Industry Issues | Surplus Lines Reform


New York Excess Line Insurers Reminded of Minimum Surplus Requirement Increase

December 27, 2018

Regulatory Update: New York

The Excess Line Association of New York (ELANY) published Bulletin No. 2018-37 reminding excess line insurers that effective January 1, 2019, all eligible insurers must maintain a minimum policyholders' surplus of $47,000,000 to remain eligible in New York.

Section 27.13(b) of New York Regulation 41 required foreign unauthorized insurer to maintain surplus to policyholders of not less than $45,000,000 and, as of January 1, 2016 and every three years thereafter, the minimum surplus to policyholders requirements shall be increased by $1,000,000.


New York Surplus Lines Regulatory Update – Electronic Delivery of Insurance Documents

Regulatory Update - New York

The Excess Line Association of New York (ELANY) published Bulletin No. 2018-33 that outlines the position of the New York Department of Financial Services related to the electronic delivery of insurance documents.

It is the position of the New York DFS that a licensed insurance company - or the insurance agent or broker - may electronically transmit an insurance policy to an insured provided that the insured consents and the policy conforms to all the applicable regulatory requirements.

While most statutory requirements contained in the NY Insurance Law may be met in an electronic environment (e-delivery), the ELANY bulletin cautions that certain statutes that include mailing provisions or requirements may present obstacles to electronic commerce. (e.g. statutory cancellation or non-renewal notice requirements).

As it relates to excess line insurance transactions, the DFS has opined the following regarding the use of electronic commerce in excess line transactions:

  • The E&S insurer may electronically transmit insurance policies and documents ONLY to the NY licensed excess line broker.
  • The E&S insurer may not "mail/e-mail" insurance policies and documents from outside the state directly to New York insureds, as this would be viewed as a violation of NYIL Section 2117 and not fit the so called NYIL Section 1101 "mail order exception."
  • Only the excess line broker may transact (including electronically) with the E&S insurer in procuring the insurance coverage. (e.g. the excess line broker may e-mail insured's completed application to the E&S insurer.)
  • The excess line broker may electronically transmit the insurance policy and documents directly to the insured or to the producing broker for delivery to the insured, but only if the insured has consented to engage in an electronic transaction.
  • If the insured does not consent to receiving the insurance policy and documents electronically the excess line broker may charge a fee for providing paper copies. Any fee should be included on the "Total Cost Form".
  • The "Total Cost Form" may be signed using an e-signature but only if the insured consents to engage in an electronic transaction.

New York Surplus Lines Regulatory Update

Regulatory Update - New York*

The Excess Line Association of New York (ELANY) will host the fall meeting of the Surplus Lines Law Group (SLLG) in New York City on October 11-12. The SLLG is an informal group of more than 100 E&S legal and compliance professionals that meets twice every year to discuss critical issues impacting the E&S market. Many stamping offices are represented and the state-by-state overview of key statutory, regulatory, judicial and business activity is a highlight. PCI will provide an update on various state matters including legislative activity related to domestic surplus lines insurer, and federal developments related to NFIP, TRIA, NARAB and FACTA.

*September 3rd was the deadline for compliance with several New York Department of Financial Services (DFS) cybersecurity regulation requirements, including:
. Audit Trail (Section 500.06)
. Application Security (Section 500.08)
. Limitations on Data Retention (Section 500.13)
. Monitoring (Section 500.14(a))
. Encryption of Nonpublic Information (Section 500.15)

See ELANY's Compliance Advisor on the regulation for more detail. The regulation can be found HERE.

The DFS recently added an FAQ to its website that discusses the status of insurance producers as Third Party Service Providers under the regulation. ELANY notes (Bulletin 2018-27) that the newly published DFS interpretation could prove burdensome to independent agents and brokers, including the comment that insurers could be Third Party Service Providers of their producers, meaning that some producers would have to implement policies and procedures for their insurance company partners vis-à-vis cybersecurity standards. Many brokers and independent agents may be required to develop their own first-party compliance structure (which they are in the process of doing now) and then hope that it matches the requirements imposed by insurers so as not to be forced into conceptually duplicative efforts. Compliance with the Third Party Service Provider requirements is due by March 1, 2019. See the pertinent FAQ below .

