IB 

Union Calendar No. 404 

109TH CONGRESS 

2D SESSION H. R. 5637 

[Report No. 109–649, Part I] 

To streamline the regulation of nonadmitted insurance and reinsurance, and 

for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 19, 2006 

Ms. GINNY BROWN-WAITE of Florida (for herself, Mr. MOORE of Kansas, Mr. 

BAKER, Ms. HOOLEY, Mr. FEENEY, Ms. WASSERMAN SCHULTZ, Mr. 

SESSIONS, Mr. HOLDEN, Mr. FOSSELLA, Mr. SCOTT of Georgia, Mr. 

BACHUS, Ms. BEAN, Mr. RENZI, Mr. ISRAEL, Mr. FITZPATRICK of Pennsylvania, Mr. CROWLEY, and Mrs. BIGGERT) introduced the following bill; 

which was referred to the Committee on Financial Services, and in addition to the Committee on the Judiciary, for a period to be subsequently 

determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

SEPTEMBER 12, 2006 

Reported from the Committee on Financial Services with an amendment 

[Strike out all after the enacting clause and insert the part printed in italic] 

SEPTEMBER 12, 2006 

Referral to the Committee on the Judiciary extended for a period ending not 

later than September 22, 2006 

SEPTEMBER 22, 2006 

Additional sponsors: Mr. GILLMOR, Mr. MCHENRY, Mr. CAMPBELL of 

California, and Mr. MANZULLO

SEPTEMBER 22, 2006 

The Committee on the Judiciary discharged; committed to the Committee of 

the Whole House on the State of the Union and ordered to be printed 


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[For text of introduced bill, see copy of bill as introduced on June 19, 2006] 

A BILL 

To streamline the regulation of nonadmitted insurance and 

reinsurance, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Nonadmitted and Reinsurance Reform Act of 2006’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows: 

Sec. 1. Short title and table of contents. 

Sec. 2. Effective date. 

TITLE I—NONADMITTED INSURANCE 

Sec. 101. Reporting, payment, and allocation of premium taxes. 

Sec. 102. Regulation of nonadmitted insurance by insured’s home State. 

Sec. 103. Participation in national producer database. 

Sec. 104. Uniform standards for surplus lines eligibility. 

Sec. 105. Streamlined application for commercial purchasers. 

Sec. 106. GAO study of nonadmitted insurance market. 

Sec. 107. Definitions. 

TITLE II—REINSURANCE 

Sec. 201. Regulation of credit for reinsurance and reinsurance agreements. 

Sec. 202. Regulation of reinsurer solvency. 

Sec. 203. Definitions. 

8 SEC. 2. EFFECTIVE DATE. 

9 Except as otherwise specifically provided in this Act, 

10 this Act shall take effect upon the expiration of the 12- 


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1 month period beginning on the date of the enactment of this 

2 Act. 

3 TITLE I—NONADMITTED 

4 INSURANCE 

5 SEC. 101. REPORTING, PAYMENT, AND ALLOCATION OF PRE6 MIUM TAXES. 

7 (a) HOME STATE’S EXCLUSIVE AUTHORITY.—No 

8 State other than the home State of an insured may require 

9 any premium tax payment for nonadmitted insurance. 

10 (b) ALLOCATION OF NONADMITTED PREMIUM

11 TAXES.— 

12 (1) IN GENERAL.—The States may enter into a 

13 compact or otherwise establish procedures to allocate 

14 among the States the premium taxes paid to an in15 sured’s home State described in subsection (a). 

16 (2) EFFECTIVE DATE.—Except as expressly oth17 erwise provided in such compact or other procedures, 

18 any such compact or other procedures— 

19 (A) if adopted on or before the expiration of 

20 the 330-day period that begins on the date of the 

21 enactment of this Act, shall apply to any pre22 mium taxes that, on or after such date of enact23 ment, are required to be paid to any State that 

24 is subject to such compact or procedures; and 


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1 (B) if adopted after the expiration of such 

2 330-day period, shall apply to any premium 

3 taxes that, on or after January 1 of the first cal4 endar year that begins after the expiration of 

5 such 330-day period, are required to be paid to 

6 any State that is subject to such compact or pro7 cedures. 

