File No. 580

Senate, April 19, 2011

The Committee on Finance, Revenue and Bonding reported through SEN. DAILY of the 33rd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING NONADMITTED INSURERS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 38a-277 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to nonadmitted insurance coverage procured, continued or renewed on or after July 1, 2011):

(a) Every insured who in this state procures or causes to be procured or continues or renews insurance with any unauthorized insurer, or any insured or self-insurer who so procures or continues excess loss, catastrophe or other insurance, upon a subject of insurance resident, located or to be performed within this state, other than insurance procured through a surplus lines broker pursuant to the surplus lines law of this state, shall, within sixty days after the date such insurance was so procured, continued or renewed, file a report of the same with the Commissioner of Revenue Services in writing and upon forms designated by the Commissioner of Revenue Services and furnished to such insured upon request. The report shall show the name and address of the insured or insureds, the name and address of the insurer, the subject of the insurance, a general description of the coverage, the amount of premium currently charged therefor and such additional pertinent information as is reasonably requested by the Commissioner of Revenue Services. The provisions of this subsection shall not apply to nonadmitted insurance, as defined in subsection (f) of this section, that is procured, continued or renewed on or after July 1, 2011.

(b) Any insurance by an unauthorized insurer of a subject of insurance resident, located or to be performed within this state procured through negotiations or an application, in whole or in part occurring or made within or from within or outside of this state, or for which premiums in whole or in part are remitted directly or indirectly from within or outside of this state, shall be deemed to be insurance procured, or continued or renewed in this state within the intent of subsection (a) of this section.

(c) There is [hereby] levied upon the obligation, chose in action or right represented by the premium charged for such insurance a premium receipts tax of four per cent of gross premiums charged for such insurance other than wet marine and transportation insurance. The term "premium" shall include all premiums, membership fees, assessments, dues and any other consideration for insurance. Such tax shall be in lieu of all other taxes. The insured shall, on or before March first next succeeding the calendar year in which the insurance was so procured, continued or renewed, pay the amount of the tax to the Commissioner of Revenue Services in accordance with procedures established and on forms provided by said Commissioner of Revenue Services. In the event of cancellation and rewriting of any such insurance contract the premium for premium receipts tax purposes shall be the premium in excess of the unearned premium of the cancelled insurance contract. The provisions of this subsection shall not apply to nonadmitted insurance, as defined in subsection (f) of this section, that is procured, continued or renewed on or after July 1, 2011.

(d) If a policy covers risks or exposures only partially in this state, the tax payable shall be computed on the portions of the premium which are properly allocable to the risks or exposures located in this state. The provisions of this subsection shall not apply to nonadmitted insurance, as defined in subsection (f) of this section, that is procured, continued or renewed on or after July 1, 2011.

(e) If the insured fails to withhold from the premium the amount of tax herein levied, the insured shall be liable for the amount thereof and shall pay the same to the Commissioner of Revenue Services within the time stated in subsection (c) of this section. Any person who fails to pay the tax within the time stated in subsection (c) of this section shall pay a penalty of ten per cent thereof or seventy-five dollars, whichever is greater, which penalty shall be paid at the time of paying such tax. Interest shall be added to the tax at the rate of one per cent per month or fraction thereof from the date such payment was due to the date paid. Subject to the provisions of section 12-3a, the Commissioner of Revenue Services may waive all or part of the penalties provided under this section when it is proven to said commissioner's satisfaction that the failure to pay any tax was due to reasonable cause and was not intentional or due to neglect. The provisions of this subsection shall not apply to nonadmitted insurance, as defined in subsection (f) of this section, that is procured, continued or renewed on or after July 1, 2011.

(f) For purposes of this subsection and subsections (g) to (l), inclusive, of this section:

(1) "Home state" means home state, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010;

(2) "Independently procured insurance" means independently procured insurance, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010;

(3) "Nonadmitted and Reinsurance Reform Act of 2010" means Sections 511 to 542, inclusive, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, as amended from time to time;

(4) "Nonadmitted insurance" means nonadmitted insurance, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010; and

(5) "Nonadmitted insurer" means a nonadmitted insurer, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010.

