To implement Chapter 61 of the Laws of 2011, conforming to the federal Nonadmitted and Reinsurance Reform Act of 2010.
Substance of revised rule:
On July 21, 2010, President Obama signed into law the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which contains the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). The NRRA prohibits any state, other than the home state of an insured, from requiring a premium tax payment for excess (or “surplus”) line insurance. The NRRA also subjects the placement of excess line insurance solely to the statutory and regulatory requirements of the insured’s home state, and declares that only an insured’s home state may require an excess line broker to be licensed to sell, solicit, or negotiate excess line insurance with respect to such insured.
In addition, the NRRA provides that an excess line broker seeking to procure or place excess line insurance for an exempt commercial purchaser (“ECP”) need not satisfy any state requirement to make a due diligence search to determine whether the full amount or type of insurance sought by the ECP may be obtained from admitted insurers if: (1) the broker procuring or placing the excess line insurance has disclosed to the ECP that the insurance may be available from the admitted market, which may provide greater protection with more regulatory oversight; and (2) the ECP has subsequently requested in writing that the broker procure the insurance from or place the insurance with an excess line insurer.
On March 31, 2011, Governor Andrew M. Cuomo signed into law Chapter 61 of the Laws of 2011, Part I of which amended the Insurance Law to conform to the NRRA.
Insurance Regulation 41 (11 NYCRR Part 27) currently consists of 24 sections and one appendix addressing the regulation of excess line insurance placements.
The title of Section 27.0 is changed to read “Preamble and applicability,” and Section 27.0 is amended to discuss the NRRA and Chapter 61 of the Laws of 2011 and to provide that Part 27 applies only when the insured’s home state is New York.
Section 27.1 is amended to delete “eligible,” “qualified United States financial institution,” and “letter of credit” as defined terms, and to add three new defined terms: “exempt commercial purchaser,” “insured’s home state,” and “United States.”
The Department amended Section 27.2(a) to change a reference to “Insurance Department” to read “Department of Financial Services.”
Section 27.3(a) is amended to provide an exception for an ECP consistent with Insurance Law Section 2118(b)(3)(F) and to change a reference to “Insurance Department” to read “Department of Financial Services.”
Section 27.3(f) is amended to require an excess line broker and the producing broker to maintain files supporting declinations by authorized insurers where declinations are required.
A new Section 27.3(h) is added, which provides that Section 27.3(a), (b), and (c) do not apply to an excess line broker seeking to procure or place insurance in New York for an ECP if the broker discloses to the ECP that the insurance may or may not be available from the authorized market that may provide greater protection with more regulatory oversight, and the ECP has subsequently requested in writing that the licensee procure or place the insurance from an unauthorized insurer.
Section 27.4(b) is amended to delete a reference to “in this State” and Section 27.4(g) is repealed.
Section 27.5(f), (g), and (h) are amended to: (1) with regard to an ECP, require an excess line broker or the producing broker to affirm in part A or part C of the affidavit that the ECP was specifically advised in writing, prior to placement, that insurance may or may not be available from the authorized market, which may provide greater protection with more regulatory oversight; (2) require an excess line broker to affirm that the insured’s home state is New York in part A of the affidavit; and (3) clarify that the premium tax is to be allocated in accordance with Section 27.9 of Insurance Regulation 41 for insurance contracts that have an effective date prior to July 21, 2011.
Section 27.6(b) is amended to make grammatical changes and to change “the Excess Line Association of New York” to “the excess line association.”
Section 27.7(a) is amended to remove a reference to an unauthorized insurer that does not meet “eligibility standards for stamping by the excess line association” and to replace it with language that refers to an unauthorized insurer that does not “qualify to write excess line insurance in this State.”
Section 27.8 is amended to: (1) require a licensed excess line broker to file electronically an annual premium tax statement, unless the Superintendent of Financial Services (the “Superintendent”) grants the broker an exemption pursuant to Section 27.21 of Insurance Regulation 41; (2) acknowledge that payment of the premium tax may be made electronically; and (3) change a reference to “Superintendent of Insurance” to read “Superintendent of Financial Services.”