8 (3) REPORT.—Upon the expiration of the 330- 

9 day period referred to in paragraph (2), the NAIC 

10 may submit a report to the Committee on Financial 

11 Services of the House of Representatives and the Com12 mittee on Banking, Housing, and Urban Affairs of 

13 the Senate identifying and describing any compact or 

14 other procedures for allocation among the States of 

15 premium taxes that have been adopted during such 

16 period by any States. 

17 (4) NATIONWIDE SYSTEM.—The Congress intends 

18 that each State adopt a nationwide or uniform proce19 dure, such as an interstate compact, that provides for 

20 the reporting, payment, collection, and allocation of 

21 premium taxes for nonadmitted insurance consistent 

22 with this section. 

23 (c) ALLOCATION BASED ON TAX ALLOCATION RE24 PORT.—To facilitate the payment of premium taxes among 

25 the States, an insured’s home State may require surplus 


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1 lines brokers and insureds who have independently procured 

2 insurance to annually file tax allocation reports with the 

3 insured’s home State detailing the portion of the non4 admitted insurance policy premium or premiums attrib5 utable to properties, risks or exposures located in each State. 

6 The filing of a nonadmitted insurance tax allocation report 

7 and the payment of tax may be made by a person author8 ized by the insured to act as its agent. 

9 SEC. 102. REGULATION OF NONADMITTED INSURANCE BY 

10 INSURED’S HOME STATE. 

11 (a) HOME STATE AUTHORITY.—Except as otherwise 

12 provided in this section, the placement of nonadmitted in13 surance shall be subject to the statutory and regulatory re14 quirements solely of the insured’s home State. 

15 (b) BROKER LICENSING.—No State other than an in16 sured’s home State may require a surplus lines broker to 

17 be licensed in order to sell, solicit, or negotiate nonadmitted 

18 insurance with respect to such insured. 

19 (c) ENFORCEMENT PROVISION.—Any law, regulation, 

20 provision, or action of any State that applies or purports 

21 to apply to nonadmitted insurance sold to, solicited by, or 

22 negotiated with an insured whose home State is another 

23 State shall be preempted with respect to such application. 

24 (d) WORKERS’ COMPENSATION EXCEPTION.—This sec25 tion may not be construed to preempt any State law, rule, 


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1 or regulation that restricts the placement of workers’ com2 pensation insurance or excess insurance for self-funded 

3 workers’ compensation plans with a nonadmitted insurer. 

4 SEC. 103. PARTICIPATION IN NATIONAL PRODUCER DATA5 BASE. 

6 After the expiration of the 2-year period beginning on 

7 the date of the enactment of this Act, a State may not collect 

8 any fees relating to licensing of an individual or entity as 

9 a surplus lines broker in the State unless the State has in 

10 effect at such time laws or regulations that provide for par11 ticipation by the State in the national insurance producer 

12 database of the NAIC, or any other equivalent uniform na13 tional database, for the licensure of surplus lines brokers 

14 and the renewal of such licenses. 

15 SEC. 104. UNIFORM STANDARDS FOR SURPLUS LINES ELIGI16 BILITY. 

17 A State may not— 

18 (1) impose eligibility requirements on, or other19 wise establish eligibility criteria for, nonadmitted in20 surers domiciled in a United States jurisdiction, ex21 cept in conformance with section 5A(2) and 5C(2)(a) 

22 of the Non-Admitted Insurance Model Act; and 

23 (2) prohibit a surplus lines broker from placing 

24 nonadmitted insurance with, or procuring non25 admitted insurance from, a nonadmitted insurer 


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1 domiciled outside the United States that is listed on 

2 the Quarterly Listing of Alien Insurers maintained 

3 by the International Insurers Department of the 

4 NAIC. 

5 SEC. 105. STREAMLINED APPLICATION FOR COMMERCIAL 

6 PURCHASERS. 

7 A surplus lines broker seeking to procure or place non8 admitted insurance in a State for an exempt commercial 

9 purchaser shall not be required to satisfy any State require10 ment to make a due diligence search to determine whether 

11 the full amount or type of insurance sought by such exempt 

12 commercial purchaser can be obtained from admitted insur13 ers if— 

14 (1) the broker procuring or placing the surplus 

15 lines insurance has disclosed to the exempt commer16 cial purchaser that such insurance may or may not 

17 be available from the admitted market that may pro18 vide greater protection with more regulatory over19 sight; and 

20 (2) the exempt commercial purchaser has subse21 quently requested in writing the broker to procure or 

22 place such insurance from a nonadmitted insurer. 