Q: Can the same entity be a Covered Entity, an Authorized User, and a Third Party Service Provider? 

A: Yes. Depending on the facts and circumstances, the same entity can be a Covered Entity, an Authorized User, and a Third Party Service Provider. 

This is common in the case of independent insurance agents. For example, a DFS-licensed independent agent that works with multiple insurance companies is a Covered Entity with its own obligation to establish and maintain a cybersecurity program designed to protect the confidentiality, integrity and availability of its Information Systems and Nonpublic Information. See 23 NYCRR 500.02. 

In addition, when the independent agent holds or has access to any Nonpublic Information or Information Systems maintained by an insurance company with which it works (for example, for quotations, issuing a policy or any other data or system access), the independent agent will be a Third Party Service Provider with respect to that insurance company; and the insurance company, as a Covered Entity, will be required under 23 NYCRR 500.11 to have written policies and procedures to ensure the security of its Information Systems and Nonpublic Information that are accessible to, or held by, the independent agent (including but not limited to risk based policies and procedures for minimum cybersecurity practices, due diligence processes, periodic assessment, access controls, and encryption). 

Further, an independent agent will also be an Authorized User if it participates in the business operations, and is authorized to use any Information Systems and data, of an insurance company that is a Covered Entity. In such a case, the insurance company must implement risk-based policies, procedures and controls to monitor the activities of the independent agent, as more fully described in 23 NYCRR 500.14. 

It is also noted that, like any other Covered Entity, an insurance company may also be a Third Party Service Provider and/or Authorized User with respect to another Covered Entity, including an independent insurance agent. 

In all events, each Covered Entity is responsible for thoroughly evaluating its relationships with other entities in order to ensure that it is fully complying with all applicable provisions of 23 NYCRR Part 500.

*ELANY, along with the Professional Insurance Agents of New York, Professional Insurance Wholesalers Association of New York and Big I New York, sent a joint letter to New York Department of Financial Services Executive Deputy Superintendent of Insurance Laura Evangelista requesting that the DFS convene a hearing to consider export list additions. Similar letters were sent by ELANY in 2013 and 2016. The DFS has not yet scheduled a hearing. The joint letter recommends the following for export list consideration:
. Vacant Property Risks Multi-Peril (Package)-Commercial Lines
. Vacant Property Risks Multi-Peril (Package)-Personal Lines
. Expand Pollution to include Contractors Pollution Legal Liability
. Commercial Cyber Liability Insurance
. Trade Credit Insurance Coverage with Non-Cancellable Limits
. Representations & Warranties
. Tax Liability
. Successor Liability
. General Liability Coverage for Guiding & Outfitting
. Professional Liability Coverage for Outdoor Education
. Primary Flood Insurance (Real Property) where insured is NFIP eligible
. Primary Flood Insurance (Personal Property) where insured is NFIP eligible
. Stand-alone Commercial Physical Damage for Black Cars
. Wind Deductible Buyback Coverage (Commercial Lines)
. Wind Deductible Buyback Coverage (Personal Lines)
. Snow Plow/Snow Removal Risks-Liability Auto Coverage
. Pest Control Companies/Applicators-Liability
. Public Swimming Pools-Liability
. General Contractors
. Commercial Lines Multi-Peril Policies for Check Cashing Stores
. Commercial Lines Multi-Peril Policies for Pawn Brokerage Stores
. General Liability for Chemical Manufacturers

*New York Foreign E&S Insurer Surplus Requirement Slated For 2019 Increase.
January 1, 2019 will see the minimum surplus to policyholders required of New York-eligible unauthorized insurers increase from $46 Million to $47 Million. Under Regulation 41 Section 27.13(b)(3), the minimum surplus to policyholders increases by $1M every three years. The $46M requirement has been in place since January 1, 2016.