Section 27.9 is amended to clarify how an excess line broker must calculate the taxable portion of the premium for: (1) insurance contracts that have an effective date prior to July 21, 2011; and (2) insurance contracts that have an effective date on or after July 21, 2011 and that cover property or risks located both inside and outside the United States.
Section 27.10(b) is amended to make grammatical changes.
Section 27.11 is amended to prohibit an unauthorized insurer from providing coverage if the coverage is prohibited by law.
Section 27.13 is amended to 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 to 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.
Current Section 27.14 is repealed and a new Section 27.14 is added entitled, “Filings by unauthorized insurers; authorization to receive premium,” which affirmatively requires an excess line insurer to file electronically with the Superintendent a current listing that sets forth certain individual policy details, and states that “pursuant to Insurance Law section 2121, any unauthorized insurer that delivers in New York to any excess line broker or any insured represented by such broker a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself or herself, will be deemed to have authorized the broker to receive on its behalf payment of any premium that is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium that becomes due or payable thereafter on such contract, provided that the broker receives the payment within 90 days after the due date of the premium or installment thereof or after the date of delivery of a statement by the insurer of the additional premium.”
Sections 27.15 and 27.16 are repealed.
Sections 27.17, 27.18, 27.19, 27.20, and 27.21 are renumbered as Sections 27.15, 27.16, 27.17, 27.18, and 27.19.
Newly renumbered Section 27.15(b) (formerly Section 27.17(b)) is amended to make grammatical changes and to change a reference to “Insurance Department” to read “Department of Financial Services.”
Newly renumbered Section 27.16(a) (formerly Section 27.18(a)) is amended to change a reference to Section 27.17(b) to read Section 27.15(b).
Newly renumbered Section 27.19(a) (formerly Section 27.21(a)) is amended to change a reference to Section 27.17(e) to read Section 27.15(e).
Section 27.22 is renumbered as Section 27.20.
Current Section 27.23 is repealed and a new Section 27.21 is added entitled, “Exemptions from electronic filing and submission requirements.”
Section 27.24 is renumbered as Section 27.22.
The excess line premium tax allocation schedule set forth in appendix four is amended to apply to insurance contracts that have an effective date prior to July 21, 2011.
A new appendix five is added, which sets forth an excess line premium tax allocation schedule to apply to insurance contracts that have an effective date on or after July 21, 2011 and that cover property and risks located both inside and outside the United States.
Revised rule compared with proposed rule:
Substantive revisions were made in sections 27.1, 27.7(a) and 27.13.
Text of revised proposed rule and any required statements and analyses may be obtained from
Joana Lucashuk, New York State Department of Financial Services, One State Street, New York, NY 10004, (212) 480-2125, email: joana.lucashuk@dfs.ny.gov
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
30 days after publication of this notice.
Revised Regulatory Impact Statement
1. Statutory authority: The Superintendent’s authority for the promulgation of the Fourteenth Amendment to Insurance Regulation 41 (11 NYCRR Part 27) derives from Sections 301, 316, 2101, 2104, 2105, 2110, 2116, 2117, 2118, 2121, 2122, 2130, 9102, and Article 21 of the Insurance Law, and Sections 202 and 302 of the Financial Services Law.
The federal Nonadmitted and Reinsurance Reform Act of 2010 (the “NRRA”) significantly changed the paradigm for excess line insurance placements in the United States. Chapter 61 of the Laws of 2011 amended the Insurance Law and the Tax Law to conform to the NRRA.
Insurance Law Section 301 and Financial Services Law Sections 202 and 302 authorize the Superintendent of Financial Services (the “Superintendent”) to prescribe regulations interpreting the provisions of the Insurance Law, and effectuate any power granted to the Superintendent under the Insurance Law. Insurance Law Section 316 authorizes the Superintendent to promulgate regulations to require an insurer or other person or entity making a filing or submission with the Superintendent to submit the filing or submission to the Superintendent by electronic means, provided that the insurer or other person or entity affected thereby may submit a request to the Superintendent for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause, subject to the Superintendent’s approval.
