U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

29–968 PDF 2006

NONADMITTED AND REINSURANCE REFORM

ACT OF 2006

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON

H.R. 5637

SEPTEMBER 19, 2006

Serial No. 109–143

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

CHRIS VAN HOLLEN, Maryland 

DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina 

TRENT FRANKS, Arizona 

STEVE CHABOT, Ohio 

MARK GREEN, Wisconsin 

J. RANDY FORBES, Virginia 

LOUIE GOHMERT, Texas 

MELVIN L. WATT, North Carolina 

WILLIAM D. DELAHUNT, Massachusetts 

CHRIS VAN HOLLEN, Maryland 

JERROLD NADLER, New York 

DEBBIE WASSERMAN SCHULTZ, Florida

RAYMOND V. SMIETANKA, Chief Counsel 

SUSAN A. JENSEN, Counsel 

BRENDA HANKINS, Counsel 

MIKE LENN, Full Committee Counsel 

STEPHANIE MOORE, Minority Counsel 

(III)

C O N T E N T S 

SEPTEMBER 19, 2006

OPENING STATEMENT 

Page 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Chairman, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 1

The Honorable Debbie Wasserman Schultz, a Representative in Congress 

from the State of Florida, and Member, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 4

WITNESSES 

Scott A. Sinder, Esquire, Counsel, Council of Insurance Agents and Brokers 

Oral Testimony ..................................................................................................... 7

Prepared Statement ............................................................................................. 9

Tracey Laws, Esquire, Senior Vice President and General Counsel, Reinsurance Association of America 

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 17

Mr. Travis Plunkett, Legislative Director, Consumer Federation of America 

Oral Testimony ..................................................................................................... 20

Prepared Statement ............................................................................................. 22

Mr. Alex Soto, President, Independent Insurance Agents & Brokers of America 

Oral Testimony ..................................................................................................... 29

Prepared Statement ............................................................................................. 30

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................ 2

Prepared Statement of the Honorable Ginny Brown-Waite, a Representative 

in Congress from the State of Florida ................................................................ 3

(1)

NONADMITTED AND REINSURANCE REFORM 

ACT OF 2006

TUESDAY, SEPTEMBER 19, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 10:05 a.m., in 

Room 2141, Rayburn House Office Building, the Honorable Chris 

Cannon (Chairman of the Subcommittee) presiding. 

Mr. CANNON. Good morning. This hearing of the Subcommittee 

on Commercial and Administrative Law will now come to order. We 

are here today to consider H.R. 5637, the ‘‘Nonadmitted and Reinsurance Reform Act of 2006.’’

Insurance is a highly regulated industry, but unlike banking and 

securities, insurance is regulated mainly at the State level. The Supreme Court ruled that Congress has the power to regulate insurance, but in 1945 this power was delegated to the States in the 

McCarren-Furguson Act and specifically reaffirmed in the 1999 

Gramm-Leach-Bliley Act. 

Every State requires licenses for insurance companies and regulates both the conduct and the details of the products sold within 

the State. This regulation is seen as important for consumer protection, but also creates barriers to entry in the insurance market 

and can reduce the supply of insurance that is available. Some 

argue that uniformity in insurance regulation is desirable, unlike 

the significant variation in current State regulations. 

H.R. 5637 addresses two areas of the insurance industry. The 

first is nonadmitted insurers. There are certain times when it is 

not possible for the citizens of one State to find licensed insurers 

to cover his or her unique risks. In situations where consumers are 

unable to find insurance from licensed insurers within their State, 

States do not require that the consumers go without insurance. Instead, States allow nonlicensed insurers, known as nonadmitted or 

surplus line insurers, to provide insurance. The vast majority of 

nonadmitted insurance policies are sold to sophisticated businesses 

and cover specialized risks such as terrorism, catastrophic losses, 

hazardous materials, natural disasters and environmental or pollution risks. 

Although these insurers do not have a regular State license, they 

are not unregulated. The sale of insurance is still regulated and 

taxed by the States through requirements placed on the brokers facilitating the insurance transactions. States collect premium taxes 

2

for nonadmitted insurance placements, but the tax allocation and 

remittance formulas and procedures vary significantly from State 

to State, and are often in direct conflict. When a nonadmitted policy involves multistate risk, it can be difficult to determine how 

much tax is owed to each State, and as a result, multiple taxation 

or noncompliance may occur. 

The second area of the insurance industry that H.R. 5637 addresses is reinsurance. Reinsurance is insurance for insurance companies. When an insurance company has written a policy covering 

a large risk, it will insure part of its risk through other insurers 

thereby transferring a portion of its risk. Reinsurance allows an insurer the ability to increase its capacity and underwrite more coverage, performing an essential role in the insurance marketplace by 

limiting insurers’ liability exposure, adding insurance capacity, and 

protecting against large, unexpected losses. 

H.R. 5637 was written to affect a narrow area of insurance reform. It is aimed at addressing inconsistencies of State regulation 

in the surplus lines insurance market and streamlining its procedure. It creates a uniform system for nonadmitted insurance premium tax payments by making the taxing authority the home 

State of the policyholder. Further, it encourages States to develop 

a procedural mechanism for uniform tax allocation through an 

interstate compact or other method, and establishes regulatory deference for home insurers as developed and promulgated by the National Association of Insurance Commissioners in the Nonadmitted 

Insurance Model Act. 

The bill also applies a single State regulation for financial solvency and credit reinsurance of reinsurers. Determinations of tax 

credits for reinsurance will be controlled by the home State of the 

insurer purchasing the reinsurance. The regulations of the home 

State of the reinsurer will control in determinations of solvency of 

the reinsurer provided such State is NAIC-accredited or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation. 

I look forward to learning more about H.R. 5637 and to hear the 

testimony of our panel. 

Without objection, the Chair will be authorized to declare recess 

of the hearing at any point. Hearing none, so ordered. 

[The prepared statement of Mr. Cannon follows:]

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND CHAIRMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Good morning, this hearing of the Subcommittee on Commercial and Administrative Law will now come to order. 

We are here today to consider H.R. 5637, the Nonadmitted and Reinsurance Reform Act of 2006. This bill deals with two different areas of the insurance industry. 

The first are is nonadmitted insurers. 

Insurance is a highly regulated industry. Unlike banking and securities, though, 

Congress, under the McCarren-Furguson Act, has granted the States the ability to 

regulate insurance. Every State requires licenses for insurance companies and regulates both the company conduct and the details of the products sold within the state. 

This regulation is seen as important for consumer protection, but also creates barriers to entry in the insurance market, and can reduce the supply of insurance that 

is available. 

There are certain times when it is not possible to find licensed insurers to cover 

unique or hard to place risks. In these situations where consumers are unable to 

3

find insurance from licensed insurers, States do not require that the consumers simply go without insurance. Instead, States allow non-licensed insurers, known as nonadmitted or surplus line insurers, to provide insurance in this circumstance. The 

vast majority of nonadmitted insurance polices are sold to sophisticated businesses 

and cover specialized risks, such as extreme catastrophic coverage and terrorism, 

hazardous materials, natural disasters, and environmental or pollution risks. 

Although these insurers do not have a regular state license, they are not unregulated. The sale of insurance is still regulated and taxed by the States through requirements placed on the brokers facilitating the insurance transactions. States collect premium taxes for nonadmitted insurance placements, but the tax allocation 

and remittance formulas and procedures vary significantly from State to State and 

are often in direct conflict. 

When a nonadmitted policy involves multi-state risk, it can be extremely difficult 

to determine how much tax is owed to each State and, as a result, multiple taxation 

or noncompliance often results. 

The second area of the insurance industry that H.R 5637 addresses is reinsurance. Reinsurance is insurance for insurance companies. When an insurance company has written a policy covering a large risk, it will insure part of its risk through 

other insurers thereby transferring a portion of its risk exposure to a reinsurer. Reinsurance allows an insurer the ability to increase its capacity and underwrite more 

coverage, performing an essential role in the insurance marketplace by limiting insurers’ liability exposure on large risks, adding insurance capacity, and protecting 

against large unexpected catastrophes. 

H.R. 5637 was written to affect a narrow area of insurance reform. It is aimed 

at addressing inconsistencies of state regulation in the surplus lines insurance market and streamlining its procedure. It creates a uniform system for nonadmitted insurance premium tax payments by making the taxing authority the home State of 

the policyholder. Further, it encourages States to develop a procedural mechanism 

for uniform tax allocation (through an interstate compact or other method), and establishes regulatory deference for home insurers as developed and promulgated by 

the National Association of Insurance Commissioners (NAIC) in the Nonadmitted 

Insurance Model Act. 

The bill applies a single State regulation for financial solvency and credit reinsurance of reinsurers. Determinations of tax credits for reinsurance will be controlled 

by the home State of the insurer purchasing the reinsurance. The regulations of the 

home State of the reinsurer will control in determinations of solvency of the reinsurer provided such State is NAIC-accredited or has financial solvency requirements 

substantially similar to the requirements necessary for NAIC accreditation. 

I look forward to learning more about the insurance industry and H.R. 5637, and 

to hear the testimony of our panel.

Mr. CANNON. I ask unanimous consent to enter into the record 

a statement by the sponsor of H.R. 5637, the representative from 

Florida, Ms. Brown-Waite, and that Members have 5 legislative 

days to submit written statements into the record. Without objection, so ordered. 

[The prepared statement of Ms. Brown-Waite follows:]

PREPARED STATEMENT OF THE HONORABLE GINNY BROWN-WAITE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF FLORIDA

Thank you Mr. Chairman for holding this hearing today. 

And I want to thank the witnesses for being here today as well. 

The House of Representatives has been engaged in overall insurance reform for 

several years, and in this endeavor, there are dozens of issues the Congress must 

consider. I have introduced H.R. 5637, the Nonadmitted and Reinsurance Reform 

Act that will provide solutions to two aspects of that reform. 

Today, the regulation of the surplus lines market is fragmented and cumbersome. 

Insurers and brokers who want to provide insurance across state lines are subject 

to a myriad of different state tax and licensing requirements. For instance, if a company in Florida wants to transport a product, say parts for the space shuttle, to 

Houston, TX, the non-admitted insurance company they use must comply with the 

regulations of at least five different states. Often times, these regulations will conflict, making it impossible for one company to comply with all of them. This situation leaves policyholders underinsured and with little choice in providers. 

Moreover, most of the policyholders that purchase insurance in the nonadmitted 

market do so everyday. These ‘‘sophisticated’’ commercial entities have educated 

4

risk advisors on staff with a thorough understanding of the market and their risk 

exposure. Yet in most states, these companies are required to shop around the admitted market and be denied for coverage they know they cannot get before they 

are permitted to shop in the surplus lines market. This practice is needless and 

cumbersome, and only adds to the cost for the policyholder. 

On another front, in the reinsurance market some state regulators are taking it 

upon themselves to throw out arbitration agreements between reinsurance providers 

and primary carriers. These are contractual agreements decided upon by sophisticated parties on both sides of the transaction to settle disputes without tying up the 

courts. If these agreements are valid in a state that is accredited by the NAIC, they 

should be valid in all accredited states. 

Accordingly, H.R. 5637:

• Specifies that only the tax policies and licensing regulations of the state in 

which the policyholder is domiciled govern the transaction. States may still 

enter into tax allocation and remittance agreements with other states, but 

this bill specifies which law will take precedence, thus taking the guesswork 

out of the process. Insurance providers therefore need only comply with those 

of the policyholders’ state in one transaction.

• Requires states within two years of bill passage to participate in the National 

Association of Insurance Commissioners’ national insurance producer database and adopt regulations under NAIC’s Nonadmitted Insurance Model Act.

• Allows sophisticated commercial entities direct access to the surplus lines 

market.

• Prohibits states from voiding established, contractual arbitration agreements 

between reinsurers and primary companies.

Obtaining insurance for unique or high-risk products in the nonadmitted market 

already has its own obstacles. Adding a quagmire of inefficient state rules does not 

help. And with reinsurance rates rising at an alarming rate, companies should be 

encouraged to stay out of the courts and follow their own arbitration agreements. 

