions of the bill applicable to all insurance policies procured by excess line licensees with an effective date on or after July 21, 2011.

Justification

Last year the NRRA was enacted into law, provisions of which preempted state law in connection with certain aspects of excess line insurance placements. This bill brings into conformity with the NRRA various provisions of New York's Insurance Law and Tax Law relating to excess line insurance and the taxation and distribution of tax revenue garnered in connection with insurance procured from the excess line market.

Pursuant to the NRRA, the placement of excess line insurance is subject exclusively to the statutory and regulatory requirements of an insured's home state, While the NRRA permits states to enter into a compact or otherwise establish procedures to allocate among the states premium taxes paid on excess line insurance placements to an insured's home state, absent such a compact, New York would possess the exclusive right to retain the proceeds of excess line premium taxes where the insured's home state is New York. Due to the fact that New York is a high volume excess line insurance state with many insureds and insureds' businesses located in the state, rendering New York the "home state" pursuant to the definition of that term under the NRRA, would actually be financially advantageous to New York, as it would have exclusive retention of the tax revenues generated by such placements,

Moreover, no compact or system for tax allocation will exist when the NRRA provisions go into effect on July 21, 2011, Continuing the current tax allocation provisions, therefore, will assure that no

jurisdiction will tax the portion New York law currently does not tax. As of July 21, 2011, New York will no longer receive premium taxes on excess line policies where New York is not the home state. If New York makes no change to its current law, excess line brokers will only pay tax on the portion of risks existing in New York and only on risks where New York is the home state. New York can offset the loss of revenues on risks whose home state is not New York by taxing one hundred percent of the risks where New York is the home state until such time than an interstate tax allocation compact actually begins to share taxes among states. To effectuate that goal, this bill adheres strictly to compliance with the mandates of the NRRA's preemption provisions relative to excess line insurance.

Legislative history

New bill.

Fiscal implications

New York is one of the top-ranked states in the country with respect to excess line insurance placements in which the insured's home state is New York. As such, pursuant to the NRRA's provisions relating to excess line insurance placements and tax collection, New York stands to benefit from the NRRA's authorization to exclusively collect and retain such taxes. A widely adopted tax allocation compact will permit each participating state to collect taxes on the portion of risk fairly allocated to it Prior to such a widely adopted compact, New York should tax one hundred percent of the premium on transactions where New York is the home state.

Effective date

This act shall take effect on July 21, 2011 and is applicable to all insurance policies procured by excess line licensees in which coverage incepts on or after July 21, 2011.