Insurance Law Article 21 sets forth the duties and obligations of insurance brokers and excess line brokers. Insurance Law Section 2101 sets forth relevant definitions. Insurance Law Section 2104 governs the licensing of insurance brokers. Insurance Law Section 2105 sets forth licensing requirements for excess line brokers. Insurance Law Section 2110 provides grounds for the Superintendent to discipline licensees by revoking or suspending licenses or, pursuant to Insurance Law Section 2127, imposing a monetary penalty in lieu of revocation or suspension. Insurance Law Section 2116 permits payment of commissions to brokers and prohibits compensation to unlicensed persons. Insurance Law Section 2117 prohibits the aiding of an unauthorized insurer, with exceptions. Insurance Law Section 2118 sets forth the duties of excess line brokers, with regard to the placement of insurance with eligible foreign and alien excess line insurers, including the responsibility to ascertain and verify the financial condition of an unauthorized insurer before placing business with that insurer. Insurance Law Section 2121 provides that brokers have an agency relationship with insurers for the collection of premiums. Insurance Law Section 2122 imposes limitations on advertising by producers. Insurance Law Section 2130 establishes the Excess Line Association of New York (“ELANY”).
Insurance Law Section 9102 establishes rules regarding the allocation of direct premiums taxable in New York, where insurance covers risks located both in and out of New York.
2. Legislative objectives: Generally, unauthorized insurers may not do an insurance business in New York. In permitting a limited exception for licensed excess line brokers to procure insurance policies in New York from excess line insurers, the Legislature established statutory requirements to protect persons seeking insurance in New York. The NRRA significantly changed the paradigm for excess (or “surplus”) line insurance placements in the United States. The NRRA prohibits any state, other than the insured’s home state, from requiring a premium tax payment for excess line insurance. Further, the NRRA subjects the placement of excess line insurance solely to the statutory and regulatory requirements of the insured’s home state and declares that only an insured’s home state may require an excess line broker to be licensed to sell, solicit, or negotiate excess line insurance with respect to the insured. In addition, the NRRA establishes uniform eligibility standards for excess line insurers. A state may not impose additional eligibility conditions.
Under the new NRRA paradigm, an excess line broker now must ascertain an insured’s home state before placing any property/casualty excess line business. Thus, if the insured’s home state is not New York, even though the insured goes to the broker’s office in New York, the excess line broker must be licensed in the insured’s home state in order for the broker to procure the excess line coverage for that insured. Conversely, a person who is approached by an insured outside of New York must be licensed as an excess line broker in New York in order to procure excess line coverage for an insured whose home state is New York.
On March 31, 2011, Governor Andrew M. Cuomo signed into law Chapter 61 of the Laws of 2011, Part I of which amended the Insurance Law to conform to the NRRA. This rule accords with the public policy objectives Congress and the Legislature sought to advance in enacting the NRRA and Chapter 61 by making conforming changes so that the rule does not conflict with them.
3. Needs and benefits: Insurance Regulation 41 governs the placement of excess line insurance. The purpose of the excess line law is to enable consumers who are unable to obtain insurance from authorized insurers to obtain coverage from eligible excess line insurers. This rule implements the provisions and purposes of Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA. The NRRA and Chapter 61 took effect on July 21, 2011 and have been impacting excess line placements since that date.
Prior to the enactment of the NRRA, Insurance Regulation 41 prohibited an excess line broker from placing coverage with an excess line insurer unless the insurer had established and maintained a trust fund. However, the new NRRA eligibility requirements do not include a trust fund with respect to foreign insurers (alien insurers, however, must maintain a trust fund that satisfies the International Insurers Department (“IID”) of the National Association of Insurance Commissioners (“NAIC”)). As such, New York no longer is requiring a trust fund with respect to foreign insurers.
