[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5637 Engrossed in House (EH)]


  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
109th CONGRESS
  2d Session
                                H. R. 5637

_______________________________________________________________________

                                 AN ACT


 
To streamline the regulation of nonadmitted insurance and reinsurance, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Nonadmitted and 
Reinsurance Reform Act of 2006''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title and table of contents.
Sec. 2. Effective date.
                     TITLE I--NONADMITTED INSURANCE

Sec. 101. Reporting, payment, and allocation of premium taxes.
Sec. 102. Regulation of nonadmitted insurance by insured's home State.
Sec. 103. Participation in national producer database.
Sec. 104. Uniform standards for surplus lines eligibility.
Sec. 105. Streamlined application for commercial purchasers.
Sec. 106. GAO study of nonadmitted insurance market.
Sec. 107. Definitions.
                         TITLE II--REINSURANCE

Sec. 201. Regulation of credit for reinsurance and reinsurance 
                            agreements.
Sec. 202. Regulation of reinsurer solvency.
Sec. 203. Definitions.
                    TITLE III--RULE OF CONSTRUCTION

Sec. 301. Rule of Construction.

SEC. 2. EFFECTIVE DATE.

    Except as otherwise specifically provided in this Act, this Act 
shall take effect upon the expiration of the 12-month period beginning 
on the date of the enactment of this Act.

                     TITLE I--NONADMITTED INSURANCE

SEC. 101. REPORTING, PAYMENT, AND ALLOCATION OF PREMIUM TAXES.

    (a) Home State's Exclusive Authority.--No State other than the home 
State of an insured may require any premium tax payment for nonadmitted 
insurance.
    (b) Allocation of Nonadmitted Premium Taxes.--
            (1) In general.--The States may enter into a compact or 
        otherwise establish procedures to allocate among the States the 
        premium taxes paid to an insured's home State described in 
        subsection (a).
            (2) Effective date.--Except as expressly otherwise provided 
        in such compact or other procedures, any such compact or other 
        procedures--
                    (A) if adopted on or before the expiration of the 
                330-day period that begins on the date of the enactment 
                of this Act, shall apply to any premium taxes that, on 
                or after such date of enactment, are required to be 
                paid to any State that is subject to such compact or 
                procedures; and
                    (B) if adopted after the expiration of such 330-day 
                period, shall apply to any premium taxes that, on or 
                after January 1 of the first calendar year that begins 
                after the expiration of such 330-day period, are 
                required to be paid to any State that is subject to 
                such compact or procedures.
            (3) Report.--Upon the expiration of the 330-day period 
        referred to in paragraph (2), the NAIC may submit a report to 
        the Committee on Financial Services and Committee on the 
        Judiciary of the House of Representatives and the Committee on 
        Banking, Housing, and Urban Affairs of the Senate identifying 
        and describing any compact or other procedures for allocation 
        among the States of premium taxes that have been adopted during 
        such period by any States.
            (4) Nationwide system.--The Congress intends that each 
        State adopt a nationwide or uniform procedure, such as an 
        interstate compact, that provides for the reporting, payment, 
        collection, and allocation of premium taxes for nonadmitted 
        insurance consistent with this section.
    (c) Allocation Based on Tax Allocation Report.--To facilitate the 
payment of premium taxes among the States, an insured's home State may 
require surplus lines brokers and insureds who have independently 
procured insurance to annually file tax allocation reports with the 
insured's home State detailing the portion of the nonadmitted insurance 
policy premium or premiums attributable to properties, risks or 
exposures located in each State. The filing of a nonadmitted insurance 
tax allocation report and the payment of tax may be made by a person 
authorized by the insured to act as its agent.

SEC. 102. REGULATION OF NONADMITTED INSURANCE BY INSURED'S HOME STATE.

    (a) Home State Authority.--Except as otherwise provided in this 
section, the placement of nonadmitted insurance shall be subject to the 
statutory and regulatory requirements solely of the insured's home 
State.
    (b) Broker Licensing.--No State other than an insured's home State 
may require a surplus lines broker to be licensed in order to sell, 
solicit, or negotiate nonadmitted insurance with respect to such 
insured.
    (c) Enforcement Provision.--Any law, regulation, provision, or 
action of any State that applies or purports to apply to nonadmitted 
insurance sold to, solicited by, or negotiated with an insured whose 
home State is another State shall be preempted with respect to such 
application.
    (d) Workers' Compensation Exception.--This section may not be 
construed to preempt any State law, rule, or regulation that restricts 
the placement of workers' compensation insurance or excess insurance 
for self-funded workers' compensation plans with a nonadmitted insurer.

