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'Domesticating' surplus lines: Texas, Wisconsin and Connecticut join the list in 2017.

Nearly a decade ago, states slowly began making progress in addressing the question of why an insurer that wanted to write surplus lines business in all 50 states had to create two companies. Before the inception of domestic surplus lines insurer (DSLI) laws, an insurer that wanted to write in all states would have a primary company licensed in a state as an admitted insurer that could then be eligible to issue surplus lines policies in the other 49 states. Then, additional capital would be raised and a secondary admitted insurance company would be created and domiciled in a different state so that it could write surplus lines insurance in the state where the primary company was located.

An insurer that wanted to write in all states would have a primary company licensed in a state as an admitted insurer that could be eligible to issue surplus lines policies in the other 49 states --all states except its domiciliary state. Additional capital would be raised and a secondary admitted insurance company would be created and domiciled in a different state so that it could write surplus lines insurance in the state where the primary company was located.

10 YEARS LATER ...

It wasn't until 2009 before Oklahoma also enacted DSLI legislation. Although there were several Illinois domestic surplus lines insurers, there still was some hesitancy from the industry. That changed after the enactment of the federal Nonadmitted and Reinsurance Reform Act (NRRA) in 2010. As states modernized their surplus lines laws, trade associations like the Property Casualty Insurers Association of America (PCI) and interested insurers engaged state insurance departments and legislatures to consider the benefits and the sensible rationale for the DSLI charter.

During the 2011 state legislative sessions, DSLI legislation was enacted in Arkansas, Delaware, New Hampshire and New Jersey. North Dakota followed suit in 2013, as did Missouri the following year. The trend continued with the enactment of Louisiana HB 214 in 2015, and the passage of Arizona HB 2149 in 2016, which made Arizona the 10th DSLI state. This year, Texas signed into law HB 2492, which was then followed by the enactment of Wisconsin's SB 77 and Connecticut's HB 7013.

Thirteen states can now offer a domestic insurer a certificate of authority to write surplus lines insurance as a DSLI, and PCI expects that one or two more states may consider DSLI legislation during the 2018 legislative session. Since 2011, the number of domestic surplus lines insurers has grown from 15 to 56, a clear indication that these initiatives have garnered traction within the industry.

THE FUTURE

Looking forward, insurance companies and states are increasingly adopting the domestic surplus lines insurer as a viable solution to a longstanding inefficiency in the surplus lines laws that can benefit this specialized market and its insurance consumers. It will be important, however, that states continue to be vigilant in providing clear and consistent statutory language that addresses the DSLI's authority to write insurance, its operating status in relation to the NRRA, the applicable taxing statute, and the financial examination and solvency regulation as a domestic insurer.

David Kodama is assistant vice president, research and policy analysis for the Property Casualty Insurers Association of America. He is responsible for legislative and regulatory policy development related to various issues including surplus lines.
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Title Annotation:INSURANCE LAW
Author:Kodama, David
Publication:Property Casualty 360-National Underwriter
Date:Sep 1, 2017
Words:550
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