My bill provides commonsense solutions to the nonadmitted and reinsurance market, and I thank the Chairman for holding this hearing on it today.

Mr. CANNON. I now yield to Ms. Wasserman Schultz, who is sitting in for Mr. Watt today, for an opening statement. 

Ms. WASSERMAN SCHULTZ. Thank you. Thank you, Mr. Chairman, for convening today’s hearing. 

And I especially want to thank Ranking Member Watt in 

absentia. It’s not all that often that a freshman gets to sit in this 

chair, so I think I’ll hold onto it for a little bit and glory in it. 

I also want to welcome all of our panelists and extend a special 

welcome to my good friend, Alex Soto, current President of the ‘‘Big 

I,’’ otherwise known as the Independent Insurers & Brokers of 

America, but it’s actually known as the ‘‘Big I.’’ and Alex hails from 

Miami, and he has been a good friend to me over the years. We 

have worked together on many, many issues, not always on the 

same side, but on many, many issues; and he is a tremendous advocate for his industry. 

The problem that we’re here to talk about today is not only endemic to Florida, though, in spite of the fact that this is a bill 

that’s sponsored by a Member from Florida, this is a problem that 

is really extremely broad based nationwide. The economic resonance from disasters like Hurricanes Katrina, Rita and Wilma, has 

left an indelible fingerprint on our Nation, and our country now 

faces a crisis in its insurance markets the likes of which we have 

not witnessed before. And it’s not only price, but availability. 

Recent catastrophes have reshaped our Nation’s personal and 

commercial insurance markets, making it even more difficult for affected regions to recover. Market perception of exponential increases in the risk affiliated with catastrophic events has resulted 

5

in precipitous declines in insurance coverage availability at astronomical cost to policyholders. 

In addition to my role on this Committee, I serve on the House 

Financial Services Committee, as well, and we have held a number 

of hearings on this matter and are considering how best to resolve 

this problem. I believe an essential component for that solution, 

Mr. Chairman, is the establishment of a national catastrophe fund. 

To that end, I’ve introduced legislation H.R. 5891, the Catastrophic 

Disaster Risk and Insurance Commission Act of 2006, which would 

bring together a few stakeholders to develop a comprehensive solution to this national problem. 

The only way we were able to establish a State catastrophe fund 

in Florida following Hurricane Andrew, Mr. Chairman, was when 

we brought the stakeholders to the table, had a technical advisory 

panel and advised a statewide task force that was chaired and the 

members of which were our university presidents; and they made 

recommendations to the Florida legislature, and ultimately we 

were able to come to agreement on that issue. 

While the bill before us today is only a small piece of the puzzle, 

it is an essential first step, which eliminates market inefficiencies 

and reduces duplicative and costly filing burdens. I encourage my 

colleagues here today to move this legislation forward. 

The surplus lines market serves as a safety valve for the traditional market. In my home State of Florida both individuals and 

commercial entities are seeing astronomical increases, and I am 

talking on the order of thousands of percent increases in their insurance premiums. Under the existing system of insurance regulation, surplus lines serve an extraordinarily valuable purpose to 

hedge against some of these natural disaster risks. Don’t get me 

wrong, they’re not perfect, but in some instances it is the only way 

commercial firms and individuals can get adequate coverage for 

wind exposure. 

As a original cosponsor of this legislation, I am proud of the Financial Services Committee’s concerted effort to ensure that concerns from both sides of the aisle were incorporated into the bill before it was reported unanimously. In its current form, the legislation includes a number of provisions inserted at the behest of Financial Services Ranking Member Barney Frank and Subcommittee Ranking Member Paul Kanjorski; and these include, Mr. 

Chairman, provisions to address concerns raised by the NAIC, the 

National Association of Insurance Commissioners, adjustments to 

the allocation of premium taxes amongst the States, a clarification 

to underscore that the bill does not preempt State laws restricting 

the placement of worker’s compensation coverage with a nonadmitted insurer, as well as a handful of technical corrections. 

The second title on reinsurance was revised to ensure that the 

State with the greatest interest in protecting the consumer, in this 

case the primary insurer, makes the appropriate decisions. The definition of a reinsurer was also changed to ensure that the domiciliary oversight does not unfairly advantage their primary insurance business. 

And I think it’s important to reiterate that this bill only applies 

to sophisticated insurance lenders, not individuals. The Risk and 

6

Insurance Management Society, or RIMS, which represent commercial policyholders fully supports the legislation. 

I encourage my colleagues to support this bill because it reduces 

economic inefficiencies and would eliminate hundreds of billions of 

dollars in administrative costs. These costs are currently passed on 

to consumers. Surplus lines ensure that companies that otherwise 

could not get insurance are able to obtain it, meaning they can also 

stay in business, provide jobs and serve communities. 

Thank you. I yield the balance of my time. 

Mr. CANNON. Thank you. 

Please note Mr. Bachus may join us; he is a co-sponsor of the 

bill, and I mention it just because he is not a Member of the Subcommittee, although he’s a Member of the Judiciary Committee; 

and we have arcane rules, and that requires that if he—requires 

that if he asks questions, he has to have time yielded to him, which 

we will make sure happens. I just want you to understand in advance. 

Our first witness is Mr. Scott Sinder, who is a member of the 

Washington, D.C., law and government relations firm, The Scott 

Group, and since 1999 has served as the outside General Counsel 

for the Council of Insurance Agents & Brokers. Mr. Sinder has represented the CIAB on a range of issues in Federal courts, regulatory agencies, State legislatures and before Congress. 

Well, we have The Scott Group. 

Mr. Sinder received his J.D. from the University of Michigan 

Law School and his Master’s in public policy from the University 

of Michigan Institute of Public Policy Studies. 

Our second witness is Ms. Tracey Laws, the Senior Vice President and General Counsel for the Reinsurance Association of America. Ms. Laws is responsible for establishing and advocating the 

RAA’s public policy positions. Prior to coming to the RAA, Ms. 

Laws was a partner in the law firm of Chadbourne & Parke, concentrating on reinsurance matters. 

She is a member of the AIDA Reinsurance & Insurance Arbitration Society law committee and the ABA’s TIPS Federal Involvement in Insurance Regulation Modernization task force. Ms. Laws 

received her undergraduate degree from the College of William and 

Mary and her law degree from the University of Virginia. 

Mr. Travis Plunkett is our third witness. He is the Legislative 

Director for the Consumer Federation of America. Mr. Plunkett’s 

focus is primarily on financial services issues, including credit reporting, bankruptcy, credit counseling, consumer privacy and insurance. 

Prior to the CFA, Mr. Plunkett served as the New York State 

Legislative Representative for the American Association of Retired 

Persons and the Associate Legislative Director of the New York 

Public Interest Research Group. He received his bachelor’s degree 

from the University of Denver. Fellow Westerner. Welcome, Mr. 

Plunkett. 

Our final witness is Mr. Alex Soto, President of the Independent 

Insurance Agents & Brokers of America. Mr. Soto is also the President of InSource, Inc. of Miami, Florida. Mr. Soto has held numerous positions at the IIABA prior to becoming President, including 

7

Vice President, and the Chairman of the Communications Committee Branding task force. 

Mr. Soto has served as the Chairman and State National Director of the Florida Association of Insurance Agents and the Vice 

Chairman of the Florida Residential Property and Casualty Joint 

Underwriting Association. He has also served as a member of the 

Governor’s Commission on the Florida insurance crisis and the insurance fraud task force. 

Mr. Soto earned a bachelor’s degree in international affairs from 

Florida State University. 

Thank you for being here. I extend to each of you my appreciation for your willingness to participate in the hearing. We look forward to your expert testimony on this important issue. 

Because your written statements will be included in the record, 

I request that you limit your time to 5 minutes. You will note that 

you have a clock, the timer in front of you goes from green when—

until you have 1 minute left; then it goes to yellow and then it 

turns red. 

I don’t want you to cut off your statement because we’re actually 

not overwhelmed with Members here, but if you can just recognize 

that that time, 5-minute time frame, is helpful to us, we’d appreciate that, and I may tap the gavel. And certainly we will have a 

5-minute questioning period for Members of the Committee, as 

well, and I will tap a pencil or gavel just to remind people the time 

is up and we will certainly accommodate further rounds of questioning if Members would like to do that. 

Pursuant to the directive of the Chairman of the Judiciary Committee, I ask the witnesses to please stand and raise your right 

hand to take the oath. 

[Witnesses sworn.] 

Mr. CANNON. Let the record reflect that each of the witnesses answered in the affirmative. You may be seated. 

And, Mr. Sinder, we’d be pleased to hear your testimony now. 

TESTIMONY OF SCOTT A. SINDER, ESQUIRE, COUNCIL, 

COUNCIL OF INSURANCE AGENTS & BROKERS 

Mr. SINDER. Thank you, Mr. Chairman. Thank you both for holding this hearing today and for affording me the opportunity to testify today. And I’d also like to thank Representative Wasserman 

Schultz, both for serving as the Ranking Member today and for 

being an original sponsor of what we believe is an incredibly important piece of legislation. 

My comments will focus strictly on title I of the nonadmitted insurance portion of the legislation. 

I am testifying today on behalf of the Council of Insurance 

Agents & Brokers. The council represents the top 1 percent of insurance agencies and brokerage firms of the United States, who 

collectively place over 90 percent of all commercial property and 

casualty insurance in this country which last year exceeded over 

$200 billion in placements. We are testifying in support of this legislation because it would clean up a very important area of cumbersome regulatory oversight. 

The bill—title I of the bill does not deregulate the regulation of 

nonadmitted insurance; it simply imposes a coherent rule that says 

8

that only one set of rules will govern any single transaction, and 

that set of rules would be the home State where the policyholder 

is based, where the company has its corporate headquarters. 

Nonadmitted insurance, as you noted in your introductory remarks, Mr. Chairman, is insurance that’s purchased primarily by 

companies for noncompulsory coverages. It’s only in areas where 

the State does not require companies or individuals to have insurance coverage. So, for example, worker’s compensation, which is an 

area where States require coverage, is not eligible for primary surplus lines coverage. And the primary insurance covers the corporate treasury, doesn’t cover the property; the property is just the 

trigger on when a claim will be paid out. 

But the real beneficiary of that is not a consumer, is not a claimant; it’s the company itself and its corporate treasury, which otherwise would be solely responsible for covering that loss. 

There are five primary areas of surplus lines regulation among 

the States: the premium tax regulation; there is access to the market, when are you able as a consumer, as a corporate consumer, to 

access the surplus lines coverage; with what carriers you may seek 

to place the surplus lines coverage; licensing requirements; and 

there are other filing and disclosure requirements. Essentially, all 

55 U.S. jurisdictions have a common set of areas in which they regulate, and they all regulate in these five areas. 

The rules themselves in a substantive basis also do not differ in 

any substantive way. The difference is in the details, and let me 

give you an example. There is a disclosure that most States require 

you to give that says that this insurance is being placed with a 

nonadmitted carrier and that coverage is not therefore placed in 

the guaranty fund, and insured by the guaranty fund at the State. 

Almost every State has the identical disclosure. Almost every 

State requires you to separately provide that disclosure on the very 

first page of the policy. Well, if you’re placing a coverage that covers risks in 55 States, that requires 55 disclosures. It’s impossible 

to place all of those on the first page unless that page is very, very 

long. And the House Financial Services Committee, when we testified, I had a stack of documents next to me that was this high that 

represented the tax filings for each of the States in which there 

was a risk that was insured, that was covered by that one single 

policy. 

These are incredibly onerous burdens. It’s not a burden to pay 

the tax, it’s not a burden to give the disclosure, it’s a burden to 

make the filings 55 times, to give 55 disclosures. 

The underlying intent of the legislation and what it actually does 

is, it dictates that only a single set of rules apply and that single 

set of rules are the rules of the State in which the policyholder 

maintains its principal place of business. There are some other provisions there intended to assist the States in disseminating the premium tax revenue so that it encourages the States, for example, to 

adopt an interstate compact so that after the policyholder pays 

through the broker their premium tax to the policyholder State of 

residence. The States would then, behind that, share that premium 

tax revenue as they deem appropriate. But it would place the burden of making that final calculation and putting that mechanism 

in place on the States and not on the brokers of the policyholders. 