*The September 2018 issue of ELANY Elaborates delves into a recent New York State Court of Appeals decision that calls into question whether insurers, brokers and policyholders can count on the plain meaning of insurance policies. The court interpreted the phrase "issued and delivered" in a manner that is totally inconsistent with its widely accepted meaning in the industry. According to ELANY, the decision creates uncertainty regarding whether New York courts will honor overseas arbitrations going forward, such as those that are convened pursuant to a dispute under a Bermuda Form.


New York DFS Emergency Regulations Related to TNC to Expire September 4

PCI Surplus Lines Bulletin, New York DFS Issues Consolidated Emergency Regulations Regarding TNCs, published on June 9, announced the New York Department of Financial Services' promulgation of emergency regulations pertaining to Transportation Network Companies and other Companies, effective June 6, 2017. The emergency regulation is set to expire on September 4. Similarly, corresponding emergency TNC regulations issued by the Department of Motor Vehicles are set to expire on September 9.

See also - 

Proposed/Adopted Regulation Bulletin - New York DFS Issues Consolidated Emergency Regulations Regarding TNCs

The New York Department of Financial Services has issued notice of an emergency regulation pertaining to Transportation Network Companies and other Companies, effective June 6, 2017. The emergency regulation stays in effect for 90 days after filing.

Proposed/Adopted Regulation Bulletin - New York DMV Adopts Emergency, Technical Rule on TNC Insurance

The New York Department of Motor Vehicles has adopted an emergency rule, which makes a technical amendment to the Transportation Network Companies (TNC) Regulation regarding insurance requirements. The emergency regulation became effective on June 12, 2017, and remains in effect for 90 days. The rule is set to expire on September 9, 2017. 

It is hard to say what will happen at this point. The respective agencies could adopt the emergency regulations permanently - as is or with minor changes. Or, they could extend the emergency regs and continue to consider the permanent regulations. If the agency (ies) make significant changes to the proposed reg (unlikely), then a revised proposed regulation would be published with an additional comment period. More will be shared as we get it.

Attached are the filed comment letters by PCI and ELANY on the DFS emergency regulation.

Notwithstanding the thorough legislative consideration of issues relating to TNC policies being written on an excess line basis in this context, PCI raised specific concern that the proposed regulation has added a number of new requirements.  Among such requirements are the following:

  • Requires the excess line broker to provide a notice to the TNC regarding supplementary uninsured/underinsured motorists (SUM) coverage.
  • Requires an annual affirmation from the excess line broker to the TNC regarding the lack of available coverage in the admitted market.
  • Requires the excess line broker to obtain a written commitment from the excess line insurer that the insurer shall: 1) cooperate with the Superintendent regarding any inquiry or request for information pertaining to the group policy or any claim thereunder; 2) comply with Regulation 64; 3) use licensed adjusters to investigate or adjust claims submitted under the group policy; and 4) maintain records in accordance with Regulation 152 and maintain privacy of consumers and customers in accordance with Regulation 169.
  • Specifically applies Regulation 64 (Unfair Claims Settlement Practices and Claim Cost Control Measures) to excess line insurers with respect to (and only to) TNC group policies.
  • Makes export list and exempt commercial purchasers provisions inapplicable to TNC group policies.
  • Removes the express exemption for excess line policies from the provisions relating to defense within limits in Regulation 107 and claims made policies in Regulation 121 for TNC group policies written on an excess line basis.

PCI raised serious concerns relative to the above additional provisions because they exceed the provisions of the statute, contradict longstanding policies relative to excess line insurance in New York, and will be burdensome and potentially unworkable in other respects. 


New York State Franchise Tax on Eligible Excess Line Insurers

The Excess Line Association of New York (ELANY) announced that the New York State Department of Taxation and Finance Office of Counsel published an Advisory Opinion dated June 10, 2016. 