(g) (1) With respect to independently procured insurance, where such coverage is procured, continued or renewed on or after July 1, 2011, and where this state is an insured's home state, there is levied upon the obligation, chose in action or right represented by the premium charged for independently procured insurance an independently procured insurance premiums tax of four per cent of the gross premiums charged for such insurance, irrespective of the fact that the independently procured insurance policy may cover properties, risks or exposures located or to be performed both within and without this state. The term "premium" shall include all premiums, membership fees, assessments, dues and any other consideration for insurance. Such tax shall be due and payable to this state by the insured and shall be in lieu of all other taxes on such nonadmitted insurance.

(2) (A) With respect to independently procured insurance, for the period beginning on July 1, 2011, and ending September 30, 2011, the insured shall pay to the Commissioner of Revenue Services, on or before November 15, 2011, in accordance with procedures established and on forms provided by said commissioner, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during such period.

(B) With respect to independently procured insurance, for the period beginning on October 1, 2011, and ending December 31, 2011, the insured shall pay to the Commissioner of Revenue Services, on or before February 15, 2012, in accordance with procedures established and on forms provided by said commissioner, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during such period.

(3) For calendar years beginning on or after January 1, 2012, the insured shall pay to the Commissioner of Revenue Services, on independently procured insurance, in accordance with procedures established and on forms provided by said commissioner, (A) on or before May fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during the period from January first to March thirty-first of that year; (B) on or before August fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during the period from April first to June thirtieth of that year; (C) on or before November fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during the period from July first to September thirtieth of that year; and (D) on or before February fifteenth of each year succeeding a year in which nonadmitted insurance was procured, continued or renewed, a sum equal to four per cent of the gross premiums charged the insured by a nonadmitted insurer during the period from October first to December thirty-first of the preceding year.

(4) In the event of cancellation and rewriting of any nonadmitted insurance contract, the premium for purposes of this section shall be the premium in excess of the unearned premium of the cancelled insurance contract.

(5) If, pursuant to subsection (l) of this section, the Commissioner of Revenue Services enters into a cooperative agreement, reciprocal agreement or compact with another state or states, and if the provisions set forth in such agreement or compact are different from provisions prescribed by this subsection, then the provisions set forth in such agreement or compact shall prevail.

(h) Any insured, who fails to pay the tax within the time stated in subsection (g) of this section, shall pay a penalty of ten per cent of the tax not paid within the time so stated. Interest shall be added to the tax at the rate of one per cent per month or fraction of such month from the date such tax was due to the date paid. Subject to the provisions of section 12-3a, the Commissioner of Revenue Services may waive all or part of the penalties provided under this section if it is proven to said commissioner's satisfaction that the failure to pay any tax was due to reasonable cause and was not intentional or due to neglect.

[(f)] (i) The Attorney General, upon request of the Commissioner of Revenue Services, shall proceed in the courts of this or any other state or in any federal court or agency to recover such tax not paid within the time prescribed in this section, and any interest and penalty related to such tax.

[(g)] (j) This section shall not be construed or deemed to abrogate or modify any provision of section 38a-27 or 38a-271 to [38a-278, inclusive] 38a-276, inclusive, as amended by this act, or section 38a-278, but shall be construed in such a manner as to avoid preemption under the Nonadmitted and Reinsurance Reform Act of 2010. This section does not apply to individual life or individual disability insurance or to wet marine or transportation insurance.

[(h)] (k) The provisions of sections 12-548 to 12-554, inclusive, and section 12-555a shall apply to the provisions of this section in the same manner and with the same force and effect as if the language of said sections had been incorporated in full into this section and had expressly referred to the tax under this section, except to the extent that any such provision is inconsistent with a provision in this section.

(l) (1) The Commissioner of Revenue Services may enter into a cooperative agreement, reciprocal agreement or compact with another state or states to allocate among the states the nonadmitted insurance premiums taxes paid to an insured's home state, as provided by Section 521 of the Nonadmitted and Reinsurance Reform Act of 2010.