9

By doing these things you will remove incredible administrative 

burdens that apply when you try to access the surplus lines market, and in doing so, you will enable brokers and commercial policyholders to try to bridge the gap in the areas in which you have the 

greatest efficiencies and coverage right now, and those are the 

areas of catastrophic exposures that Representative Wasserman 

Schultz noted in her introductory comments. 

Even the National Association of Insurance Commissioners, in 

their testimony before the House Financial Services Committee in 

June of 2005, noted that this was an area in which Federal involvement was necessary and welcome. Commissioner Diane Koken, 

who at the time was the President of the NAIC and was the Commissioner from the State of Pennsylvania, Commonwealth of Pennsylvania noted as follows, and I am quoting her testimony: 

‘‘Federal legislation may be needed at some point to resolve conflicting State laws regulating multistate transactions. The area 

where this will most likely be necessary is surplus lines premium 

tax allocation. Federal legislation might also be one option to consider to enable multistate property risks to access surplus lines 

coverage in their home States under a single policy, subject to a 

single set of requirements.’’

That’s exactly what title I does. It allows multistate placements 

to be governed by a single set of rules. Those in the policyholder’s 

own State, it doesn’t deregulate in any way. Business insurance is 

also noted that this is exactly the types of reforms that the Congress should be seeking to implement to help moderize and rationalize State insurance regulation and all of the stakeholders in this 

debate, the surplus lines cares, the brokers, and even the customers, as you noted, through RIMS, are very much supportive of 

title I of the legislation. 

With that, Mr. Chairman, I would be happy to answer your questions at the conclusion of others’ remarks. 

Mr. CANNON. Thank you, Mr. Sinder. I note that the green light 

is still on. That is a rare occurrence in this business. 

Mr. SINDER. Mr. Chairman, the clock started late, and I didn’t 

feel it was appropriate for me to take advantage of that. 

Mr. CANNON. We’ll still give you credit. 

Mr. SINDER. Thank you, sir. 

[The prepared statement of Mr. Sinder follows:]

PREPARED STATEMENT OF SCOTT A. SINDER

Good morning, Chairman Cannon, Ranking Member Watt and members of the 

Subcommittee. Thank you for the opportunity to testify before you today on behalf 

of the Council of Insurance Agents and Brokers (The Council) and thanks to Representative Wasserman-Schultz for being an original sponsor of the Nonadmitted 

and Reinsurance Reform Act of 2006 (the Reform Act). This Act was approved 

unanimously and on a bipartisan basis by the House Financial Services Committee 

in July. We greatly appreciate the Judiciary Committee’s review of its provisions, 

and hope that you will agree that it is a balanced and important reform, worthy 

of enactment by the House this year. Commercial insurance regulatory modernization is essential if we are to have a dynamic commercial insurance marketplace that 

addresses the needs of commercial insureds for the 21st century. The Council believes the proposed legislation constitutes a significant step toward that end and 

supports it wholeheartedly. We were greatly encouraged by the adoption of the legislation by the House Financial Services Committee, and look forward to working 

with you as you consider the proposal. 

10

The Council represents the nation’s largest, most productive and most profitable 

commercial property and casualty insurance agencies and brokerage firms. Council 

members specialize in a wide range of insurance products and risk management 

services for business, industry, government, and the public. Operating both nationally and internationally, Council members conduct business in more than 3,000 locations, employ more than 120,000 people, and annually place more than 80 percent—

well over $90 billion—of all U.S. insurance products and services protecting business, industry, government and the public at-large, and they administer billions of 

dollars in employee benefits. Since 1913, The Council has worked in the best interests of its members, securing innovative solutions and creating new market opportunities at home and abroad. 

My testimony today will focus on insurance sold by non-admitted insurance carriers, which encompasses ‘‘surplus lines’’ products placed through brokers and ‘‘independently procured insurance’’ in which the coverage is purchased directly by the 

insured without the aid of a broker. I will explain what these types of insurance 

are, describing the Byzantine State regulatory requirements that currently burden 

the surplus lines marketplace, and I will explain that the Reform Act will address 

those issues primarily by dictating that only an insured’s home State’s laws apply 

to such a placement, hugely benefiting surplus lines consumers, the insurance industry and the insurance marketplace as a whole, without sacrificing one iota of 

consumer protection. 

INTRODUCTION

The members of the Council commend you for holding this hearing and considering this important legislation. Broad-based insurance regulatory reform is critical 

for the long-term health of the industry and for maintaining a strong, vibrant insurance sector for the benefit of policyholders. Surplus lines and reinsurance are essential elements of the insurance marketplace and we support efforts to initiate insurance regulatory modernization by focusing on these areas. 

Although the State insurance regulators, through the National Association of Insurance Commissioners (NAIC), have attempted to institute regulatory reforms in 

surplus lines and other areas of insurance without federal involvement, the reality 

is that today’s marketplace demands far more dramatic action than the States alone 

are able to provide. The pace of financial services convergence and globalization are 

far outstripping the pace of reform efforts by State regulators and legislatures. Competition and efficiency in the insurance industry lags behind other financial services 

sectors due to the regulatory inefficiencies and inconsistencies in the State insurance regulatory system, inefficiencies and inconsistencies that must be addressed if 

the insurance sector is going to be able to keep up with the pace of change in the 

rapidly-evolving global marketplace and thereby expand the insurance marketplace 

for the benefit of insurers, producers and consumers. 

The Council regards itself as a pioneer within our industry with respect to regulatory modernization, though reform is a frustratingly long process. We formed our 

first internal committee to address the problems of interstate insurance producer licensing more than 60 years ago. Our efforts were finally rewarded, thanks to the 

leadership of this committee, with the enactment of the NARAB provisions of the 

Gramm-Leach-Bliley Act a few years ago—a first step on the road to insurance regulatory reform. The Reform Act is the next step on the road to modernization. 

I want to emphasize at the outset that we are not advocating de-regulation of the 

non admitted insurance marketplace or any sort of reduction in consumer protections. What we are advocating—as we did with NARAB and producer licensing reform—is streamlining the current burdensome system of regulation, thereby doing 

away with the overlapping, conflicting rules that inhibit the non admitted marketplace and harm consumers. We believe that consolidating regulatory oversight into 

a single State—the insured’s home State—makes eminent good sense, as opposed 

to the current system in which 55 jurisdictions, some with only remote connections 

to the transaction, dictate how—and whether—a transaction is completed. The longterm effects of such reform on the marketplace will ultimately benefit the consumer. 

Easing regulatory burdens—without sacrificing protections—will increase surplus 

lines insurers’ capacity and improve availability of coverage for hard to insure risks 

such as national catastrophes and terrorism. 

I. ‘‘NON ADMITTED’’ INSURANCE PROVIDES AN ALTERNATIVE TO THE TRADITIONAL INSURANCE MARKETPLACE BUT CURRENT REGULATORY REQUIREMENTS ARE PREVENTING THIS MARKETPLACE FROM FULLY REALIZING ITS POTENTIAL. 

Non admitted insurance provides coverage for unique, unusual or very large risks 

for which insurance is unavailable in the admitted market. A surplus lines product 

11

is an insurance product sold by an insurance company that is not admitted to do 

business in the State in which the risk insured under the policy is located. In essence, the insured goes to wherever the insurance company is located to purchase 

the coverage. The insurer may be in another State, or it may be in the United Kingdom, Bermuda or elsewhere. Potential insureds can procure this insurance directly, 

but they generally do so through their insurance brokers. In short, ‘‘surplus lines’’ 

are: (1) insurance products sold by insurance carriers that are not admitted (or licensed) to do business in a State, (2) to sophisticated commercial policyholders located in that State, (3) for insurance coverages that are not available from insurers 

admitted (or licensed) to do business in that State. 

Although surplus lines is considered to be ‘‘unregulated,’’ in reality the surplus 

lines marketplace is subject to extensive State statutory and regulatory requirements that impede the effectiveness of the market and increase costs to surplus 

lines consumers. As described more fully below, updating these regulations and laws 

and encouraging use of alternative insurance markets would help to increase options and decrease costs for insurance consumers. 

Surplus lines insurance is universally recognized as an important component of 

the commercial property and casualty insurance marketplace in all States, and commercial property and casualty business is done increasingly through the surplus 

lines marketplace. Surplus lines products tend to be more efficient and a better fit 

for commercial coverages because they can be tailored to the specific risk profiles 

of insured with specialized needs. This is particularly true during hard markets, like 

the one we have experienced for the last several years, in which high premium rates 

for property and casualty insurance posed serious problems for many mid-sized and 

larger commercial firms. Hard markets cause availability to decrease and the cost 

of coverage to increase. During these periods, insureds—notably sophisticated commercial insureds—are increasingly drawn to the appeal of alternatives to the traditional, regulated marketplace to expand their coverage options and hold down costs. 

Surplus lines insurance is just such an alternative. 

Although the purchase of surplus lines insurance is perfectly legal in all States, 

the regulatory structure governing such coverage is a morass. When surplus lines 

activity is limited to a single State, regulatory issues are minimal. When activity 

encompasses multiple States, however, full regulatory compliance is difficult, if not 

impossible. And I should note that multi-State surplus lines policies are the norm 

rather than the exception because surplus lines coverage is uniquely able to address 

the needs of insureds seeking coverage in more than one State. Thus, the difficulty 

of complying with the inconsistent, sometimes conflicting requirements of multiple 

State laws is a real problem. Simply keeping track of all the requirements can be 

a Herculean task. For example: Maryland and the District of Columbia require a 

monthly ‘‘declaration’’ of surplus lines business placed, but only require payment of 

premium taxes on a semi-annual basis; Virginia, in contrast, requires that a declaration be filed and taxes be paid quarterly; New Jersey has 36 pages of instructions for surplus lines filings, including a page discussing how to number the filings 

and a warning not to file a page out of sequence because that would cause a rejection of the filing and could result in a late filing. 

As a general matter, State surplus lines regulation falls into five categories: (1) 

taxation; (2) declinations; (3) insurer eligibility; (4) regulatory filings; and (5) producer licensing and related issues.

1. Taxes: States have inconsistent and sometimes conflicting approaches regarding 

the allocation of premium taxes, which can lead to double taxation and confusion 

when a surplus lines policy involves multi-State risks.

• Single situs approach—100% of the premium tax is paid to the insured’s State 

of domicile or headquarters State. This approach is imposed by some States 

regardless of what percentage of the premium is associated with risks insured 

in the State. Virginia, for example, utilizes this rule.

• Multi-State approach—Premium tax is paid to multiple States utilizing some 

method of allocation and apportionment based upon the location of the risk(s). 

Because there is no coordination among the States on allocation and apportionment, determination of the amount of tax owed to each State is left to brokers and insureds. If a policy covers property insured in a single situs State 

and in an apportionment State, double taxation also is unavoidable. A majority of the States utilize this basic rule but the manner in which it is implemented (including the allocation formula) can vary wildly.

• No clear requirement—Nearly a dozen States that impose surplus lines premium taxes do not have statutory or regulatory provisions indicating the 

State’s tax allocation method, leaving it up to the insured and the insured’s 

12

broker to determine how to comply with the State law. In such States, determination as to whether any tax should be paid and whether the allocation 

of any such tax is permissible and appropriate is often based on informal 

guidance from State insurance department staff.

In addition to the near-impossibility of determining the correct allocation for surplus lines premium tax in a way that does not risk paying too much or too little 

tax, the differences among the States with respect to tax rates, tax exemptions, taxing authorities, and the timing of tax payments impose huge burdens on surplus 

lines brokers (who are responsible for paying the taxes if they are involved in the 

placement) and on commercial consumers, who must navigate these requirements 

on their own for placements that do not involve a broker and who ultimately bear 

the costs of not only the tax but the administrative costs of compliance in any event. 