SEC. 103. PARTICIPATION IN NATIONAL PRODUCER DATABASE.

    After the expiration of the 2-year period beginning on the date of 
the enactment of this Act, a State may not collect any fees relating to 
licensing of an individual or entity as a surplus lines broker in the 
State unless the State has in effect at such time laws or regulations 
that provide for participation by the State in the national insurance 
producer database of the NAIC, or any other equivalent uniform national 
database, for the licensure of surplus lines brokers and the renewal of 
such licenses.

SEC. 104. UNIFORM STANDARDS FOR SURPLUS LINES ELIGIBILITY.

    A State may not--
            (1) impose eligibility requirements on, or otherwise 
        establish eligibility criteria for, nonadmitted insurers 
        domiciled in a United States jurisdiction, except in 
        conformance with section 5A(2) and 5C(2)(a) of the Non-Admitted 
        Insurance Model Act; and
            (2) prohibit a surplus lines broker from placing 
        nonadmitted insurance with, or procuring nonadmitted insurance 
        from, a nonadmitted insurer domiciled outside the United States 
        that is listed on the Quarterly Listing of Alien Insurers 
        maintained by the International Insurers Department of the 
        NAIC.

SEC. 105. STREAMLINED APPLICATION FOR COMMERCIAL PURCHASERS.

    A surplus lines broker seeking to procure or place nonadmitted 
insurance in a State for an exempt commercial purchaser shall not be 
required to satisfy any State requirement to make a due diligence 
search to determine whether the full amount or type of insurance sought 
by such exempt commercial purchaser can be obtained from admitted 
insurers if--
            (1) the broker procuring or placing the surplus lines 
        insurance has disclosed to the exempt commercial purchaser that 
        such 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 the broker to procure or place such 
        insurance from a nonadmitted insurer.

SEC. 106. GAO STUDY OF NONADMITTED INSURANCE MARKET.

    (a) In General.--The Comptroller General of the United States shall 
conduct a study of the nonadmitted insurance market to determine the 
effect of the enactment of this title on the size and market share of 
the nonadmitted insurance market for providing coverage typically 
provided by the admitted insurance market.
    (b) Contents.--The study shall determine and analyze--
            (1) the change in the size and market share of the 
        nonadmitted insurance market and in the number of insurance 
        companies and insurance holding companies providing such 
        business in the 18-month period that begins upon the effective 
        date of this Act;
            (2) the extent to which insurance coverage typically 
        provided by the admitted insurance market has shifted to the 
        nonadmitted insurance market;
            (3) the consequences of any change in the size and market 
        share of the nonadmitted insurance market, including 
        differences in the price and availability of coverage available 
        in both the admitted and nonadmitted insurance markets;
            (4) the extent to which insurance companies and insurance 
        holding companies that provide both admitted and nonadmitted 
        insurance have experienced shifts in the volume of business 
        between admitted and nonadmitted insurance; and
            (5) the extent to which there has been a change in the 
        number of individuals who have nonadmitted insurance policies, 
        the type of coverage provided under such policies, and whether 
        such coverage is available in the admitted insurance market.
    (c) Consultation With NAIC.--In conducting the study under this 
section, the Comptroller General shall consult with the NAIC.
    (d) Report.--The Comptroller General shall complete the study under 
this section and submit a report to the Committee on Financial Services 
of the House of Representatives and the Committee on Banking, Housing, 
and Urban Affairs of the Senate regarding the findings of the study not 
later than 30 months after the effective date of this Act.

SEC. 107. DEFINITIONS.