In addition, Insurance Regulation 41 currently states that when the insured’s home state is New York, an excess line broker may not place coverage with an unauthorized insurer unless the insurer has filed with the Superintendent a current listing that sets forth certain individual policy details. Such a requirement could be construed as an eligibility requirement not permitted under the NRRA. Accordingly, Insurance Regulation 41 is being amended to instead impose an affirmative requirement on an excess line insurer to file certain individual policy details when the insured’s home state is New York, rather than prohibiting an excess line broker from placing coverage if the insurer has not filed these details.
Insurance Regulation 41 also currently requires an excess line broker to obtain and review certain information before placing insurance with an unauthorized insurer. The Department recognizes that certain of the required information is not publicly available and that as a result of the NRRA, an unauthorized insurer may not provide the information voluntarily to an excess line broker. Therefore, the Department is amending Insurance Regulation 41 to remove from the list certain information that an excess line broker must obtain and review.
Insurance Law Section 316 authorizes the Superintendent to promulgate regulations to require an insurer or other person or entity making a filing or submission with the Superintendent to submit the filing or submission to the Superintendent by electronic means, provided that the insurer or other person or entity affected thereby may submit a request to the Superintendent for an exemption from the electronic filing requirement upon a demonstration of undue hardship, impracticability, or good cause, subject to the approval of the Superintendent. The amendment requires excess line brokers to file annual premium tax statements electronically, and requires excess line insurers to file electronically listings that set forth certain individual policy details. In addition, the Department is amending Insurance Regulation 41 to allow excess line brokers or insurers to apply for a “hardship” exception to any electronic filing or submission requirement.
4. Costs: The rule is not expected to impose costs on excess line brokers, and it merely conforms the requirements regarding placement of coverage with excess line insurers to the requirements in Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA. While new Section 27.14 imposes an affirmative requirement on an excess line insurer to file certain individual policy details when the insured’s home state is New York, this section should not impose any additional costs on excess line insurers, because excess line insurers have already been filing this information. Although the amended rule will require excess line brokers to file annual premium tax statements and will require excess line insurers to file listings that set forth certain individual policy details electronically, most brokers and insurers already do business electronically. In fact, ELANY already requires documents to be filed electronically. Moreover, the regulation also provides a method whereby excess line brokers and insurers may apply for an exemption from any electronic filing or submission requirement.
Costs to the Department also should be minimal, as existing personnel are available to review any modified filings necessitated by the rule. In fact, filing forms electronically may produce a cost savings for the Department.
This rule does not impose compliance costs on any state or local governments.
5. Local government mandates: This rule does not impose any program, service, duty, or responsibility upon any county, city, town, village, school district, fire district, or other special district.
6. Paperwork: The rule does not impose any new reporting requirements on regulated parties. While new Section 27.14 imposes an affirmative requirement on an excess line insurer to file certain individual policy details when the insured’s home state is New York, this section does not impose any new reporting requirements on excess line insurers, because excess line insurers already are filing this information.
7. Duplication: The regulation will not duplicate any existing state or federal rule, but rather will implement and conform to the federal requirements.
8. Alternatives: Originally, when the Department promulgated this amendment on an emergency basis, it made an excess line insurer subject to Insurance Law Section 1213 (service of process on Superintendent as attorney for unauthorized insurers) if the insurer chooses not to maintain a trust fund. However, after further discussion with industry representatives, the Department has decided to eliminate the trust fund section altogether in order to achieve uniformity with other states in a manner consistent with the goals of the NRRA.
In addition, the Department considered continuing the requirement that when the insured’s home state is New York, an excess line broker may not place coverage with an unauthorized insurer unless the insurer had filed with the Superintendent a current listing that sets forth certain individual policy details. However, after discussion with industry representatives, the Department decided to instead impose an affirmative requirement on an excess line insurer to file certain individual policy details when the insured’s home state is New York.