For example, State surplus lines premium tax rates range from about 1% to about 

6%. In one State, Kentucky, surplus lines taxes are levied not at the State level but 

at the municipality level. Aon, a member of the Council, reports that in order to 

properly rate taxes in Kentucky, they have to access electronic maps to determine 

the city and county in which a risk is located. There are hundreds of cities and 

counties in the State. Some counties charge a tax in lieu of the city tax, some charge 

it in addition to the city tax, some charge the difference between the city and county 

taxes, and some do not charge a city or county tax. 

The due dates for premium taxes vary even more widely across the States. Surplus lines premium taxes are due:

• annually on a date certain in some States; the dates vary from State to State, 

but include: January 1, January 31, February 15, March 1, March 15, April 

1 and April 16;

• semi-annually in some States; again the dates vary, but include: February 1 

and August 1, February 15 and August 15, and March 1 and September 1;

• quarterly in some States (generally coinciding with the standard fiscal quarters);

• monthly in some States; and

• 60 days after the transaction in some States.

The States also differ with respect to what is subject to the tax, what is exempt 

from the tax, whether governmental entities are taxed, and whether brokers’ fees 

are taxed as part of or separately from the premium tax (if they are taxed at all). 

As you can see, determining the proper surplus lines tax payment for the placement 

of a multi-State policy is a daunting task. 

2. Declinations: Most States require that an attempt be made to place coverage 

with an admitted insurer before turning to the surplus lines market. Some States 

specifically require that one or more licensed insurers decline coverage of a risk before the risk can be placed in the surplus lines market. If it is determined that a 

portion of the risk is available in the admitted market, many States require that 

the admitted market be used for that portion of the risk. 

State declination requirements are inconsistent and conflicting, however, and the 

methods of proving declinations vary tremendously—from specific requirements of 

signed affidavits to vague demonstrations of ‘‘diligent efforts.’’ For example, Ohio requires 5 declinations, but does not require the filing of proof of the declinations. 

New Mexico requires 4 declinations and submission to the insurance department of 

a signed, sworn affidavit. Hawaii does not require declinations but prohibits placement of coverage in the surplus lines market if coverage is available in the admitted 

market. Further, Hawaii does not require filing of diligent search results, but requires brokers to make such information available to inspection without notice by 

the State insurance regulator. In California, prima facie evidence of a diligent 

search is established if the affidavit States that three admitted insurers that write 

the particular line of insurance declined the risk. In Alabama, the requirement is 

much more vague. The broker is required only to demonstrate ‘‘a diligent effort’’ but 

no guidance is provided suggesting what constitutes such an effort. In Connecticut, 

the broker must prove that only the excess over the amount procurable from authorized insurers was placed in the surplus lines market. 

3. Insurer Eligibility: Most States require that a surplus lines insurer be deemed 

‘‘eligible’’ by meeting certain financial criteria or having been designated as ‘‘eligible’’ on a State-maintained list. Although a majority of the States maintain eligibility lists (also called ‘‘white lists’’), in many of the remaining States the surplus 

lines broker is held responsible for determining if the non-admitted insurer meets 

the State’s eligibility criteria. In addition, although the NAIC maintains a list of eligible alien (non-U.S.) surplus lines insurers that is referenced by four States, this 

13

does not seem to have any bearing on the uniformity of the eligible lists in the remaining States. As one would expect, as a result of differing eligibility criteria from 

State to State—and changes in individual States from year to year—the insurers 

eligible to provide surplus lines coverage varies from State to State. This can make 

it exceedingly difficult to locate a surplus lines insurer that is ‘‘eligible’’ in all States 

in which placement of a multi-State policy is sought. 

The flip side of insurer eligibility is also an issue: that is, when multi-State surplus lines coverage is placed with an insurer that is an admitted (not surplus lines) 

insurer licensed in one of the States in which part of the risk is located. This is 

problematic because surplus lines insurance cannot be placed with a licensed insurer. In these situations, more than one policy will have to be used, or the insured 

will have to use a different surplus lines carrier—one that is not admitted, but ‘‘eligible’’ in all States in which the covered risks are located. 

4. Filings: Most States require one or more filings to be made with the State insurance department in connection with surplus lines placements. These may include 

filings of surplus lines insurer annual statements, filings regarding diligent 

searches/declinations, filings detailing surplus lines transactions, and filings of actual policies and other informational materials. Some States that do not require the 

filing of supporting documentation require brokers to maintain such information 

and make it available for inspection by the regulator. 

Like other surplus lines requirements, State filing rules vary widely. Some States 

require signed, sworn affidavits detailing diligent search compliance; some require 

such affidavits to be on legal sized paper, others do not; some States require electronic filings, others require paper; some States have specific forms that must be 

used, others do not; some States require the filing of supporting documentation, 

some do not—although some of those States place the burden on the broker, who 

is required to store the information in case regulatory inspection is required. In addition, although most filings are required to be submitted to the State insurance 

regulator, in at least one State, Kentucky, municipalities also require submission of 

surplus lines materials. There are hundreds of cities and counties in the State and 

each requires a separate quarterly and annual report by the licensee. As with the 

tax situation, this creates a terrible burden on surplus lines insurers and brokers, 

and unnecessarily increases consumer costs. 

Depending on the State in question, filings can be required annually, quarterly, 

monthly or a combination thereof. For example, several States require the filing of 

surplus lines information in the month following the transaction in question: Colorado requires such filings by the 15th of the month; and the District of Columbia 

by the 10th. Other States peg the filing date to the date of the transaction or the 

effective date of the policy: Florida requires filing within 21 days of a transaction; 

Idaho within 30 days; Kansas within 120 days; Missouri requires filing within 30 

days from the policy effective date and New York 15 days from the effective date; 

Illinois and Michigan require semi-annual filings of surplus lines transactions. Although Illinois does not require filing of affidavits, carriers must maintain records 

of at least three declinations from admitted companies for each risk placed in the 

surplus lines market. Some States have different deadlines for different filings. Louisiana, for example, requires quarterly filings of reports of all surplus lines business 

transacted, and ‘‘diligent search’’ affidavits within 30 days of policy placement. 

North Dakota, in contrast, requires a single annual filing of all surplus lines transactions, and allows 60 days for the filing of ‘‘diligent search’’ affidavits. 

In addition, some States treat ‘‘incidental exposures’’—generally relatively small 

surplus lines coverages—differently from more substantial coverages with respect to 

filing requirements. States have differing definitions of what constitutes incidental 

exposures and who has to make required filings for such an exposure: some States 

require the broker to make the filings; others the insured; and some require no filings at all for incidental exposures. 

5. Producer Licensing and Related Issues: In addition to the substantial issues 

outlined above, there are other vexing regulatory issues facing the surplus lines 

marketplace:

• Producer Licensing: All States require resident and non-resident surplus lines 

producers to be licensed, and all States have reciprocal processes in place for 

non-resident licensure. Nevertheless, there remain significant differences 

among some States with respect to producer licensing that can delay the licensure process, particularly for non-residents. For example, most States require that an individual applying for a surplus lines broker license be a licensed property and casualty producer. The States vary, however, as to how 

long the applicant must have held the underlying producer license. In addition, some, but not all, States exempt from licensure producers placing multiVerDate 0ct 09 2002 16:59 Nov 14, 2006 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 G:\WORK\COMM\091906\29968.000 HJUD1 PsN: DOUGA
14

State coverage where part of the risk is located in the insured’s home State. 

In States without such an exemption, the laws require a producer to be licensed even for such incidental risks.

• Sophisticated Commercial Policyholders: Some States exempt ‘‘industrial insureds’’ from the diligent search, disclosure, and/or filing requirements. The 

definition varies among the States, but generally industrial insureds are analogous to the concept of sophisticated commercial insureds. They are required 

to have a full time risk manager, minimum premium requirements for selected lines of coverage, and a minimum number of employees. If an insured 

meets a State’s criteria, the insured’s surplus lines transaction is exempt from 

the surplus lines requirements, as provided for by the State.

• Automatic Export: A number of States allow certain risks to be placed directly 

in the surplus lines market. This is called ‘‘automatic export’’ because no diligent search is required before the risk is exported from the admitted market 

to the surplus lines market. As with every other surplus lines requirement, 

however, the States are not uniform in their designation of the risks eligible 

for automatic export.

• Courtesy Filings: A courtesy filing is the payment of surplus lines tax in a 

State by a surplus lines broker who was not involved in the original procurement of the policy. Courtesy filings are helpful when a broker places a multiState filing that covers an incidental risk in a State in which the broker is 

not licensed. The problem is that most States either prohibit courtesy filings 

or are silent as to whether they will be accepted. This uncertainty essentially 

requires surplus lines producers to be licensed even in States where they 

would otherwise be exempt. 

II. CONGRESSIONAL ACTION IS NEEDED TO ADDRESS THE UNNECESSARILY BURDENSOME

AND OVERLAPPING STATE REGULATORY REQUIREMENTS IMPOSED ON THE SURPLUS

LINES MARKETPLACE. THE REFORM ACT ACHIEVES THAT GOAL WITHOUT IN ANY WAY

DIMINISHING CONSUMER PROTECTIONS OR REGULATORY EFFECTIVENESS. 

The current surplus lines regulatory structure is not working. The overlapping, 

redundant, sometimes inconsistent State regulatory requirements described above 

fail to recognize current market realities—the great majority of surplus lines policies are placed on a multi-State basis and purchased by sophisticated commercial 

insureds who have unique risks that are not readily covered in the admitted market. The regulatory roadblocks erected by some States do nothing to improve the 

availability or affordability of insurance, nor do they protect surplus lines consumers. Indeed, we believe the current system causes significant disruptions in the 

surplus lines marketplace and increases costs for consumers. 

The proposed Reform Act would fix the system. The legislation would streamline 

regulation and ease regulatory burdens, but without sacrificing consumer protections or a financially sound surplus lines marketplace, which is the most important 

consumer protection of all. The proposed legislation would provide an effective resolution to the current regulatory morass by focusing on the home State of the insured: all premium taxes would be payable to the insured’s home State and surplus 

lines insurance transactions would be governed by the rules of the insured’s home 

State. 

This home State focus accomplishes several things:

• Home State regulation ensures that the insured is protected by the laws of 

its home State and the regulator with the greatest interest in its welfare. It 

is common sense to assume that a regulator will spend more time and effort 

on the needs of in-State constituents rather than non-residents with little or 

no stake in the State or its economy.

• Home State regulation is logical because the risks covered in the non-admitted market are generally commercial lines and are not compulsory. We are 

not talking about auto or homeowners or individual life coverage. These are 

unique risks that the insured is not required to protect with insurance but 

chooses to do so to protect the corporate treasury. The corporate treasury, in 

turn, is not located in the multiple States where the insured has risks, but 

in the State in which the insured itself is located—generally its state of domicile.

• Home State regulation completely does away with the inconsistent, redundant, burdensome obligations that the current system imposes in connection 

with multi-State placements. All the regulatory issues described above—

taxes, filings, diligent searches, insurer eligibility requirements, producer liVerDate 0ct 09 2002 16:59 Nov 14, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 G:\WORK\COMM\091906\29968.000 HJUD1 PsN: DOUGA
15

censing and more—will be governed by the rules of a single State rather than 

being subject to multiple State rules.

On one level, the effect of this change is significant—it will eliminate mountains 

of red-tape and administrative costs, ultimately saving consumers time and money, 

and expanding the availability of coverage for unusual or extreme risks such as natural catastrophes and terrorism. On another level, however, the change will be 

minimal. The Reform Act does not alter the basic elements of State surplus lines 

regulation. Indeed, all of the substantive provisions in the proposed legislation can 

be found in current State laws and regulations. The beauty of the proposal is that 

it enables surplus lines producers to look to a single standard in a single State for 

each transaction. Although the standard may differ from transaction to transaction 

depending upon the home State of the insured, each individual transaction will have 

a single standard, rather than being subject to the standards of 55 different jurisdictions. Clearly, this will make multi-State compliance significantly less daunting. 