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1 SEC. 106. GAO STUDY OF NONADMITTED INSURANCE MAR2 KET. 

3 (a) IN GENERAL.—The Comptroller General of the 

4 United States shall conduct a study of the nonadmitted in5 surance market to determine the effect of the enactment of 

6 this title on the size and market share of the nonadmitted 

7 insurance market for providing coverage typically provided 

8 by the admitted insurance market. 

9 (b) CONTENTS.—The study shall determine and ana10 lyze— 

11 (1) the change in the size and market share of 

12 the nonadmitted insurance market and in the number 

13 of insurance companies and insurance holding com14 panies providing such business in the 18-month pe15 riod that begins upon the effective date of this Act; 

16 (2) the extent to which insurance coverage typi17 cally provided by the admitted insurance market has 

18 shifted to the nonadmitted insurance market; 

19 (3) the consequences of any change in the size 

20 and market share of the nonadmitted insurance mar21 ket, including differences in the price and availability 

22 of coverage available in both the admitted and non23 admitted insurance markets; 

24 (4) the extent to which insurance companies and 

25 insurance holding companies that provide both ad26 mitted and nonadmitted insurance have experienced 


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1 shifts in the volume of business between admitted and 

2 nonadmitted insurance; and 

3 (5) the extent to which there has been a change 

4 in the number of individuals who have nonadmitted 

5 insurance policies, the type of coverage provided 

6 under such policies, and whether such coverage is 

7 available in the admitted insurance market. 

8 (c) CONSULTATION WITH NAIC.—In conducting the 

9 study under this section, the Comptroller General shall con10 sult with the NAIC. 

11 (d) REPORT.—The Comptroller General shall complete 

12 the study under this section and submit a report to the 

13 Committee on Financial Services of the House of Represent14 atives and the Committee on Banking, Housing, and Urban 

15 Affairs of the Senate regarding the findings of the study 

16 not later than 30 months after the effective date of this Act. 

17 SEC. 107. DEFINITIONS. 

18 For purposes of this title, the following definitions 

19 shall apply: 

20 (1) ADMITTED INSURER.—The term ‘‘admitted 

21 insurer’’ means, with respect to a State, an insurer 

22 licensed to engage in the business of insurance in such 

23 State. 

24 (2) EXEMPT COMMERCIAL PURCHASER.—The 

25 term ‘‘exempt commercial purchaser’’ means any perVerDate Aug 31 2005 00:44 Sep 23, 2006 Jkt 049196 PO 00000 Frm 00009 Fmt 6652 Sfmt 6203 E:\BILLS\H5637.RH H5637

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1 son purchasing commercial insurance that meets the 

2 following requirements: 

3 (A) The person employs or retains a quali4 fied risk manager to negotiate insurance cov5 erage. 

6 (B) The person has paid aggregate nation7 wide commercial property and casualty insur8 ance premiums in excess of $100,000 in the im9 mediately preceding 12 months. 

10 (C) The person meets at least one of the fol11 lowing criteria: 

12 (i) The person possesses a net worth in 

13 excess of $20,000,000. 

14 (ii) The person generates annual reve15 nues in excess of $50,000,000. 

16 (iii) The person employs more than 

17 500 full time or full time equivalent em18 ployees per individual insured or is a mem19 ber of affiliated group employing more than 

20 1,000 employees in the aggregate. 

21 (iv) The person is a not-for-profit or22 ganization or public entity generating an23 nual budgeted expenditures of at least 

24 $30,000,000. 


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1 (v) The person is a municipality with 

2 a population in excess of 50,000 persons. 

3 (3) HOME STATE.—The term ‘‘home State’’ 

4 means the State in which an insured maintains its 

5 principal place of business or, in the case of an indi6 vidual, the individual’s principal residence. 

7 (4) INDEPENDENTLY PROCURED INSURANCE.— 

8 The term ‘‘independently procured insurance’’ means 

9 insurance procured directly by an insured from a 

10 nonadmitted insurer. 