According to ELANY Bulletin No. 2016-17, the Opinion, in summary, concludes that eligible excess line or surplus line insurers are "unauthorized non-life insurance corporations" and are, therefore, subject to taxation pursuant to Section 1501 of the Tax Law and must pay the tax based on calculations under Section 1502 of the Tax Law and that such insurers must pay the tax on the highest of the four Tax Law Article 33 tax bases plus any applicable tax on allocated subsidiary capital computed pursuant to Section 1502(b).  

Members may also reference issued advisory opinion TSB-A-16(4)C (June 10, 2016). The Department reiterated its view that excess line or surplus lines companies' insurance franchise tax liability will not be capped by N.Y. Tax Law § 1505(a)(1), consistent with Service Lloyds Ins. Co., TSB-A-09-(2)C (Mar. 2, 2009).

Of note, the federal Nonadmitted and Reinsurance Reform Act (NRRA) provides that no state other than the home state of an insured may require any premium tax payment for nonadmitted insurance. The NRRA defines "premium tax" as: any tax, fee, assessment, or other charge imposed by a government entity directly or indirectly based on any payment made as consideration for an insurance contract for such insurance

PCI continues to research this matter and will update members. Email any member questions or comments to david.kodama@pciaa.net.


New York State DFS Advisory Notice Announces EL-1 Report Update

PCI received confirmation from the New York State Department of Financial Services (DFS) on the revisions and updates made to the EL-1 Report applicable to all New York eligible E&S Insurers. The revised and updated EL-1 Report and Instructions can be found on the following DFS link.

The following provides the revisions and updates that were confirmed by the DFS.
  • Three new columns at the beginning of report (Columns A, B and C if it were an Excel Spreadsheet); titled Data Year; NAIC Code; and Insurer Name.
  • A new column (column R next to last column) titled Direct Procured Policy
  • A change to the data in the Broker's License column; The entire license number includes a two-letter prefix. This year's instructions say to include no letters, just numbers.

New York Excess Line Insurers Reminded of Minimum Surplus Requirement Increase

Regulatory Update

The Excess Line Association of New York (ELANY) published bulletin 2015-16 reminding excess line insurers that effective January 1, 2016, all eligible insurers must maintain a minimum policyholders' surplus of $46,000,000 to remain eligible in New York.


New York DFS Adopts Final Reg 41 The New York Department of Financial Services (DFS) published the final adoption of the Fourteenth Amendment to Regulation 41 (11 NYCRR 27), Excess Line Placements Governing Standards, effective October 8, 2014.

Changes to Regulation 41 include:

1) Neither ELANY nor excess line brokers will be required to obtain:
  • an insurer's prospective three year business plan;
  • an executed copy of the insurer's trust agreement and periodic "funds in trust statement" from the trustee;
  • alien insurer IID Standard Financial Statements.
2) Foreign insurers will no longer be required to put up a $2.5 million trust fund. Such trust funds which currently exist may be terminated in accordance with the terms of the trust agreement [See Supplement No. 1 to Circular Letter No. 9 (2011)].

3) Service of Process/Consent to Jurisdiction.
§27.16 of Regulation 41 is deleted. This removes from the regulation [But Not From the Insurance Law] requirements regarding consent to service of process and appointing the superintendent as agent for service of process. New York Insurance Law §1213(e) exempts unauthorized insurers from posting collateral or pre-answer security in litigation on risks placed through excess line brokers when the policy designates the superintendent as the lawful attorney upon whom lawful process may be served.

4) The following obligations are now directed at insurers where previously the excess line broker was responsible to verify the insurers conduct:
  • the insurer will be directly required to file an electronic EL-1 report on March 15th each year setting forth each New York excess line transaction bound in the prior calendar year;
  • unauthorized insurers will be directly prohibited from selling 1) types of coverage which the excess line law bars excess line brokers from selling, 2) coverage which is not recognized as legal types of insurance in New York, 3) coverage which is prohibited by public policy;
  • insurers will be directly required to treat payment of premium to the excess line broker as payment to the insurer.

New York DFS Issues Response to Comments on Regulation 41

The New York State Department of Financial Services issued their assessment of public comments for the Fourteenth Amendment to 11 NYCRR 27 that seeks to conform Insurance Regulation 41 to New York Insurance Law and the federal Nonadmitted and Reinsurance Reform Act of 2010.