The Department also considered continuing the requirement that an excess line broker obtain and review certain information before placing insurance with an unauthorized insurer. However, after discussion with ELANY and receipt of comments from industry, the Department decided to remove from the list certain information that an excess line broker must obtain and review because the Department recognized that certain information is not publicly available and that an excess line broker likely could not otherwise obtain it from an unauthorized insurer.
9. Federal standards: This regulation does not exceed any minimum standards of the federal government for the same or similar subject areas. Rather, the rule implements the provisions and purposes of Chapter 61 of the Laws of 2011, which amended the Insurance Law to conform to the NRRA.
10. Compliance schedule: Pursuant to Chapter 61 of the Laws of 2011, this amendment, which has been previously promulgated on an emergency basis, impacts excess line insurance placements effective on and after July 21, 2011 and thus the permanent adoption will take effect upon publication of the rule in the State Register.
Revised Regulatory Flexibility Analysis
The revisions made to the earlier proposed rule have no special bearing on small businesses and no bearing on local governments; therefore, changes made to the last published rule do not necessitate revision to the previously published RFA.
Revised Rural Area Flexibility Analysis
The revisions made to the earlier proposed rule have no special bearing on persons located in rural areas; therefore, changes made to the last published rule do not necessitate revision to the previously published RAFA.
Revised Job Impact Statement
The revisions made to the earlier proposed rule have no bearing on jobs or employment opportunities; therefore, changes made to the last published rule do not necessitate revision to the previously published JIS.
Assessment of Public Comment
The New York State Department of Financial Services (“Department”) received comments from a national trade association representing the excess line industry (“excess line trade organization”), a national property/casualty insurance trade organization (“property/casualty trade organization”), a national insurance trade organization (“insurance trade organization”), the New York stamping office, an excess line insurer, an attorney that represents an insurance trade organization for insurers that comprise the London market (“counsel for the London market”), and an attorney who represents excess line insurers (“counsel for excess line insurers”), in response to the publication of its proposed rule in the New York State Register.
Comments on specific parts of the proposed rule and the Department’s responses thereto are discussed below.
11 NYCRR 27.1(q) (“Definition of Eligible”)
Comment
The insurance trade organization commented that because the definition of “eligible” references satisfying the requirements of this rule, an unauthorized insurer’s eligibility in New York is implicated, contrary to the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). The organization urged the Department to delete this language.
Department’s Response
The Department deleted “eligible” as a defined term since the proposed rule no longer uses it.
Proposed Amendment to 11 NYCRR 27.11 (“Prohibited Activities”)
Comment
The property/casualty trade organization and insurance trade organization commented that the language in the proposed rule prohibiting an insurer from providing coverage under certain circumstances is unnecessary and without authority. The organizations requested that the Department remove the language.
Department’s Response
Unauthorized insurers may engage only in certain limited acts in New York, including in the excess line market, and excess line policies are subject to certain New York laws and regulations. Unauthorized insurers can be and have long been held accountable for violations of those laws. The NRRA is not a license for unauthorized insurers to operate outside of state law. With respect to placements where a state is the home state, the NRRA only preempts state law with respect to eligibility requirements; it does not preempt state law with respect to compliance requirements. The language highlights and makes clear to insurers that they can be held responsible for acting in violation of Insurance Law section 1102 by doing an insurance business in New York without a license or by otherwise violating the Insurance Law. Therefore, the Department did not remove this language.
Proposed Amendments to 11 NYCRR 27.13 (“Duty to Inquire”)
Comment
With regard section 27.13(a)(1), which requires an excess line broker to obtain, review, and retain the financial statement filed by an alien unauthorized insurer with the National Association of Insurance Commissioners (“NAIC”), the excess line insurer commented that this information is not available to excess line brokers. The insurer requested that the Department remove this requirement with respect to alien unauthorized insurers.