The Reform Act would fix the current tax allocation problems by establishing a 

clear requirement that all surplus lines premium taxes be paid to the insured’s 

home State. Surplus lines producers would pay the full amount of premium tax 

owed on an insurance transaction to the insured’s home State. In addition to the 

tax, the home State could require the filing of an allocation report denoting the location of the covered risks. The States are then free to allocate the premium tax 

among themselves as they so determine. The contrast in approaches—from the convoluted, burdensome approach of the States to the simple straightforward approach 

in the Reform Act could hardly be greater. 

Finally, the exemption for sophisticated commercial policyholders is a victory for 

common sense. The State regulators, in many of their model rules and regulations, 

recognize that streamlined processes make sense for sophisticated commercial policyholders, who have a greater understanding of their needs and the insurance marketplace than individual consumers. In addition, sophisticated commercial policyholders are more likely to have unique or large risks for which surplus lines coverage is necessary. For these reasons, it only makes sense to allow such policyholders to access the surplus lines market without jumping through all the regulatory hoops that are currently imposed by some States. 

The need for surplus lines regulatory reform is widely agreed upon by all stakeholder, and the Reform Act enjoys broad-based support from consumers (RIMS???), 

the insurance industry, and many Members of Congress, as evidenced by the House 

Financial Services Committee’s unanimous passage of the bill in July. The bill has 

seen no opposition. Indeed, the State insurance regulators have worked with congressional staff to address technical issues, but did not object substantively to the 

proposal. 

CONCLUSION

In closing, I would once again like to thank you for taking on this important, if 

unglamorous, issue. As my testimony has demonstrated, reform of the surplus lines 

insurance regulatory system is badly needed to maintain a competitive marketplace 

and, more importantly, to enable insurers and producers to provide insurance consumers with the coverages they need to protect themselves and their businesses 

from the risks inherent in today’s world. The passage of the Act was unanimous and 

bipartisan in the House Financial Services Committee, and we look forward to 

House passage very soon. As I said at the outset, the Reform Act will get the job 

done and the Council looks forward to working with you to get it enacted into law.

Mr. CANNON. Ms. Laws. 

TESTIMONY OF TRACEY LAWS, ESQUIRE, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, REINSURANCE ASSOCIATION OF AMERICA 

Ms. LAWS. Good morning. I am pleased to testify today on behalf 

of the RAA in support of H.R. 5637. My testimony will highlight 

the key provisions of the legislation that help to modernize and 

make reinsurance regulation more efficient, but first I will briefly 

discuss the role that reinsurance plays in the marketplace and how 

reinsurance is currently regulated. 

Reinsurance is a transaction, as you noted, by which the reinsurer indemnifies, for a premium, the insurer for all or part of the 

16

loss that the insurer may sustain under an insurance policy. Described as ‘‘insurance for insurance companies,’’ reinsurance provides reimbursement for the insurer for losses that are covered by 

a reinsurance agreement. 

Reinsurance agreements are between sophisticated parties. 

There is no consumer element to the reinsurance transaction. Reinsurance is very much a global business; encouraging the participation of reinsurers worldwide is essential to providing much-needed 

capacity in the United States. 

The global reinsurance industry has significantly responded to 

virtually every major U.S. catastrophe over the past century. By 

way of example, it is expected that 60 percent of the losses from 

the 2005 hurricanes will be borne by reinsurers worldwide. 

Reinsurance and U.S.-based reinsurers are regulated by the 

States. The States utilize two methods of regulation, direct and indirect. Direct regulation is imposed on reinsurers that ought to be 

licensed in a U.S. State. Reinsurers that are licensed in at least 

one State are subject to the full spectrum of laws and regulations 

to which a primary insurer is subject, including regulation for financial reporting and solvency. 

The exception to this general rule is rates and contracts. Because 

reinsurance transactions involve sophisticated parties, there is no 

regulation of rates or, for the most part, the reinsurance agreement. 

There is also indirect regulation of the transactions where a 

State’s credit for reinsurance laws. Credit for reinsurance is the 

cornerstone of reinsurance regulation. If an insurer complies with 

its domiciliary State’s credit for reinsurance laws, it may reflect the 

effect of the reinsurance transaction as an asset or as a reduction 

in its liabilities on its balance sheet. 

H.R. 5637 helps to modernize reinsurance regulation in several 

ways. First, section 201 eliminates the extra territorial application 

of State laws. As a result of the current 50-State system, significant differences have emerged among the States with respect to reinsurance regulatory requirements. 

The NAIC and State regulators are to be applauded for their efforts toward greater uniformity by the adoption of model laws and 

regulations and the creation of a system of accreditation for States 

to meet minimum standards of regulation. Unfortunately, this has 

not prevented certain States from pursuing varying and sometimes 

inconsistent regulatory approaches to reinsurance. This has resulted in approximately 14 States applying the laws on an 

extraterritorial basis. This means that these States apply their 

laws to not only insurers that are some domiciled in their State, 

but also to insurers that are domiciled elsewhere but licensed in 

that State. This is the case even if the reinsurance contract at 

issue does not cover any risks associated with that State. 

Because reinsurance contracts are not written on a State-byState basis and typically cover risks across many States, it is inefficient and unnecessary to require the contracting parties to meet 

the requirements of multiple jurisdictions for a single reinsurance 

transaction. Accordingly, the RAA strongly supports section 201 

which preempts the extraterritorial application of State law and 

makes clear the types of laws that States cannot apply on an 

17

extraterritorial basis, including laws involving critical elements of 

the reinsurance agreement. 

Second, section 201 also streamlines the requirements pursuant 

to which an insurer may take credit for reinsurance. Currently, 

some States refuse to accept the credit for reinsurance determinations of an insurer’s domiciliary regulator, causing the insurer’s financial statement to vary from State to State. The act addresses 

this problem by requiring that no other State may deny credit for 

reinsurance that is recognized by the insurer’s domiciliary regulator. 

Third, section 202 provides that the reinsurer’s State of domicile 

shall be solely responsible for regulating the reinsurer’s solvency so 

long as the domiciliary State is an NAIC-accredited State or a 

State that has solvency regulations substantially similar to the requirements necessary for NAIC accreditation. This provision keeps 

strong insurance regulation intact, but eliminates duplicative regulation. The home State regulator will still be subject to the stringent NAIC accreditation standards, thereby protecting against a 

race to the bottom. The fundamental elements of reinsurance solvency regulation that are required by all States will remain in 

place. 

Finally, H.R. 5637 ensures that all States have access to financial information of a U.S.-licensed reinsurer, but it relieves the reinsurer from filing supplemental and, at times, inconsistent financial information with various States. Redundant and burdensome 

regulation may affect where the reinsurance market chooses to deploy its capital and may increase the transaction costs for insurers 

and, ultimately, consumers. 

The RAA applauds and supports the principles set forth in this 

act, which serve to streamline reinsurance regulation. Thank you. 

Mr. CANNON. Thank you, Ms. Laws. 

[The prepared statement of Ms. Laws follows:]

PREPARED STATEMENT OF TRACEY LAWS

My name is Tracey Laws and I am Senior Vice President and General Counsel 

of the Reinsurance Association of America. It is an honor to appear before you on 

behalf of the RAA. The RAA is a national trade association representing property 

and casualty organizations that specialize in reinsurance. The RAA membership is 

diverse, including U.S. companies and U.S. subsidiaries of foreign companies. Together, RAA members underwrite nearly 2/3 of the gross reinsurance coverage provided by U.S. property and casualty reinsurers and affiliates. 

I am pleased to testify today on ‘‘H.R. 5637, legislation to streamline the regulation of nonadmitted insurance and reinsurance.’’ The RAA supports the principles 

set forth in the legislation and will highlight the key provisions that will help modernize and make reinsurance regulation more efficient. My testimony will address: 

1) the reinsurance role in the marketplace, 2) U.S. reinsurance regulation, 3) the 

extra-territorial application of state law provision, 4) the solvency regulation provision and 5) the credit for reinsurance provision. 

REINSURANCE ROLE IN THE MARKETPLACE: 

Reinsurance is a transaction by which one insurance company indemnifies, for a 

premium, another insurance company against all or part of the loss that it may sustain under its policies of insurance. The insurance company purchasing the reinsurance is known as the ceding insurer; the company selling reinsurance is known as 

the assuming insurer, or, more simply, the reinsurer. Described as insurance for insurance companies, reinsurance provides reimbursement to the ceding insurer for 

losses covered in the reinsurance agreement. Reinsurance is a contract between sophisticated parties; there is no consumer element to the reinsurance transaction. 

The fundamental objective of insurance, to spread risk so that no single entity finds 

18

itself saddled with a financial burden beyond its ability to pay, is enhanced by reinsurance. Reinsurance is a key component of the insurance marketplace, reducing volatility 

experienced by insurers, and improving insurers’ financial performance and security. It is widely recognized that reinsurance performs at least four primary functions in the marketplace: to limit liability on specific risks; to stabilize loss experience; to protect against catastrophes; and to increase insurance capacity. Although 

considerably smaller than the U.S. insurance industry in premiums and capital, the 

global reinsurance industry has significantly responded to virtually every major U.S. 

catastrophe over the past century. For natural disasters typically one-third to onehalf of the insured losses are passed on to reinsurers; in the events of September 

11, 2001, two-thirds of the losses were absorbed by the global reinsurance industry. 

U.S. REINSURANCE REGULATION—DIRECT AND INDIRECT

Like insurance, reinsurance and U.S. based reinsurers are regulated by the states 

not the Federal government. U.S. states employ two methods of reinsurance regulation, both direct and indirect regulation. 

Direct regulation is imposed on those reinsurers that opt to be licensed in the U.S. 

Reinsurers licensed in at least one U.S. jurisdiction are subject to the full spectrum 

of laws and regulations to which a primary insurer is subject, including regulation 

for financial reporting and solvency. The exceptions to this general rule are rates 

and contracts. Because reinsurance is conducted between sophisticated parties of essentially equal bargaining power, regulators do not impose regulatory requirements 

relating to the rates that can be charged for reinsurance or, for the most part, the 

forms that can be used to evidence the contractual terms. 

Recognizing that an insurance marketplace as large as that found in the U.S. is 

in need of a substantial amount of reinsurance capacity, U.S. regulators permit both 

U.S. and non-U.S. reinsurers to assume business on risks located in the U.S. 

The states have developed a system of indirect regulation where the reinsurance 

transaction is regulated through the credit for reinsurance mechanism. Credit for 

reinsurance is the financial statement accounting effect given to a ceding insurer 

if cessions are ceded in accordance with prescribed state criteria. If the criteria are 

met, the ceding insurer may record as an asset or a reduction in insurance liabilities 

for the effect of the reinsurance transaction. The fundamental concept underlying 

the U.S. regulatory view is that a reinsurer must either be licensed in a U.S. state 

and subject to a full spectrum of reinsurance regulation or, in lieu of regulation, provide security to ensure the payment of the reinsurer’s obligations to ceding insurers. 

Credit for reinsurance is the cornerstone of reinsurance regulation. 

EXTRATERRITORIAL APPLICATION OF LAW

The RAA applauds Representatives Brown-Waite and Moore for addressing a key 

improvement in the efficiency of regulation of reinsurers: the elimination of the 

extraterritorial application of state laws. As a result of our 50-state system of regulation, significant differences have emerged among the states with respect to reinsurance regulatory requirements. The NAIC and state regulators are to be applauded for their efforts toward greater uniformity in the adoption of model laws 

and regulations and the creation of a system of accreditation for states to meet minimum standards for regulation. Unfortunately, this has not prevented states from 

pursuing varying and sometimes inconsistent regulatory approaches to reinsurance. 

One of the best examples of this phenomenon is the extraterritorial application of 

state laws. 

Approximately 14 states apply their laws on an extraterritorial basis, meaning 

that the state law not only applies to insurers domiciled in that state but to insurers 

domiciled in other states if the extraterritorial state has granted a license to the 

insurer. For example, if a reinsurer domiciled in Ohio were entering into a contract 

with an insurance company domiciled in Massachusetts and either or both were licensed in other states, the reinsurer and insurer would abide by the Ohio and Massachusetts reinsurance requirements, but also to the reinsurance requirements of all 

other states that apply their laws on an extraterritorial basis. This is the case even 

if the contract between the reinsurer and ceding insurer does not have any risks 

associated with that particular state. Because reinsurance contracts are customarily 

written on a multi-state basis, it is inefficient and unnecessary to require the contracting parties to meet the legal regulatory and peculiarities of multiple jurisdictions for a single reinsurance transaction. 