(2) The agreement or compact that the Commissioner of Revenue Services is authorized to enter under this subsection shall include, but shall not be limited to, the National Association of Insurance Commissioners' Nonadmitted Insurance Multistate Agreement.

(3) The agreement or compact that the Commissioner of Revenue Services is authorized to enter under this subsection may provide that, where this state is an insured's home state and where the independently procured insurance covers properties, risks or exposures located or to be performed both within and without this state, (A) the sum payable by the insured to this state under subsection (g) of this section shall be computed based on that portion of the gross premiums allocated to this state, based on a standardized premium allocation adopted by the states under such agreement or compact, multiplied by four per cent, (B) the sum payable by the insured to another state shall be computed based on that portion of the gross premiums allocated to such state, based on a standardized premium allocation adopted by the states under such agreement or compact, multiplied by such state's tax rate, and (C) to the extent that another state where properties, risks or exposures are located has failed to enter into an agreement or compact with this state, the portion of the gross premiums otherwise allocable to such other state shall be allocated to this state.

(4) The agreement or compact that the Commissioner of Revenue Services is authorized to enter under this subsection may provide for (A) recordkeeping requirements, (B) audit procedures, (C) exchange of information, (D) collection of taxes not paid by insureds within the time required under subsection (g) of this section, (E) disbursements of funds to other states that are parties to such agreement or compact, and (F) any additional provisions which will facilitate the administration of the agreement or compact.

(5) Notwithstanding the provisions of section 12-15, the Commissioner of Revenue Services may, under the terms of the agreement or compact entered into under this subsection, disclose return information, as defined in section 12-15, relating to insureds to any official of another state that is a party to such agreement or compact whose official duties require such disclosure.

(6) The Commissioner of Revenue Services may enter into cooperative agreements with processing entities located in this state or other states related to the capturing and processing of nonadmitted insurance premiums and nonadmitted insurance premiums tax data. Notwithstanding the provisions of section 12-15, the Commissioner of Revenue Services may, under the terms of any such cooperative agreement, disclose return information, as defined in section 12-15, relating to insureds to any official of the processing entity whose duties require such disclosure.

Sec. 2. Section 38a-743 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to nonadmitted insurance coverage procured, continued or renewed on or after July 1, 2011):

(a) Every person, firm, association or corporation licensed pursuant to the provisions of sections 38a-741 to 38a-744, inclusive, 38a-777 and 38a-794 shall pay to the commissioner on May first of each year a sum equal to four per cent of the gross premiums charged the insureds by the insurers during the period from January first to March thirty-first of that year, and on August first of each year a sum equal to four per cent of the gross premiums charged the insured by the insurers during the period from April first to June thirtieth of that year, on November first of each year a sum equal to four per cent of the gross premiums charged the insureds by the insurers during the period from July first to September thirtieth of that year and on February first of each year a sum equal to four per cent of the gross premiums charged the insureds by the insurers during the period from October first to December thirty-first of the preceding year, for insurance procured by such licensee pursuant to such license, less the amount of such premiums returned to such insureds, except that the premium tax shall not apply to any policy issued to the state of Connecticut or any agency [thereof] of the state or to any policy issued to any town, or agency of such town or special taxing district when said town, agency or department thereof or special taxing district appears in the policy as the named insured and as such is responsible for the payment of premiums shown on said policy. Each licensee shall also file on May first, August first, November first, and February first a return, in the form described by the commissioner, showing such information as the commissioner deems necessary. The provisions of this subsection shall not apply to nonadmitted insurance, as defined in subsection (b) of this section, that is procured, continued or renewed on or after July 1, 2011.

(b) For purposes of this subsection and subsections (c) to (g), inclusive, of this section:

(1) "Home state" means home state, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010;

(2) "Licensee" means a person, firm, association or corporation that is licensed pursuant to the provisions of sections 38a-741 to 38a-744, inclusive, 38a-777 and 38a-794 and that is a surplus lines broker, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010;

(3) "Nonadmitted and Reinsurance Reform Act of 2010" means Sections 511 to 542, inclusive, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, as amended from time to time;

(4) "Nonadmitted insurance" means nonadmitted insurance, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010; and

(5) "Nonadmitted insurer" means a nonadmitted insurer, as defined in Section 527 of the Nonadmitted and Reinsurance Reform Act of 2010.