  • The DFS responded to comments on existing and proposed language in sections of Regulation 41 related to Definition of Eligible, Prohibited Activities, Duty to Inquire, Filings by Unauthorized Insurers, and Trust Fund requirements. The Department statement includes response to PCI submitted comments identified as the "property/casualty trade organization."


    New York Department of Financial Services Creates EL-1 Portal Website

    The New York State Department of Financial Services has created an EL-1 portal website, which is now in operation. Excess line insurers can now file their NYSDFS-EL1 reports via this secured portal, which can be accessed using the following link: http://www.dfs.ny.gov/insurance/datacall/datacal3.htm.

    The Department of Financial Services’ website advises that any questions regarding the EL-1 survey and/or portal should be directed to the following individuals:
    • Survey Contents: Nancy Yee 212-480-2722, Richard Yuen 212-480-5457 or Jin Wang 212-480-5463
    • Technical Questions: Anthony Bonner 212-480-5594

    New York Insurance Division Considers Re-Write of Reguation 41

    The New York State Department of Financial Services, Insurance Division is reportedly still considering a re-write of Regulation 41 in response to the NRRA. Until such time, the Regulation currently in effect requires that the E&S broker obtain, review and retain certain documents and certifications in order to meet the “due care” standard when selecting an excess line insurer. Again, the Excess Line Association of New York (ELANY), in an effort to ease that burden on brokers, request these documents be filed with them directly from insurers writing, or seeking to write, surplus lines business in New York.

    ELANY further announces that the annual re-qualification fee has been waived for 2014.

    Eligibility as an Excess Line Insurer
    New York DFS Posts Proposed Reguation 41 Amendments

    The New York Department of Financial Services has posted the proposed Regulation 41. The stated purpose for the amendment is "to implement Chapter 61 of the Laws of 2011, conforming to the federal Nonadmitted and Reinsurance Reform Act of 2010."

    Below highlights revisions to Section 27.13 and 27.14 which the Summary document states that:

    "The Department amended Section 27.13 to: (1) clarify that the requirements set forth in this section apply when the insured's home state is New York; (2) remove certain information from the list of information that an excess line broker must obtain and review prior to placing insurance with an unauthorized insurer; and (3) delete the prohibition against an excess line broker placing business with an excess line insurer unless the insurer has filed with the Superintendent a current listing that sets forth certain individual policy details.

    The Department repealed current Section 27.14 and added a new Section 27.14 entitled, "Duty of Unauthorized Insurers," which would affirmatively require an excess line insurer to file electronically with the Superintendent a current listing that sets forth certain individual policy details."

    To view the proposed fourteenth amendment to Insurance Regulation 41(11 NYCRR Part 27), click here.


    New York DFS Revises EL-1 Reporting Instructions

    The New York State Department of Financial Services has issued its EL-1 data call for calendar year 2012. Pursuant to 11 NYCRR 27 (Regulation 41) Section 27.13 (g), excess line insurers are required to file policy details on business written in the excess line market. The EL-1 form and instructions can be accessed via this web link - http://www.dfs.ny.gov/insurance/datacall/datacal3.htm.

    Of note, the instructions have been revised and now specify to "Enter excess line business when the insured's home state is New York." Additionally, “… For multi state policies when the insured’s home state is New York, report the total gross premium for the policy. Do not allocate.”


    DFS Extends Emergency Amendments Implementing NRRA

    On April 16, 2012, the New York State Department of Financial Services (DFS) filed emergency adoption of the fourteenth amendment to Regulation No. 41 (11 NYCRR 27), relating to implementation of the federal Nonadmitted and Reinsurance Reform Act (NRRA) in New York. The emergency rule extension will expire on July 13, 2012.