11 (5) NAIC.—The term ‘‘NAIC’’ means the Na12 tional Association of Insurance Commissioners or any 

13 successor entity. 

14 (6) NONADMITTED INSURANCE.—The term ‘‘non15 admitted insurance’’ means any property and cas16 ualty insurance permitted to be placed directly or 

17 through a surplus lines broker with a nonadmitted in18 surer eligible to accept such insurance. 

19 (7) NON-ADMITTED INSURANCE MODEL ACT.— 

20 The term ‘‘Non-Admitted Insurance Model Act’’ 

21 means the provisions of the Non-Admitted Insurance 

22 Model Act, as adopted by the NAIC on August 3, 

23 1994, and amended on September 30, 1996, December 

24 6, 1997, October 2, 1999, and June 8, 2002. 


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1 (8) NONADMITTED INSURER.—The term ‘‘non2 admitted insurer’’ means, with respect to a State, an 

3 insurer not licensed to engage in the business of in4 surance in such State. 

5 (9) QUALIFIED RISK MANAGER.—The term 

6 ‘‘qualified risk manager’’ means, with respect to a 

7 policyholder of commercial insurance, a person who 

8 meets all of the following requirements: 

9 (A) The person is an employee of, or third 

10 party consultant retained by, the commercial 

11 policyholder. 

12 (B) The person provides skilled services in 

13 loss prevention, loss reduction, or risk and insur14 ance coverage analysis, and purchase of insur15 ance. 

16 (C) The person possesses at least two of the 

17 following credentials: 

18 (i) An advanced degree in risk man19 agement issued by an accredited college or 

20 university. 

21 (ii) At least 5 years of experience in 

22 one or more of the following areas of com23 mercial property insurance or commercial 

24 casualty insurance: 

25 (I) Risk financing. 


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1 (II) Claims administration. 

2 (III) Loss prevention. 

3 (IV) Risk and insurance coverage 

4 analysis. 

5 (iii) At least one of the following des6 ignations: 

7 (I) A designation as a Chartered 

8 Property and Casualty Underwriter 

9 (in this clause referred to as ‘‘CPCU’’) 

10 issued by the American Institute for 

11 CPCU/Insurance Institute of America. 

12 (II) A designation as an Associate 

13 in Risk Management (ARM) issued by 

14 American Institute for CPCU/Insur15 ance Institute of America. 

16 (III) A designation as a Certified 

17 Risk Manager (CRM) issued by the 

18 National Alliance for Insurance Edu19 cation & Research. 

20 (IV) A designation as a RIMS 

21 Fellow (RF) issued by the Global Risk 

22 Management Institute. 

23 (V) Any other designation, certifi24 cation, or license determined by a 

25 State insurance commissioner or other 


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1 State insurance regulatory official or 

2 entity to demonstrate minimum com3 petency in risk management. 

4 (10) PREMIUM TAX.—The term ‘‘premium tax’’ 

5 means, with respect to surplus lines or independently 

6 procured insurance coverage, any tax, fee, assessment, 

7 or other charge imposed by a State on an insured 

8 based on any payment made as consideration for an 

9 insurance contract for such insurance, including pre10 mium deposits, assessments, registration fees, and any 

11 other compensation given in consideration for a con12 tract of insurance. 

13 (11) SURPLUS LINES BROKER.—The term ‘‘sur14 plus lines broker’’ means an individual, firm, or cor15 poration which is licensed in a State to sell, solicit, 

16 or negotiate insurance on properties, risks, or expo17 sures located or to be performed in a State with non18 admitted insurers. 

19 (12) STATE.—The term ‘‘State’’ includes any 

20 State of the United States, the District of Columbia, 

21 the Commonwealth of Puerto Rico, Guam, the North22 ern Mariana Islands, the Virgin Islands, and Amer23 ican Samoa. 


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1 TITLE II—REINSURANCE 

2 SEC. 201. REGULATION OF CREDIT FOR REINSURANCE AND 

3 REINSURANCE AGREEMENTS. 

4 (a) CREDIT FOR REINSURANCE.—If the State of domi5 cile of a ceding insurer is an NAIC-accredited State, or has 

6 financial solvency requirements substantially similar to the 

7 requirements necessary for NAIC accreditation, and recog8 nizes credit for reinsurance for the insurer’s ceded risk, then 

9 no other State may deny such credit for reinsurance. 