The RAA strongly supports the principle set forth in Title II, Section 201 that addresses these inefficiencies. This provision retains the ability of state insurance regulators to regulate their domestic insurers and reinsurers and the reinsurance 

19

transactions of their domestic insurance companies. The Act simply preempts the 

extraterritorial application of state law and articulates the types of laws that states 

cannot apply on an extraterritorial basis, including critical elements of the reinsurance transaction, such as dispute resolution, governing law and requiring specific 

contract provisions. This provision will remove the burdensome and redundant requirements on the reinsurance transaction and will greatly improve efficiency. 

CREDIT FOR REINSURANCE

Section 201 of the Act also assists in streamlining the requirements pursuant to 

which a ceding insurer may take credit for reinsurance on its financial statements. 

The NAIC’S accreditation system and model credit for reinsurance law seek to 

achieve uniformity in the ceding insurer’s financial statement. However, some states 

refuse to accept the ceding insurer’s domiciliary regulator’s findings, causing a 

ceding insurer’s financial statement to vary from state to state. The Act addresses 

this problem by requiring that no other state may deny credit for reinsurance recognized by the ceding insurer’s domiciliary regulator. 

REINSURANCE SOLVENCY REGULATION

The RAA supports the principles set forth in Title II, Section 202 that provide 

that the state of domicile of a reinsurer shall be solely responsible for regulating 

the financial solvency of the reinsurer if the state is an NAIC accredited state or 

a state that has financial solvency regulations substantially similar to the requirements necessary for NAIC accreditation. The financial integrity and solvency of a 

reinsurer is a key factor in determining whether a ceding insurer should receive 

credit for reinsurance on its’ financial statement. Redundant and burdensome solvency regulation may affect where the reinsurance market deploys its capital and 

increase the transaction costs for insurers, and ultimately consumers. The Act eliminates duplicative solvency regulation of reinsurers by placing sole responsibility for 

solvency regulation on the reinsurers home state regulator. The Act protects against 

a ‘‘race to the bottom’’ for solvency regulation by requiring that the home state meet 

the accreditation standards set out by the NAIC. 

Reinsurance is a global marketplace. Allowing the state of domicile of the reinsurance company to be the single regulator for solvency will help streamline reinsurance regulation significantly and will add to the value of a U.S. license. The home 

state of the reinsurer will still be subject to the stringent NAIC accreditation standards for solvency regulation. Because the NAIC requires that accreditation laws be 

‘‘substantially similar,’’ all accredited states have the same basic solvency protections and laws in place even if they may differ in some of the details. 

The elements of reinsurance solvency regulation that all states require will stay 

in place under the proposed legislation and include: conservative statutory accounting rules, minimum reserve standards, annual actuarial opinion requirements, detailed financial reporting on the annual statement and quarterly statement blanks, 

annual certified public accounting audit reports, minimum capital requirements per 

the NAIC risk-based capital formula, state investment laws that provide minimum 

diversification and limits on investments, holding company laws for extraordinary 

dividends and intergroup transactions, and many other model laws that are required for accreditation. The NAIC accreditation system will still require the home 

state regulator to demonstrate that the state effectively enforces its solvency regulation standards. This includes how well the state regulator performs desk audits and 

examinations, whether they take timely action when needed and whether they have 

qualified staff and other review requirements. 

Strong reinsurance solvency regulation is critical to the health of the insurance 

marketplace. This legislation keeps reinsurance solvency regulation intact. It does 

relieve the reinsurer from having to file supplemental and at times inconsistent financial information in as many as 50 states. Yet, it provides all states with access 

to financial information on a U.S. licensed reinsurer. This streamlined regulation 

will allow U.S. reinsurers to compete more effectively without compromising solvency regulation.

Mr. CANNON. Mr. Plunkett, you’re recognized for 5 minutes. 

TESTIMONY OF TRAVIS PLUNKETT, LEGISLATIVE DIRECTOR, 

CONSUMER FEDERATION OF AMERICA 

Mr. PLUNKETT. Good morning, Chairman Cannon and Representative Wasserman Schultz. My name is Travis Plunkett, and I am 

20

the Legislative Director of the Consumer Federation of America. I 

applaud you for holding this hearing today. 

CFA is very concerned about the effect of the Nonadmitted and 

Reinsurance Reform Act of 2006 on the insurance market and consumers. In an effort to make regulation of nonadmitted insurance 

lines and reinsurance more uniform, a goal that CFA supports if 

responsible regulation is not sacrificed, the bill would establish a 

feeble and complex oversight regime. It will likely provoke States 

to compete against each other to weaken oversight in some cases. 

It would also leave consumers who have been harmed by insured 

companies vulnerable in the event of a company’s insolvency. 

In addition, there are some vague, contradictory and incomplete 

requirements in the bill that do raise legal and, as I just mentioned, policy questions. I’ll touch on four specific concerns. 

First, contrary to the stated intent of legislation, section 107 appears to open the door to the increased sale of poorly regulated, 

nonadmitted personal lines of insurance like auto insurance to individual consumers, not just commercial insurance sold to sophisticated corporations. 

Moreover, the bill does not appear to exclude nonadmitted personal lines of insurance from its provisions. If this bill fosters a 

sharp growth in underregulated nonadmitted insurance, it could 

seriously harm consumers who buy this insurance. 

Second, great regulatory confusion and ineptitude would likely 

result when the State of domicile for an insured party regulates all 

parts of that entity’s insurance transaction. For example, Michigan 

regulators overseeing General Motors’ insurance transactions probably know very little about dealing with earthquake risk in California or hurricane risk in Florida in pricing insurance policies or 

in handling claims resulting from such weather events if GM’s cars 

are damaged. 

Moreover, since Michigan is a no-fault State for auto insurance 

regulators, they would likely know very little about how tort laws 

in other States and how pricing and claims should be handled. How 

can 50 regulators each become experts in the laws of 50 States? 

This is regulatory supercomplexity, not simplification. 

Third, the bill is based—and this is a significant concern for us—

it’s based on an incorrect assumption that the domicile State of an 

insured party or a reinsurance company will provide adequate 

oversight; and there are a number of ways that the bill handcuffs 

States that would have a legitimate interest in regulating both. 

For example, if residents have been harmed by clearly abusive 

insurance practices. Suppose a nonadmitted insurer for a company 

like GM acts in bad faith and refuses to pay legitimate claims regarding unsafe automobiles that harm drivers in other States. 

These States would have no ability to investigate or sanction that 

insurance company, while the State of Michigan, with limited resources and very little in-State impact, would have much less of an 

incentive to get to the bottom of the problem. 

Moreover, a home-State regulator—this is the downside to homeState regulation. A home-State regulator has the greatest interest 

in pleasing a large insured party, or in the case of reinsurance, a 

large insurance company and employer based in that State. This 

could lead the regulator to lower insurance standards that protect 

21

residents and consumers who use that company’s products and 

services across the country. 

The bill also specifically prohibits States from requiring that insurers seek coverage from admitted carriers before turning to nonadmitted insurers. It is not in the public interest to foster the 

growth of a segment of the market that does not have to meet 

State standards unless admitted insurance is truly not available. 

For example, guaranty associations in all States do not cover 

claims for surplus lines insurers from other States when an insurer 

or insured entity becomes insolvent. This may be a minor problem 

for the defunct policyholder and defunct insurer, but it’s certainly 

a major problem for the people that the policyholder may have injured who are left without guaranty association protection. 

Final concern—and I mention this in greater depth in our testimony—there’s another incorrect assumption; and the investigations 

by New York Attorney General Eliot Spitzer show this to be true. 

Large sophisticated corporations were victimized by insurers and 

brokers through bid-rigging, kickbacks, hidden commissions and 

blatant conflicts of interests. So it’s simply not true that large, sophisticated consumers don’t need some of the protections that this 

law would do away with. 

In closing, let me say this: It’s very clear that the drafters of this 

proposal have not thoroughly considered the harmful effects the bill 

could have on the insurance market, those who buy products or 

services from companies that purchase surplus lines or reinsurance, or even on State revenues, not to mention certain legal concerns. The bill should require the execution of a thorough GAO 

study on all of these issues as opposed to the incomplete study 

mandated in section 106 before any of these provisions are enacted. 

Thank you very much. 

Mr. CANNON. Thank you, Mr. Plunkett. 

[The prepared statement of Mr. Plunkett follows:]

22

PREPARED STATEMENT OF TRAVIS PLUNKETT


TP0001.eps
23


TP0002.eps
24


TP0003.eps
25


TP0004.eps
26


TP0005.eps
27


TP0006.eps
28


TP0007.eps
29

Mr. CANNON. Mr. Soto. 

TESTIMONY OF ALEX SOTO, PRESIDENT, INDEPENDENT 

INSURANCE AGENTS & BROKERS OF AMERICA 

Mr. SOTO. Thank you. Good morning, Chairman Cannon, and 

good morning, Congresswoman Wasserman Schultz. It’s nice to see 

you again. 

Indeed, my name is Alex Soto, and I am the President of the 

Independent Insurance Agents & Brokers of America. We are the 

largest and the oldest trade organization representing independent 

agents. We have over 300,000 agents, brokers and their employees 

in every State of the Nation, in every big city and every small 

town; and what makes us unique is, as independent agents, we are 

not employees of any single company, but rather we represent multiple companies, and through that methodology, we try to do the 

very best for our clients in selecting coverage for them. 

How I earn my living is as an independent agent in south Florida. I am President of InSource Inc., which is indeed one of the 

largest privately held insurance agencies in south Florida. We have 

our main office in Miami, and we have an office in Broward County. 

What we do is, we sell a broad array of insurance products to individuals, as well as commercial clients. And we transact business 

primarily in the State of Florida, but we also transact business—

when our clients have locations in other States, we transact business in other States. And consequently, we do have a great deal of 

out-of-State licenses. 

I personally hold licenses, nonresident licenses, in about 10 to 15 

States and, collectively, the agents in my office hold more than 25 

licenses. One of my partners has a surplus lines license, which allows us to provide coverage for unique and hard-to-place risk, predominantly in commercial lines. Congresswoman Wasserman 

Schultz was correct that, unfortunately, we are having to use this 

mechanism more in the State of Florida because of the crisis that 

we have in windstorm property coverage. 

We also work very closely with a number of surplus lines brokers 

in order to expand and broaden our market access and better serve 

our clients—which is what we are all about. 

The challenges of the current State-by-State system has already 

been mentioned. Each State regulation is different. Surplus lines licenses must be held in every State that you do business. Some 

States require—some States require due diligence steps, and other 

States do not. Some States require a paper trail; others, you can 

apply to them electronically. The surplus lines taxes vary from 

State to State and the allocation methodology, and the interpretation by them is quite confusing. 

All of these spell out inefficiency, more cost and less time that 

we can take to serve our clients and advise them as to what they 

should secure in terms of coverage. The legislation before us solves 

many of the problems. Thus, our trade association, the ‘‘Big I,’’ support H.R. 5637. 

The legislation would make the insured home State, as was mentioned before, to be the source of regulation. For sophisticated consumers it waives the requirement of due diligence: The payment of 

30

taxes to one location, and then, by compact, the different States organize themselves to divvy that up. 

So we support the specific reforms of this bill RIMS supported, 

that are the users of this methodology predominantly. We also, 

more importantly, support the approach that the bill takes, which 

is basically legislation to preserve the State system of insurance 

regulation. 

I happen to believe that regulation closer to home is the best regulation. The best role of the Federal Government, in our opinion, 

is pragmatic, pragmatic reform that utilizes targeted Federal action to improve State regulation. 

It is our hope that the next step that is taken by the Congress 

is modernization and reformation of the producer and insurance 

company licensing. 

Thank you, Mr. Chairman. 

Mr. CANNON. Thank you Mr. Soto. 