    Effective July 21, 2011, NRRA enacted significant changes affecting the placement of nonadmitted insurance when New York is the home state of an insured. The emergency amendments to Regulation No. 41 address the following issues: scope of NRRA; determination of home state for placement purposes; application of rules; requirements for premium tax allocation and payment in New York; license requirements for brokers; diligent search requirements; eligibility requirements for nonadmitted insurers; and important definitions from NRRA.

    According to DFS, this emergency promulgation merely extends the previous emergency promulgation originally issued on July 22, 2011, and extended on October 19, 2011, and January 16, 2012. Click here, for a Regulatory Impact Statement for the adoption of the Fourteenth Amendment to 11 NYCRR 27 (Insurance Regulation 41).


    New York SB 6808 Pending in the Committee on Insurance

    New York Senate Bill 6808, a bill relating to domestic excess line insurance companies, is currently pending in the Committee on Insurance.

    This legislation amends New York insurance law by adding a new article 58 to facilitate the formation and operation of a domestic excess line insurance company within New York State. The bill authorizes the superintendent to provide a certificate of eligibility permitting domestic excess line insurers to enter insurance transactions through excess line licensees, procuring excess line insurance, provide independently procured insurance to the extent permitted by law and conduct an excess line and/or surplus line business in any other state which grants the insurer eligibility. The legislation defines a domestic excess line insurance company and declares it to be deemed a non-admitted insurer for the purposes of the NRRA enacted within the Dodd Frank Act of 2010.

    E-mail any member comment or question to david.kodama@pciaa.net and kristina.baldwin@pciaa.net.


    New York DFS Finalizes Circular Letter Regarding Trust Fund Termination

    The New York State Department of Financial Services (DFS) has posted a Supplement No. 1 to Insurance Circular Letter No. 9 (2011), relating to an unauthorized foreign or alien insurer’s termination of a trust fund under the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA).

    Under the federal NRRA, a state may not require an unauthorized insurer domiciled in another state (an “unauthorized foreign insurer”) to establish and maintain a trust fund to be eligible to write excess line insurance in New York. However, the NRRA does not void the obligations under a trust fund agreement into which an insurer and a trustee entered prior to the NRRA’s effective date. Therefore, if an unauthorized foreign insurer wishes to terminate a trust that was established pursuant to 11 NYCRR Part 27 (Regulation 41) prior to July 21, 2011, then the insurer must do so in conformance with the trust fund agreement.

    While neither the Insurance Law or Regulation 41 requires an unauthorized foreign or alien insurer to obtain the permission of the Superintendent of Financial Services to terminate the trust, the trustee is required to notify the Superintendent and the ELANY within 30 days of the trustee’s receipt of notice from the insurer that a trust will not be renewed or replaced.


    New York DFS Insurance Division Revises Excess Line Policy Report

    At the request of PCI, the New York DFS Insurance Division revised the instruction for the Form EL-1 Report. The following Note was added regarding "home state."

    http://www.dfs.ny.gov/insurance/datacall/datacal3.htm

    Regulation 41 Excess Line Placements

    Note: For calendar year 2011, the inclusion of the insured's home state is not a report requirement, however this requirement will be effective for the 2012 calendar year.

    As discussed on previous Committee calls, PCI takes the position that such report filings are not permitted as an eligibility requirement under the NRRA. PCI will therefore pursue a meeting with the DFS Insurance Division to seek elimination of this requirement.


    Excess Line Insurers Must File by March 15

    Pursuant to New York 11 NYCRR 27 (Regulation 41) Section 27.13 (h), excess line insurers must file by March 15, 2012, the required policy details on business written in the excess line market.

    Use this link http://dfs.ny.gov/insurance/datacall/calls/reg41exc.htm to access the Excess Lines - Form EL-1 Report. Click on the "Read Me" and each of the other items in that column to find what is required by DOI.

    In Column D of the Form EL-1, the insured's home state is to be entered. PCI met with the NY DFS Insurance Division to express concern 1) that even ELANY was only made aware of this new data element requirement a few weeks ago and therefore less known by affected excess lines carriers, 2) for the reasonable expectation that such detail would not be known by insurers, especially for policies prior to the NRRA July 21, 2011 effective date, and 3) the lack of implementation time to comply with the March 15, deadline.