With regard to section 27.13(a)(3) and (4), which require excess line brokers to obtain, review, and retain a copy of an unauthorized insurer’s latest available report on examination issued by its home jurisdiction, and a certification from the insurer’s home jurisdiction verifying that the insurer is authorized to write the kinds of insurance sought to be placed, the excess line insurer commented that non-U.S. regulators do not routinely provide this information to the public and excess line brokers therefore will not be able to fulfill this requirement with respect to alien unauthorized insurers. The insurer requested that the Department remove this requirement with respect to alien unauthorized insurers.
The New York stamping office stated that it will continue to seek the foregoing documents from insurers to relieve excess line brokers of the burden of seeking them and insurers of the burden of providing them to more than one party.
Counsel for excess line insurers suggested that the Department or NAIC make the foregoing documentation available to excess line brokers at no charge, because it would remove the need for and costs to insurers to provide the same information to multiple parties.
Department’s Response
Recognizing that some of the information requested might be unavailable to an excess line broker, the Department amended section 27.13(a)(1) to require a copy only of a foreign insurer’s most recent annual financial statement and to delete the requirement that the excess line broker obtain the standard financial statement filed with the NAIC by an alien insurer. The Department also amended section 27.13(a)(3) to require an excess line broker to obtain a copy of the insurer’s latest report on examination only if accessible to the excess line broker, and amended section 27.13(a)(3) to require an excess line broker to obtain a certification from the insurer’s home jurisdiction or any other documentation sufficient to ascertain and verify the fact that the insurer is authorized in its domiciliary jurisdiction to write the insurance policy proposed to be procured from it by the excess line broker. The foregoing language is consistent with Insurance Law section 2118(b)(3).
Comment
The property/casualty trade organization, excess line trade organization, and counsel for the London market commented that the duty to “obtain, review and retain” the stipulated list of documents and reports prior to the placement of coverage falls outside the criteria permitted by the NRRA. Counsel for the London market also commented that retaining this language will result in additional compliance and transaction costs, which ultimately will be passed on to consumers.
In addition, the property/casualty trade organization noted that the rule currently provides that, prior to placing business with an unauthorized insurer, an excess line broker must make inquiry sufficient to ascertain the insurer’s financial stability and that it has capacity adequate to its business. The organization commented that this requirement can impose significant challenges for the excess line broker and create a heightened standard of care and liability exposure. The property/casualty trade organization and excess line trade organization also stated that it imposes obligations beyond the NRRA eligibility provisions, while counsel for excess line insurers observed that the requirements appear contrary to the intent of the NRRA that regulators and consumers may rely on the solvency regulation and other oversight performed by an insurer’s domiciliary regulator.
The organizations requested that the Department delete this language and amend the rule to clarify that the excess line broker may place business with any foreign excess line insurer that is authorized in its domiciliary state and maintains the minimum capital and surplus required by the New York Insurance Law or this rule.
Department’s Response
While the NRRA generally prohibits a state from imposing eligibility requirements on, or establishing eligibility criteria for, a foreign excess line insurer, or prohibiting an excess line broker from placing excess line insurance with an alien excess line insurer listed with the NAIC’s International Insurers Department (“IID”), requiring an excess line broker to obtain, review, and retain certain documents is neither an eligibility criterion imposed on a foreign insurer nor a prohibition against placing insurance with an alien insurer. Rather, these requirements expand upon Insurance Law section 2118(a)(1), which requires an excess line broker to use due care when selecting an excess line insurer from which to procure a policy. While a state may not preclude an excess line broker from making a placement, by requiring the broker to make sufficient inquiry into the insurer’s financial stability, the broker and the insured can make an informed decision as to whether such a placement is advisable and prudent.
As for resulting in additional compliance and transaction costs and creating a heightened standard of care and liability exposure, these requirements are longstanding and therefore should not impose any additional compliance or transaction costs or create a heightened standard of care or additional liability exposure.
Thus, the Department did not make any changes to the rule in light of this comment.
Comment
The excess line trade organization and counsel for excess line insurers commented that the requirement in section 27.13(g), which provides that an excess line broker must make inquiry sufficient to demonstrate that the insurer has complied with section 27.14 of the rule before placing business with an unauthorized insurer, is an eligibility requirement contrary to the NRRA. The organization asked the Department to remove the language.