[The prepared statement of Mr. Soto follows:]

PREPARED STATEMENT OF ALEX SOTO

Good morning Chairman Cannon, Ranking Member Watt, and Members of the 

Subcommittee. My name is Alex Soto, and I am pleased to be here today on behalf 

of the Independent Insurance Agents & Brokers of America (IIABA) and to provide 

my association’s perspective on the surplus lines/reinsurance legislation that is the 

focus of this hearing. I am the current President of IIABA, and I am also President 

of InSource, which is a company that was formed from a merger of three of Miami’s 

oldest insurance agencies. Through our practice specialties, InSource has had and 

continues to have a long-term and total commitment to our South Florida community. 

IIABA is the nation’s oldest and largest trade association of independent insurance agents and brokers, and we represent a nationwide network of more than 

300,000 agents, brokers, and employees. IIABA represents independent insurance 

agents and brokers who present consumers with a choice of policy options from a 

variety of different insurance companies. These small, medium, and large businesses 

offer all lines of insurance—property, casualty, life, health, employee benefit plans, 

and retirement products. 

IIABA COMMENDS H.R. 5637 AS THE RIGHT APPROACH

Chairman Cannon and Ranking Member Watt, I want to thank you for your attention to this matter, which is important to members of the IIABA. I also want 

to commend the House Financial Services Committee for passing this legislation 

through a bipartisan voice vote. Special recognition should be extended to Congresswoman Ginny Brown-Waite of Florida, Congressman Dennis Moore of Kansas, and 

Capital Markets Subcommittee Chairman Richard Baker who drafted this legislation. We believe that overall the bill is the right approach to modernize insurance 

regulation, and we are happy to support it. We look forward to working with this 

Subcommittee and Committee during your review of the legislation. 

In particular, this legislation preserves the state system of insurance regulation 

while achieving much-needed uniformity. Virtually every sector—insurers, producers, consumers and even regulators themselves—has voiced significant concerns 

with the inefficient patchwork of different laws and regulations that characterize 

the current regulatory system. Although we also believe that the current state-based 

insurance regulatory system is in need of greater efficiency and uniformity, IIABA 

opposes constructing a completely new regulatory scheme at the federal level 

through mandatory or optional federal regulation. A new, federal insurance regulatory system would dismantle the inherent strengths of state regulation, namely 

diversity, geographical uniqueness, innovation and responsiveness to consumers. 

IIABA believes the best use of federal legislative authority is to help make the 

existing state system more efficient and uniform through a mix of national standards with state enforcement and uniformity achieved through both incentives and 

preemption of certain state laws. This approach offers the best solution because it 

will promote more uniform standards and streamlined procedures from state to 

state; protect consumers and enhance marketplace responsiveness; and emphasize 

that oversight can best be met by improving the state-based system. The result for 

31

all stakeholders would be a more efficient, modern and workable system of state 

regulation. 

The Nonadmitted and Reinsurance Reform Act of 2006 singles out two areas—

surplus lines regulation and reinsurance supervision—where there is general consensus for early action. We support this step-by-step approach to achieve reform. 

While IIABA is eager also to have Congress address the need for uniformity and 

streamlining in producer licensing as well as other reform areas, we strongly support the general approach taken in H.R. 5637. 

ROLE OF AGENTS & BROKERS IN THE NONADMITTED INSURANCE MARKET

Nonadmitted, or surplus lines, insurance provides coverage for unique or hard to 

place property and casualty risks when unavailable or unaffordable in the traditional, licensed or ‘‘admitted’’ insurance market. The role of independent insurance 

agents and brokers in the nonadmitted market is just as important as their role in 

the overall insurance market. Independent insurance agents and brokers invest substantial effort to identify policyholders’ wants and needs; understand the complex 

terms of policies available; assess the products available and present choices to the 

consumer about coverage, price, service, and financial strength of carriers; and remain available to assist with any questions and changes as needed. 

IIABA believes that continued state supervision of this market is necessary to ensure that the nonadmitted marketplace continues to function as the ‘‘safety-valve’’ 

for the overall insurance market for hard-to-place risks. Nevertheless, the current 

state-based regulatory scheme is burdened by inefficiencies that disrupt the non-admitted marketplace with respect to the allocation and remittance of premium taxes, 

licensing of nonresident surplus lines brokers, and duplicative regulation of the nonadmitted market generally. 

NEED FOR UNIFORMITY IN PREMIUM TAX ALLOCATION AND REMITTANCE

Premium tax allocation and remittance schedules vary significantly from state to 

state. Surplus lines brokers are responsible for determining which state’s allocation 

formula governs a transaction involving a multi-state surplus lines risk. State surplus lines laws require that a licensed surplus lines agent or broker placing coverage remit taxes to the state on the portion of premium allocated to that state. 

State laws do not, however, contain mechanisms for the remittance of premium 

taxes to other states. Moreover, nonresident surplus lines agents and brokers have 

no guidance on which state surplus lines laws govern multi-state surplus lines 

transactions. As a result of the lack of a universally applicable allocation formula 

for multi-state risks and sufficient guidance on which state’s laws govern a multistate surplus lines transaction, surplus lines agents and brokers attempting to comply with lawful requirements of the various states often are caught between conflicting rules and claims on premium tax revenues. The confusion and conflicts result in inefficiencies and expenses which ultimately affect policyholders in addition 

to the producing agents and brokers. 

IIABA supports the Nonadmitted Insurance and Reinsurance Reform Act of 2006 

because it eliminates this confusion. Under the bill, a surplus licenses licensee (the 

broker accessing the nonadmitted market) need only remit premium taxes to the 

home state of the insured, and if requested, a report of the location and insured values of properties and risks by states covered under the policy being placed. The 

states then determine how the taxes will be allocated, either by compact or by other 

procedures developed by the states, and in each case using the allocation information provided by the surplus lines broker. 

FIRST STEP IN UNIFORMITY IN PRODUCER LICENSING

Surplus lines agents and brokers engaging in transactions that involve multi-state 

risks currently must obtain and maintain general agent or broker licenses and surplus lines licenses in many if not every jurisdiction in which the exposures are located. Some states require that these agents and brokers obtain and maintain corporate licenses as well. This means that a surplus lines broker or agent could potentially be required to obtain and maintain up to 100 separate licenses in order to 

handle a single multi-state surplus lines transaction. Moreover, each state has different licensing requirements and renewal schedules. These duplicative licensing requirements cause administrative burdens which impede the ability of agents and 

brokers to effectively and efficiently service their customers’ policies. Perhaps most 

importantly, these onerous licensing requirements create expenses which ultimately 

impact policyholders. The Nonadmitted Insurance and Reinsurance Reform Act alleviates the burdens of duplicative licensing requirements by relying on the insured’s 

home state for licensing and encouraging states to participate in a national insurVerDate 0ct 09 2002 16:59 Nov 14, 2006 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 G:\WORK\COMM\091906\29968.000 HJUD1 PsN: DOUGA
32

ance producer database without diminishing the quality and expertise of the surplus 

lines insurance distribution channel. 

UNIFORMITY IN SURPLUS LINES REGULATION

Surplus lines agents and brokers must typically comply with the laws and regulations of multiple states with respect to coverage for multi-state risks. As a result 

of the lack of sufficient guidance on which state law governs a multi-state surplus 

lines placement, agents and brokers who have obtained nonresident surplus lines 

licenses find themselves attempting to comply with the surplus lines laws of every 

applicable state. These agents and brokers are subject to multiple tax filings, multiple diligent search requirements (which vary from state to state), multiple regulatory filings, and multiple information notices on the declarations page or policy, 

among other duplicative regulatory requirements. 

The Nonadmitted Insurance and Reinsurance Reform Act effectively streamlines 

surplus lines regulation by making the insured’s home state the source of regulation 

for individual surplus lines transactions. In addition, the Act streamlines access to 

the surplus lines market by waiving state due diligence requirements for the sophisticated commercial entities that constitute a significant portion of policyholders in 

this market. 

The bill also has a second title that would, in much the same way as the nonadmitted insurance title, seek to reduce overlapping, multiple-state regulation of 

both reinsurer financial condition and credit-for-reinsurance on the balance sheets 

of ceding insurers. While, IIABA is less directly concerned with this title, except to 

the extent some of our members serve as brokers of outward reinsurance programs, 

we nevertheless note and applaud that this reinsurance title also seeks to retain 

and improve state regulation rather than create a federal regulator. 

CONCLUSION

The IIABA supports the Nonadmitted and Reinsurance Reform Act of 2006. We 

appreciate the interest of this Committee in this issue and applaud the bipartisan 

actions of the House Financial Services in passage of the legislation. We urge this 

Subcommittee and Committee also to promptly act on this bill. IIABA believes that 

this legislation is an excellent example of a pragmatic reform approach that utilizes 

targeted, federal tools to improve the state-based regulatory system. We are also 

hopeful that this approach will be used in the near future to facilitate additional 

reforms in the state-based system of insurance regulation. Thank you again for the 

opportunity to testify.

Mr. CANNON. We’re going to go to the Ranking Member to begin 

the questioning. 

Ms. Wasserman Schultz. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

Mr. Soto, thank you very much for joining us. And I am particularly pleased that the ‘‘Big I’’ is currently chaired by a Floridian. 

You mention that you prefer regulation closer to home, and if you 

would, expand on that. 

Mr. SOTO. Sure. 

Ms. WASSERMAN SCHULTZ. That would be helpful. 

Mr. SOTO. Well, my experience over the years has been that, indeed, regulation closer to home will be more nimble and better to 

react. Let me give you a couple of examples. 

After Hurricane Andrew, a few insurance companies started nonrenewing and canceling policies of affected policyholders. We got 

ahold of our insurance commissioner, and he, within 24 hours, put 

a stop to that and basically said, until a home is repaired or you’re 

fully compensated, you cannot nonrenew. 

Where am I going to go with a home with no roof to try to place 

the insurance? Try to imagine with a Federal regulator, how long 

it would take to react would be absolutely awful. 

We’re having a serious property crisis right now in Florida, and 

our cabinet, our governor, organized themselves to create a residVerDate 0ct 09 2002 16:59 Nov 14, 2006 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 G:\WORK\COMM\091906\29968.000 HJUD1 PsN: DOUGA
33

ual market. Within 4 weeks we’ve gone from not having it to now 

we’re beginning to get it. 

The last comment I would make, in 1983 to ’85, I was part of a 

group that came up to Washington with a goal of reforming flood 

insurance; and we quickly realized that the reform that they were 

looking for was just administrative reform because the thought 

process was that it would take an act of Congress to make any significant changes. 

We recommended that—there is a huge gap in the Federal flood 

program, and that is the lack of business interruption and additional living expense. Nothing was enacted. Twenty-five years later 

we’re finding the Katrina victims, many of them are going out of 

business because they have no business interruption or no additional living expenses. 

So I think local regulation is better for my clients and for the 

people that I represent. 

Ms. WASSERMAN SCHULTZ. Thank you. And since we’re here, can 

you talk about what other steps you think need to be taken in addition to this? This will take us a few steps down the road, but what 

else could——

Mr. SOTO. Well, this I think will expand the marketplace. It’s not 

a magic pill for the problems that the coastal areas have, but anything that expands the marketplace a little bit is good. When insurance companies compete for my clients’ business, the client wins, 

coverage is better and premiums go down. 

I happen to support what you mentioned earlier, the bill which 

is what we need ultimately, a Federal reinsurance program. Natural disasters are a national phenomenon, and we need to address 

that in order to shore up our coastal problem; and we have two 

ways to do it. Air Force One gets up in the air, and we start shoving FEMA money out the back; or we do it front end, logically, systemically, and people pay actuarially sound premiums for that. 

Ms. WASSERMAN SCHULTZ. Mr. Chairman, I have just a couple 

more questions. 

But, you know, I am someone who has prided myself, in 14 years 

in public office, on being somewhat of a consumer champion. And, 

you know, Mr. Plunkett has raised some concerns; and I am wondering if you could address those concerns. Because my understanding is that RIMS, which is the organization that essentially 

is the consumer representative of the companies that are interested 

in this type of insurance, is supportive of this legislation. 

So if you could address some of the things that—items you have 

raised; and anyone else who wants to address those, as well. 