    For purposes of this title, the following definitions shall apply:
            (1) Admitted insurer.--The term ``admitted insurer'' means, 
        with respect to a State, an insurer licensed to engage in the 
        business of insurance in such State.
            (2) Exempt commercial purchaser.--The term ``exempt 
        commercial purchaser'' means any person purchasing commercial 
        insurance that meets the following requirements:
                    (A) The person employs or retains a qualified risk 
                manager to negotiate insurance coverage.
                    (B) The person has paid aggregate nationwide 
                commercial property and casualty insurance premiums in 
                excess of $100,000 in the immediately preceding 12 
                months.
                    (C) The person meets at least one of the following 
                criteria:
                            (i) The person possesses a net worth in 
                        excess of $20,000,000.
                            (ii) The person generates annual revenues 
                        in excess of $50,000,000.
                            (iii) The person employs more than 500 full 
                        time or full time equivalent employees per 
                        individual insured or is a member of affiliated 
                        group employing more than 1,000 employees in 
                        the aggregate.
                            (iv) The person is a not-for-profit 
                        organization or public entity generating annual 
                        budgeted expenditures of at least $30,000,000.
                            (v) The person is a municipality with a 
                        population in excess of 50,000 persons.
            (3) Home state.--The term ``home State'' means the State in 
        which an insured maintains its principal place of business or, 
        in the case of an individual, the individual's principal 
        residence.
            (4) Independently procured insurance.--The term 
        ``independently procured insurance'' means insurance procured 
        directly by an insured from a nonadmitted insurer.
            (5) NAIC.--The term ``NAIC'' means the National Association 
        of Insurance Commissioners or any successor entity.
            (6) Nonadmitted insurance.--The term ``nonadmitted 
        insurance'' means any property and casualty insurance permitted 
        to be placed directly or through a surplus lines broker with a 
        nonadmitted insurer eligible to accept such insurance.
            (7) Non-admitted insurance model act.--The term ``Non-
        Admitted Insurance Model Act'' means the provisions of the Non-
        Admitted Insurance Model Act, as adopted by the NAIC on August 
        3, 1994, and amended on September 30, 1996, December 6, 1997, 
        October 2, 1999, and June 8, 2002.
            (8) Nonadmitted insurer.--The term ``nonadmitted insurer'' 
        means, with respect to a State, an insurer not licensed to 
        engage in the business of insurance in such State.
            (9) Qualified risk manager.--The term ``qualified risk 
        manager'' means, with respect to a policyholder of commercial 
        insurance, a person who meets all of the following 
        requirements:
                    (A) The person is an employee of, or third party 
                consultant retained by, the commercial policyholder.
                    (B) The person provides skilled services in loss 
                prevention, loss reduction, or risk and insurance 
                coverage analysis, and purchase of insurance.
                    (C) The person possesses at least two of the 
                following credentials:
                            (i) An advanced degree in risk management 
                        issued by an accredited college or university.
                            (ii) At least 5 years of experience in one 
                        or more of the following areas of commercial 
                        property insurance or commercial casualty 
                        insurance:
                                    (I) Risk financing.
                                    (II) Claims administration.
                                    (III) Loss prevention.
                                    (IV) Risk and insurance coverage 
                                analysis.
                            (iii) At least one of the following 
                        designations:
                                    (I) A designation as a Chartered 
                                Property and Casualty Underwriter (in 
                                this clause referred to as ``CPCU'') 
                                issued by the American Institute for 
                                CPCU/Insurance Institute of America.
                                    (II) A designation as an Associate 
                                in Risk Management (ARM) issued by 
                                American Institute for CPCU/Insurance 
                                Institute of America.
                                    (III) A designation as a Certified 
                                Risk Manager (CRM) issued by the 
                                National Alliance for Insurance 
                                Education & Research.
                                    (IV) A designation as a RIMS Fellow 
                                (RF) issued by the Global Risk 
                                Management Institute.
                                    (V) Any other designation, 
                                certification, or license determined by 
                                a State insurance commissioner or other 
                                State insurance regulatory official or 
                                entity to demonstrate minimum 
                                competency in risk management.
            (10) Premium tax.--The term ``premium tax'' means, with 
        respect to surplus lines or independently procured insurance 
        coverage, any tax, fee, assessment, or other charge imposed by 
        a State on an insured based on any payment made as 
        consideration for an insurance contract for such insurance, 
        including premium deposits, assessments, registration fees, and 
        any other compensation given in consideration for a contract of 
        insurance.
            (11) Surplus lines broker.--The term ``surplus lines 
        broker'' means an individual, firm, or corporation which is 
        licensed in a State to sell, solicit, or negotiate insurance on 
        properties, risks, or exposures located or to be performed in a 
        State with nonadmitted insurers.
            (12) State.--The term ``State'' includes any State of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, Guam, the Northern Mariana Islands, the Virgin 
        Islands, and American Samoa.