Department’s Response
The Department does not necessarily agree that section 27.13(g) is an eligibility requirement, but it would seem impractical for an excess line broker to ascertain easily whether an insurer has complied with section 27.14. Therefore, the Department removed this language.
Comment
The New York stamping office recommended that the Department seek to enhance the financial reporting requirements imposed by the NAIC’s IID and to make the disclosure of the alien insurer financial information transparent to all participants in the marketplace.
Department’s Response
The Department did not make any changes since this comment does not pertain to the rule.
Proposed Amendment to 11 NYCRR 27.14 (“Filings by Unauthorized Insurers”)
Comment
The property/casualty trade organization, insurance trade organization, excess line trade organization, and counsel for the London market commented that the requirement that unauthorized insurers file individual policy details (the “EL-1 report”) is an eligibility requirement in violation of the NRRA. The organizations urged the Department to remove this requirement.
Department’s Response
This requirement is neither an eligibility criterion imposed on a foreign insurer nor a prohibition against placing insurance with an alien insurer, because requiring an insurer to file individual policy details does not prohibit an insurer from being eligible to write excess line insurance in New York or prohibit an excess line broker from placing excess line insurance with the insurer. In addition, this information is necessary because it is the only way for the Department to ensure that excess line brokers are reporting and paying the correct excess line tax.
Comment
The property/casualty trade organization commented that proposed section 27.14(a)(5), which requires an unauthorized insurer to file annually with the Superintendent such other information as the Superintendent may require, is too arbitrary and potentially damaging to the excess line marketplace given the requirements for this unknown information, and asked that the Department remove it.
Department’s Response
The EL-1 report has long been filed by unauthorized insurers and the language regarding such additional information requested by the Superintendent is longstanding in the rule. It is limited to individual policy details to help ascertain whether the proper amount of tax has been paid by the brokers and therefore is neither arbitrary nor too broad. The Department does not see how it could be potentially damaging to the excess line marketplace under these circumstances. Therefore, the Department did not remove this language.
Comment
The insurance trade organization commented that the proposed language in section 27.14(b), which applies Insurance Law section 2121 regarding authorizing brokers to receive premium on behalf of insurers, is based on questionable authority. The organization asserts that the statutory authority cited for this language, Insurance Law section 2121, references insurance brokers and insurers and not excess lines brokers or unauthorized insurers. The organization requested that the Department delete this language.
Department’s Response
This provision is intended to merely highlight and make clear the applicability of section 2121 to excess line transactions. Excess line brokers are merely a subset of insurance brokers. In order to be licensed as an excess line broker, a person must be licensed as an insurance broker first. In addition, Insurance Law section 2121 refers to insurers that deliver in this state an insurance contract to any insurance broker or any insured. This includes both authorized insurers and unauthorized insurers. Therefore, the Department did not delete this language.
Trust Fund
Comment
Counsel for excess line insurers requested that the Department add a provision to the proposed rule expressly authorizing trustee banks to terminate previously existing trust funds and release the monies in the trust funds to the insurer without Department approval or other requirement. Alternatively, counsel suggested that the Department establish and publish a formal process for releasing trust fund deposits as other states have.
Department’s Response
As explained in Supplement No. 1 to Insurance Circular Letter No. 9 (2011), the NRRA does not void the obligations under a trust fund agreement entered into by an unauthorized foreign or alien insurer and a trustee prior to the NRRA’s July 21, 2011 effective date. A trust fund agreement establishes the rights and responsibilities of the parties. It is a private agreement that, once established, provides for the protection of the beneficiary policyholders. While the NRRA prospectively preempts certain state laws as of July 21, 2011, it does not obviate a private agreement between parties entered into prior to that date. This rule cannot obviate a private agreement either. Therefore, the Department did not make any changes to the proposed rule in light of this comment.
