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Surplus lines compact introduced at NAIC meeting


NEW YORK--Supporters of modernizing surplus lines regulation nationally have introduced a state-based reform measure to the National Assn. of Insurance Commissioners that echoes the goals of a bill pending before the U.S. House.

Introduction of the Surplus Lines Multi-State Compliance Compact during the NAIC's spring meeting in New York demonstrates the "two-pronged strategy" that a broad-based group of industry supporters are using to encourage reform, said Daniel F. Maher, executive director of the Excess Line Assn. of New York.

The industry also supports H.R. 1065, The Nonadmitted and Reinsurance Reform Act of 2007. That bill, which passed the House last year, allows for implementation of reforms through creation of an interstate compact that a each state legislature must vote upon to join.

On Saturday, a group representing more than 60 industry representatives, as well as some regulators and legislators, presented its draft of a proposed interstate compact to the NAIC's Producer Licensing Working Group.

The compact proposal calls for each state to create a clearinghouse through which all multistate surplus lines risks would be filed. In addition, confusing and contradictory state laws for brokers regarding tax allocation would be replaced with uniform industry rules and standards. Also, the proposal would establish a commission of member states that would oversee operations of the clearinghouse.

"We look at this as a large, collective effort to modernize surplus lines regulation without diminishing consumer protections," said Mr. Maher, who coordinates the group.

The NAIC's Surplus Lines Task Force will begin reviewing the proposal during a conference call that will be scheduled soon, said task force chair James Donelon, the Louisiana insurance commissioner. Mr. Donelon said he supports the concept of reform and sees the proposed federal and state reforms as "complementary."

In other action at the meeting:

  • Reaction was mixed about the likely pace of change concerning collateral requirements, based on a revised assignment given to the Reinsurance Task Force by the Financial Condition Committee, its parent. At the December meeting, the parent committee adopted the concept of creating a Reinsurance Evaluation Office as the basis of a risk-based evaluation process for collateral recalibration and asked the task force to develop a process for doing so. At the spring meeting, however, the parent committee also asked the task force "to consider the design of a revised U.S. regulatory framework," which may include the REO proposal, among others.Some opponents of change were encouraged by the added assignment, while others were uncertain about its impact.

  • Acting New York Insurance Superintendent Eric R. Dinallo commented briefly on several issues, including his desire for accreditation since New York is the only state that has not been accredited. Also, Mr. Dinallo said he did not have a firm position on the collateral issue, but said he currently considers the issue as "provincial" and "jingoistic."

  • Interim approval of a Viatical Settlements Model Act was returned to the Life Insurance Annuities Committee for further consideration of a possible overlap with a federal law. The measure contains controversial new limits on life policies that strangers purchase only as investments.