    The DFS responded that in future they will be sure to inform ELANY directly of any notices that affect the excess line carrier so that, at minimum, eligible excess lines insurers can be notified by bulletin.

    While this in NOT official yet, the Insurance Division staff stated that they will recommend that insurers be permitted to submit the Form EL-1 report in accordance with the prior year's filing requirements, and therefore not require the "insured's home state" data. With the filing deadline just a week away, we felt it beneficial to give members this interim update.

    Once PCI receives official notice, we will forward on that information.


    Regulation Requires Excess Line Policy Reporting

    Pursuant to New York 11 NYCRR 27 (Regulation 41) Section 27.13 (h), excess line insurers must file by March 15, 2012, the required policy details on business written in the excess line market.

    Use this link http://dfs.ny.gov/insurance/datacall/calls/reg41exc.htm. to access the Excess Lines - Form EL-1 Report. Click on the "Read Me" and each of the other items in that column to find what is required by DOI.


    New York DFS Issues Draft Circular Regarding Trust Fund Termination

    The New York State Department of Financial Services (DFS) has posted a draft requesting comments on a circular letter relating to an unauthorized foreign or alien insurer’s termination of a trust fund under the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA).

    Under the federal NRRA, a state may not require an unauthorized insurer domiciled in another state (an “unauthorized foreign insurer”) to establish and maintain a trust fund to be eligible to write excess line insurance in New York. However, the NRRA does not void the obligations under a trust fund agreement into which an insurer and a trustee entered prior to the NRRA’s effective date. Therefore, if an unauthorized foreign insurer wishes to terminate a trust that was established pursuant to 11 NYCRR Part 27 (Regulation 41) prior to July 21, 2011, then the insurer must do so in conformance with the trust fund agreement.

    While neither the Insurance Law or Regulation 41 requires an unauthorized foreign or alien insurer to obtain the permission of the Superintendent of Financial Services to terminate the trust, the trustee is required to notify the Superintendent and the ELANY within 30 days of the trustee’s receipt of notice from the insurer that a trust will not be renewed or replaced. Pursuant to recently amended § 27.14(a) of Regulation 41, the insurer would then be subject to Insurance Law § 1213, which is entitled “[s]ervice of process on superintendent as attorney for unauthorized insurers.”


    New York ELANY Lists Requires Excess Line Insurer Documents, Certifications

    In 2012, PCI will continue to advocate that states fully implement, in letter and intent, the NRRA. This includes restricting filing requirements used as a means of insurer eligibility. States on the top of our list are California, Florida and New York. The attached ELANY Bulletin 2011-26 exemplifies the issue at hand.

    The NY Department of Financial Services (DFS) through ELANY requires licensed excess line brokers to "obtain certain documents and certifications from an insurer" prior to placement of insurance. Whereas, the NRRA prohibits a state from requiring insurers to file such documents and certifications as a means of eligibility, this bulletin requests "that insurers who seek eligibility or those who wish to remain eligible continue to file all necessary documents and certifications with ELANY rather than burden each and every excess line broker." Failure to comply with the requirements pursuant to Section 27.13 of NY Reg. 41 will expose excess line brokers to fines, discipline, and other sanctions."

    PCI believes that this regulatory practice is problematic and in conflict with the letter and intent of section 524 of the NRRA.


    New York Insurance Dept. Exposes Draft Bulletin For Comment

    The New York State Insurance Department posted to its Web site a draft circular letter addressing enacted amendments to New York Insurance Law to conform to the federal NRRA. The stated purpose of the circular letter is "to provide guidance and clarification to all insurers eligible to write excess line insurance in New York and to all excess line brokers regarding the federal Nonadmitted and Reinsurance Reform Act of 2010 (the "NRRA") and Chapter 61 of the Laws of 2011, which amends the New York Insurance Law and the New York Tax Law to conform to the NRRA."

    The NYSID is specifically requesting comment to this draft letter prior to final posting on June 16, 2011.