                         TITLE II--REINSURANCE

SEC. 201. REGULATION OF CREDIT FOR REINSURANCE AND REINSURANCE 
              AGREEMENTS.

    (a) Credit for Reinsurance.--If the State of domicile of a ceding 
insurer is an NAIC-accredited State, or has financial solvency 
requirements substantially similar to the requirements necessary for 
NAIC accreditation, and recognizes credit for reinsurance for the 
insurer's ceded risk, then no other State may deny such credit for 
reinsurance.
    (b) Additional Preemption of Extraterritorial Application of State 
Law.--In addition to the application of subsection (a), all laws, 
regulations, provisions, or other actions of a State other than those 
of the State of domicile of the ceding insurer are preempted to the 
extent that they--
            (1) restrict or eliminate the rights of the ceding insurer 
        or the assuming insurer to resolve disputes pursuant to 
        contractual arbitration to the extent such contractual 
        provision is not inconsistent with the provisions of title 9, 
        United States Code;
            (2) require that a certain State's law shall govern the 
        reinsurance contract, disputes arising from the reinsurance 
        contract, or requirements of the reinsurance contract;
            (3) attempt to enforce a reinsurance contract on terms 
        different than those set forth in the reinsurance contract, to 
        the extent that the terms are not inconsistent with this title; 
        or
            (4) otherwise apply the laws of the State to reinsurance 
        agreements of ceding insurers not domiciled in that State.

SEC. 202. REGULATION OF REINSURER SOLVENCY.

    (a) Domiciliary State Regulation.--If the State of domicile of a 
reinsurer is an NAIC-accredited State or has financial solvency 
requirements substantially similar to the requirements necessary for 
NAIC accreditation, such State shall be solely responsible for 
regulating the financial solvency of the reinsurer.
    (b) Nondomiciliary States.--
            (1) Limitation on financial information requirements.--If 
        the State of domicile of a reinsurer is an NAIC-accredited 
        State or has financial solvency requirements substantially 
        similar to the requirements necessary for NAIC accreditation, 
        no other State may require the reinsurer to provide any 
        additional financial information other than the information the 
        reinsurer is required to file with its domiciliary State.
            (2) Receipt of information.--No provision of this section 
        shall be construed as preventing or prohibiting a State that is 
        not the State of domicile of a reinsurer from receiving a copy 
        of any financial statement filed with its domiciliary State.

SEC. 203. DEFINITIONS.

    For purposes of this title, the following definitions shall apply:
            (1) Ceding insurer.--The term ``ceding insurer'' means an 
        insurer that purchases reinsurance.
            (2) Domiciliary state.--The terms ``State of domicile'' and 
        ``domiciliary State'' means, with respect to an insurer or 
        reinsurer, the State in which the insurer or reinsurer is 
        incorporated or entered through, and licensed.
            (3) Reinsurance.--The term ``reinsurance'' means the 
        assumption by an insurer of all or part of a risk undertaken 
        originally by another insurer.
            (4) Reinsurer.--
                    (A) In general.--The term ``reinsurer'' means an 
                insurer to the extent that the insurer--
                            (i) is principally engaged in the business 
                        of reinsurance;
                            (ii) does not conduct significant amounts 
                        of direct insurance as a percentage of its net 
                        premiums; and
                            (iii) is not engaged in an ongoing basis in 
                        the business of soliciting direct insurance.
                    (B) Determination.--A determination of whether an 
                insurer is a reinsurer shall be made under the laws of 
                the State of domicile in accordance with this 
                paragraph.
            (5) State.--The term ``State'' includes any State of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, Guam, the Northern Mariana Islands, the Virgin 
        Islands, and American Samoa.

                    TITLE III--RULE OF CONSTRUCTION

SEC. 301. RULE OF CONSTRUCTION.

    Nothing in this Act or amendments to this Act shall be construed to 
modify, impair, or supersede the application of the antitrust laws. Any 
implied or actual conflict between this Act and any amendments to this 
Act and the antitrust laws shall be resolved in favor of the operation 
of the antitrust laws.

            Passed the House of Representatives September 27, 2006.

            Attest:

                                                                 Clerk.
109th CONGRESS

  2d Session

                               H. R. 5637

_______________________________________________________________________

                                 AN ACT

To streamline the regulation of nonadmitted insurance and reinsurance, 
                        and for other purposes.