10 (b) ADDITIONAL PREEMPTION OF EXTRATERRITORIAL

11 APPLICATION OF STATE LAW.—In addition to the applica12 tion of subsection (a), all laws, regulations, provisions, or 

13 other actions of a State other than those of the State of 

14 domicile of the ceding insurer are preempted to the extent 

15 that they— 

16 (1) restrict or eliminate the rights of the ceding 

17 insurer or the assuming insurer to resolve disputes 

18 pursuant to contractual arbitration to the extent such 

19 contractual provision is not inconsistent with the pro20 visions of title 9, United States Code; 

21 (2) require that a certain State’s law shall gov22 ern the reinsurance contract, disputes arising from 

23 the reinsurance contract, or requirements of the rein24 surance contract; 


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1 (3) attempt to enforce a reinsurance contract on 

2 terms different than those set forth in the reinsurance 

3 contract, to the extent that the terms are not incon4 sistent with this title; or 

5 (4) otherwise apply the laws of the State to rein6 surance agreements of ceding insurers not domiciled 

7 in that State. 

8 SEC. 202. REGULATION OF REINSURER SOLVENCY. 

9 (a) DOMICILIARY STATE REGULATION.—If the State 

10 of domicile of a reinsurer is an NAIC-accredited State or 

11 has financial solvency requirements substantially similar 

12 to the requirements necessary for NAIC accreditation, such 

13 State shall be solely responsible for regulating the financial 

14 solvency of the reinsurer. 

15 (b) NONDOMICILIARY STATES.— 

16 (1) LIMITATION ON FINANCIAL INFORMATION RE17 QUIREMENTS.—If the State of domicile of a reinsurer 

18 is an NAIC-accredited State or has financial solvency 

19 requirements substantially similar to the require20 ments necessary for NAIC accreditation, no other 

21 State may require the reinsurer to provide any addi22 tional financial information other than the informa23 tion the reinsurer is required to file with its domi24 ciliary State. 


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1 (2) RECEIPT OF INFORMATION.—No provision of 

2 this section shall be construed as preventing or pro3 hibiting a State that is not the State of domicile of 

4 a reinsurer from receiving a copy of any financial 

5 statement filed with its domiciliary State. 

6 SEC. 203. DEFINITIONS. 

7 For purposes of this title, the following definitions 

8 shall apply: 

9 (1) CEDING INSURER.—The term ‘‘ceding in10 surer’’ means an insurer that purchases reinsurance. 

11 (2) DOMICILIARY STATE.—The terms ‘‘State of 

12 domicile’’ and ‘‘domiciliary State’’ means, with re13 spect to an insurer or reinsurer, the State in which 

14 the insurer or reinsurer is incorporated or entered 

15 through, and licensed. 

16 (3) REINSURANCE.—The term ‘‘reinsurance’’ 

17 means the assumption by an insurer of all or part of 

18 a risk undertaken originally by another insurer. 

19 (4) REINSURER.— 

20 (A) IN GENERAL.—The term ‘‘reinsurer’’ 

21 means an insurer to the extent that the in22 surer— 

23 (i) is principally engaged in the busi24 ness of reinsurance; 


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1 (ii) does not conduct significant 

2 amounts of direct insurance as a percentage 

3 of its net premiums; and 

4 (iii) is not engaged in an ongoing 

5 basis in the business of soliciting direct in6 surance. 

7 (B) DETERMINATION.—A determination of 

8 whether an insurer is a reinsurer shall be made 

9 under the laws of the State of domicile in accord10 ance with this paragraph. 

11 (5) STATE.—The term ‘‘State’’ includes any 

12 State of the United States, the District of Columbia, 

13 the Commonwealth of Puerto Rico, Guam, the North14 ern Mariana Islands, the Virgin Islands, and Amer15 ican Samoa. 


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Union Calendar No. 404 

109TH CONGRESS 

2D SESSION H. R. 5637 

[Report No. 109

–649, Part I] 

A BILL 

To streamline the regulation of nonadmitted 

insurance and reinsurance, and for other purposes. 

SEPTEMBER 22, 2006 

The Committee on the Judiciary discharged; committed 

the Union and ordered to be printed to the Committee of the Whole House on the State of 


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