    Members are requested to review the draft documentand respond with questions and comments - e.g. sections that need further clarification. Any pertinent feedback should be submitted to kristina.baldwin@pciaa.net and david.kodama@pciaa.net by Monday, June 13, 2011.


    New York Enacts Surplus Lines Reform

    On March 31, 2011, the New York State legislature passed its State Budget legislation. The Budget includes provisions to bring New York law relating to excess and surplus lines into compliance with the provisions of the federal Nonadmitted and Reinsurance Reform Act (NRRA) - See Part I of S.2811-C. PCI worked with the Excess Line Association of New York (ELANY) to achieve revisions to the provisions originally submitted by the Governor which would not have fully complied with the NRRA.

    S-2811 was approved on March 31, 2011, with multiple effective dates. The pertinent excess and surplus lines sections of this act take effect July 21, 2011, provided that sections thirteen (taxation) and fourteen (allocation of premium) of this act shall apply to insurance contracts that have an effective date on or after July 21, 2011 and sections fifteen through eighteen (definitions, taxation, allocation) of this act shall apply to taxable insurance contracts that have an effective date on or after July 21, 2011.

    The Governor's original budget bill and the Assembly's initial budget bill had contained provisions to enact the National Association of Insurance Commissioners (NAIC) tax sharing agreement known as "NIMA." These provisions were ultimately deleted due to wide opposition by the industry. Therefore, no authority is provided to participate in any tax sharing compact or agreement. On all policies effective on and after July 21, 2011, when New York is the home state of an insured, the state will tax and retain 100 percent of all written premium, even when the policy insures risk exposures in other states as well.

    The bulletin (2011-08) from the Excess Line Association of New York (ELANY) provides brief description of key changes to New York law. ELANY subsequently published a Compliance Advisor guidance document to provide detailed information on the implementation of the NRRA provisions incorporated into New York's Insurance Law.

    This Compliance Advisor discusses the following NY/NRRA Compliance issues in detail:
    1. Home State of the insured
    2. New York will tax 100% of written excess line premium
    3. The Insured Exempt Commercial Purchaser (ECP) Provision
    4. Excess Line Insurer Eligibility Criteria
    5. States must join the NAIC National Producer Database or any other National Producer Database by July 21, 2012
    6. NRRA Implementation by other states
    Of additional note, the New York State Insurance Department promulgated Twelfth Amendment to Regulation 41 on April 18, 2011. This Amendment officially increases the minimum amount of surplus to policyholders requirement that a NEW eligible excess line insurer must maintain from $15,000,000 to $45,000,000, effective as of Jan. 1, 2011.


    New York Introduces Assembly Bill 4011

    The 2011-12 New York State Executive Budget Revenue Article VII Legislation - Part I of this bill (Assembly Bill 4011 / Senate Bill 2811 ) is stated to bring New York's excess line premium tax and tax on independently procured insurance into conformance with the Federal Dodd-Frank Wall Street Reform and Consumer Protection Act, including the Nonadmitted and Reinsurance Reform Act of 2010, and allows New York to enter into the Nonadmitted Insurance Multi-State Agreement (NIMA) prepared by the National Association of Insurance Commissioners.

    Section 14 of Part I of the bill adds a new § 2138 to the Insurance Law granting the Superintendent the authority to enter into NIMA on behalf of New York, in consultation with the Commissioner of Taxation and Finance (the "Commissioner"); adopt by regulation the premium tax allocation schedule set forth in NIMA if the Superintendent enters into NIMA; and withdraw from NIMA if the Superintendent, in consultation with the Commissioner, determines that NIMA is no longer in the best interests of the people of New York.

    In furtherance of the Superintendent's participation in NIMA on behalf of the state, Section 17 through 25 of Part I of the bill amends Tax Law Sections 171-a(1) and 1550 - 1557.

    A legislative proposal has been drafted to replace Part I of the bill that would more fully conform to the surplus lines provisions of the NRRA.The Excess Line Association of New York (ELANY) is lining up legislator sponsors and seeking industry support - see attachments.