Mr. SOTO. To a great extent, he’s right, that there could be some 

situations where there is some abuse. I don’t believe that you ought 

to take an entire system and stop the reformation of a system because there are going to be a few pockets of possible abuse. 

The fact of the matter is that the ratio between commercial lines 

and personal lines on a national basis is about 33-to-1. In other 

words, it’s a $33 billion industry of which $1 billion is personal 

lines. 

So while he’s right, you ought not to legislate on the basis of the 

exception being the cure. 

34

Mr. SINDER. With all due respect to someone whom I very much 

respect, I do not think he’s right, and I’d like to address it specifically. 

Basically, there are two things that are interwoven in the critiques that were made. One is that the alternative to the nonadmitted marketplace is the admitted marketplace. Well, that’s not 

so. As you are seeing in Florida with the catastrophic risk, the alternative to the nonadmitted marketplace is no coverage at all. So 

I think you have to return to the idea, this is not compulsory coverage, you don’t have to have it. So what you are insuring is the 

corporate treasury which, with all due respect, allows the corporation to continue to do business and employ people and serve the 

public in its own way. 

The other great confusion that is interwoven in the critiques is 

the idea that, somehow, if you identify the particular State that’s 

going to be charged with the regulation, you are going to interfere 

with the rate-and-form regulation of the policy whether or not the 

torts are covered, because they’re different from one State to the 

other, whether or not the Michigan regulator is adequate to evaluate earthquake exposure or hurricane exposure. 

Well, the fallacy there is there is no rate-and-form regulation in 

the nonadmitted marketplace. The only regulation of the nonadmitted market—and there’s no claim regulation either in terms 

of the carriers making payments. 

There is no regulation of the carrier at all in the nonadmitted 

marketplace; the regulation is of the broker. It governs when they 

can access the market, whether they’re licensed to access the market, with whom they can place coverage by different criteria, or 

white lists, that are established by the National Association of Insurance Commissioners; and then, most importantly for many 

States, how they get their piece in terms of the premium tax payment. 

There is no regulation of the policy itself or the claims payment 

process. And so those critiques may be very fair in another context; 

they are not fair with respect to the nonadmitted insurance piece 

covered by title I. 

Ms. LAWS. Representative Wasserman Schultz, could I also respond? 

Mr. CANNON. The gentlelady’s time has expired, but if you would 

like to respond, I think Mr. Plunkett would also like to respond. 

So we’ll have you respond and then he may respond. 

Ms. LAWS. I’ll be brief. 

One of Mr. Plunkett’s assumptions, he questioned the assumption as to whether the domiciliary regulator had the incentive to 

provide adequate oversight to the reinsurance transaction, and he 

questioned the impact on the consumer. 

First of all, I would reiterate that there is no consumer aspect 

to the actual reinsurance transaction itself. But more importantly, 

I would say that the States have absolutely no incentive in not regulating the financial solvency of a reinsurer, which can have adverse impacts on the insurer and consumer ultimately. Every State 

regulator has every incentive to make sure that those insurers are 

going to be financially solvent, as demonstrated by the fact that reinsurers are paying such large parts of the catastrophe losses. 

35

Thank you. 

Mr. PLUNKETT. Well, it’s a long list here. Let’s start with what Mr. Soto had to say. $1 billion in personal 

lines; it’s just under, he’s correct. Our concern is that given the intent of the legislation that that number would grow significantly. 

I mean, it’s one issue if a sophisticated corporation is buying 

commercial insurance; it’s another issue if the nonadmitted market 

for personal lines grows. Why not just exclude personal lines? Why 

not make it very clear in the legislation that it’s not covered? 

The next item, I’m not saying that in all cases the alternative to 

the nonadmitted market is the admitted market. We know that in 

some cases we’re talking—in many cases we’re talking about unusual risks that have to be covered, or risks that are not available 

in the admitted market, but this bill forbids States from requiring 

brokers to do what they have to do now, which is to do a search 

of the admitted market before placing somebody with nonadmitted 

insurance. So we’re very concerned that nonadmitted lines could 

grow significantly, and especially concerned about the impact on 

personal lines. 

I disagree that there’s no consumer impact when it comes to regulation of reinsurance. If one State—entities in that State say that 

the domicile State is 1 percent of the reinsurance coverage and in 

another State it is 75 percent, but that State is not the domiciled 

State, why not allow that State, in some circumstances, some regulatory authority here? 

Thank you very much. 

Mr. CANNON. Thank you. 

Mr. Sinder, it looked like you had wanted to respond there. 

Mr. SINDER. To the point about access to the market, the legislation requires that you’re governed there by the home State of the 

company, and there their rules govern. And every State says you 

have to evaluate whether or not the coverage is available in the 

marketplace. That rule would continue; the difference is the documentation of the availability. 

Right now, some States say you need five affidavits; other States 

say you need to document your own file your own way; other States 

say you need three letters for carriers. That gets to be a pretty 

thick file for single placement for multistate exposure. 

So it’s not that the rule goes away. It’s just that it gets reduced 

to whatever the requirement is in the insured’s home State. 

Mr. CANNON. Thank you, Mr. Sinder. 

Let me explain why we’re here. This is the Subcommittee on Administrative and Commercial Law, and we oversee interstate transactions, regulations that interfere with commerce and also interstate compacts. So NAIC is a compact that we—that we oversee. 

And what I’m hearing here is there is clearly a bunch of activity 

by the individual States that affects the smoothness with which 

commerce should happen. 

But I’m intrigued by the discussion that we’re having here, and 

we’ve been talking about this—Mr. Plunkett initially talked about 

auto insurance where—I suspect there are not many States that 

don’t have a lot of auto insurance policies. 

Another area that is a little different is in health savings accounts, where many States don’t have much in the way of offerings. 

36

I think Utah has two or three health savings accounts; those are 

recent and they’re not of very general applicability. 

Is it possible in an area of—consumer area, as opposed to a sophisticated business that we might move into insurance health savings accounts or other kinds of personal insurance with nonadmitted insurers if this blows past, Mr. Sinder? 

Mr. SINDER. Right now the nonadmitted insurance marketplace 

is a property and casualty insurance marketplace, not a benefits insurance marketplace. So this legislation would have no direct effect 

on things like health savings accounts, which are really securities 

products that are tied to the availability of—if you purchase a certain type of health coverage. 

On the auto, in most States, maintenance of auto insurance is 

compulsory, and so you have to have the auto insurance in order 

to maintain either an individual or a commercial license. When insurance is compulsory, it’s not just that you’re required to maintain 

insurance; you’re also required to maintain insurance from an admitted carrier regulated by that State. So if you are, for example, 

General Motors and you have drivers in all the States, each of 

those States requires you to maintain insurance coverage for those 

drivers with carriers admitted in those States. So it really isn’t a 

type of coverage that’s amenable to a surplus lines product that’s 

only for noncompulsory insurance. 

Now, to the extent for those same drivers or for your driver pool, 

you would like to purchase some top-end coverage, that very well 

may be a product that’s amenable to surplus lines coverage, and it 

could be purchased in that marketplace. But, again, it’s something 

you are purchasing as extra protection, not coverage that’s required 

by the State. 

Mr. CANNON. Mr. Plunkett, you were concerned that the one billion of the 33 billion could grow dramatically. What areas would 

that grow in? 

Mr. PLUNKETT. Excuse me. Currently, we have nonadmitted lines 

for personal insurance sold in any area you can think of. I mention 

auto insurance and property coverage for brush fires out West. It 

tracks normal personal lines in many ways, so we’re concerned on 

property casualty insurance, as was mentioned, about the growth 

of these personal lines of nonadmitted insurance. 

Mr. CANNON. Mr. Sinder. 

Mr. SINDER. Mr. Chairman, it’s true that you can purchase auto 

insurance in the nonadmitted marketplace, but not for your collision coverage and not for your basic, required auto insurance coverage. What you purchase it for is, if you have a very specialized 

automobile, a classic antique car that your normal admitted carriers won’t cover the collision on the auto itself, so you purchase 

a slice of coverage. And you may do it through the nonadmitted 

marketplace, but it if you are a consumer, you are an individual, 

the State in which you reside, they regulate that transaction. And 

so you still have all the normal regulatory rules applied; it’s just 

that for certain slices of noncompulsory insurance, you may indeed 

access that nonadmitted marketplace. 

But the other thing I would like to point out is the brush fire example. The reason you may need to do so for that type of exposure 

is because you can’t get that coverage in the admitted marketplace, 

37

so this marketplace really fills a gap. I don’t believe that for most 

consumers who reside in a single State, this will have any effect 

at all on the way in which their insurance transactions are regulated. 

Mr. CANNON. I don’t know if any of you can actually answer this 

question clearly, but we may guess: What effect is this legislation 

going to have on NAIC as an institution and on individual commissioners or individual States if it’s passed? I take it there would be 

a significant amount of work to put it in place, but I suspect there 

would actually be less work and more clarity on revenues, at least 

for those States. 

Mr. SINDER. Yes. I think that at the front end there is some work 

to put a compact together to effectuate the tax-sharing provisions, 

and the NAIC has already begun that process at their last meeting. 

This has kind of reinvigorated their efforts on this. They had been 

making efforts to do a surplus lines compact for over 20 years and 

those efforts had stalled, so this has reinvigorated those. But once 

the compact is in place, the bulk of the surplus lines transactions 

are for single-State placements. 

This legislation has absolutely no effect on the regulatory control 

or efforts related to those placements. The place where it will—you 

will see some savings is, you won’t see for the multistate transactions the duplicative filings from State to State, so there should 

be some administrative savings for all insurance departments. 

Mr. CANNON. Will there be a shift of revenues to States that 

have more corporations based in those States and away from States 

where you have branch offices? And will that be significant? You, 

Mr. Sinder or anyone else. 

Mr. SINDER. Well, the CBO did a study on this and they predicted a small amount of tax shifting. It’s an incredibly difficult calculation to make. 

Mr. CANNON. Is that Federal tax by the CBO or is that intrastate? 

Mr. SINDER. They evaluated both. They saw some intrastate tax 

shifting. But there’s a couple points here. First of all, the expectation is that the overall tax revenue to the States will actually increase because there is a sense that there is some—it’s difficult to 

comply with the rules, so some don’t—no members of the council, 

of course, but others who may be out there who are playing in this 

area. 

Mr. CANNON. And you may just not know. 

Mr. SINDER. No one has told me. That’s definitely true. I’m sorry, 

I lost my train of thought. 

Mr. CANNON. No members are not paying, so there should be 

net—with the noncompliance removed, there should be a net benefit or a net gain. 

Mr. SINDER. There should be a net benefit. But initially some 

thought that the large States would be beneficiaries of this. But at 

the House Financial Services hearings there was concern that some 

small States where you have—large corporations that reside would 

actually be the big beneficiaries because they wouldn’t pay the tax 

based on their nationwide exposure. 

The truth of the matter is that once the compact is in place, it 

should be a much fairer, more efficient tax-sharing mechanism, and 

38

in the interim it’s very difficult to predict the tax impact because 

some companies that are large—and the example used at the 

House Financial Services Committee was Wal-Mart—they may be 

in the surplus lines marketplace, but they may self-insure for the 

bulk of these risks, as well; and by removing the regulatory impediments, what you may do is shift them back to using more traditional, nonadmitted carriers to satisfy the risk exposure. 

Mr. CANNON. Thank you. I’ve gone over my time here, but so did 

the Ranking Member slightly. So let me just wrap up by saying, 

it makes an enormous amount of sense, Mr. Soto, as you suggested, 

to have regulation at the lowest level. As you point out, can you 

imagine FEMA responding the way the—the way the Florida commissioner of insurance responded? It is beyond conception. 

That’s why I think this is really a cool Committee, and we welcome Ms. Wasserman Schultz, however temporarily, to the Ranking Member’s seat. 

Do you have other questions? 

We would like to thank the panelists for being here today. I 

think it has been very informative, and we look forward to helping 

move this legislation forward. Thank you very much. 

[Whereupon, at 11 a.m., the Subcommittee was adjourned.]

Æ