(c) (1) With respect to nonadmitted insurance, where such coverage is procured, continued or renewed for an insured by a licensee on or after July 1, 2011, and where this state is an insured's home state, such licensee shall pay a tax equal to the sum of four per cent of the gross premiums charged such insureds by nonadmitted insurers, irrespective of the fact that the insurance policy may cover properties, risks or exposures located or to be performed both within and without this state.

(2) (A) For the period beginning on July 1, 2011, and ending September 30, 2011, each licensee shall pay to the Insurance Commissioner, on or before November 15, 2011, in accordance with procedures established and on forms provided by said commissioner, a tax on nonadmitted insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during such period.

(B) For the period beginning on October 1, 2011, and ending December 31, 2011, each licensee shall pay to the Insurance Commissioner, on or before February 15, 2012, in accordance with procedures established and on forms provided by said commissioner, a tax on nonadmitted insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during such period.

(3) For calendar years beginning on or after January 1, 2012, each licensee shall pay to the Insurance Commissioner, in accordance with procedures established and on forms provided by said commissioner, (A) on or before May fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a tax on such insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during the period from January first to March thirty-first of that year; (B) on or before August fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a tax on such insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during the period from April first to June thirtieth of that year; (C) on or before November fifteenth of each year in which nonadmitted insurance was procured, continued or renewed, a tax on such insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during the period from July first to September thirtieth of that year; and (D) on or before February fifteenth of each year succeeding a year in which nonadmitted insurance was procured, continued or renewed, a tax on such insurance equal to the sum of four per cent of the gross premiums charged insureds by nonadmitted insurers during the period from October first to December thirty-first of the preceding year.

(4) In the event of cancellation and rewriting of any nonadmitted insurance contract, the premium for purposes of this subsection shall be the premium in excess of the unearned premium of the cancelled insurance contract.

(5) If, pursuant to subsection (g) of this section, the Insurance Commissioner enters into a cooperative agreement, reciprocal agreement or compact with another state or states, and if the provisions set forth in such agreement or compact are different from provisions prescribed by this subsection, then the provisions set forth in such agreement or compact shall prevail.

[(b)] (d) Upon failure of any person to pay the premium tax due the commissioner on its due date, there shall be added thereto a penalty and interest, which interest shall [not be less than] be at the rate of one per cent per month or fraction of a month which elapses from the due date of such premium tax to the date of payment, and which penalty shall be in the amount of ten per cent of the whole or such part of the principal of the premium tax as is unpaid.

(e) This section shall be construed in such a manner as to avoid preemption under the Nonadmitted and Reinsurance Reform Act of 2010.

(f) This section shall not apply to any policy issued to the state of Connecticut or any agency of the state, or to any policy issued to any Connecticut town, or agency of such town or special taxing district when said town, agency or department thereof or special taxing district appears in the policy as the named insured and as such is responsible for the payment of premiums shown on said policy.

(g) (1) The Insurance Commissioner may enter into a cooperative agreement, reciprocal agreement or compact with another state or states to allocate among the states the nonadmitted insurance premiums taxes paid to an insured's home state, as provided by Section 521 of the Nonadmitted and Reinsurance Reform Act of 2010.

(2) The agreement or compact that the Insurance Commissioner is authorized to enter under this subsection shall include, but shall not be limited to, the National Association of Insurance Commissioners' Nonadmitted Insurance Multistate Agreement.

(3) The agreement or compact that the Insurance Commissioner is authorized to enter under this subsection may provide that, where this state is an insured's home state and where the nonadmitted insurance covers properties, risks or exposures located or to be performed both within and without this state, (A) the sum payable by a licensee to this state under this section shall be computed based on that portion of the gross premiums allocated to this state, based on a standardized premium allocation adopted by the states under such agreement or compact, multiplied by four per cent, (B) the sum payable by the licensee to another state shall be computed based on that portion of the gross premiums allocated to such state, based on a standardized premium allocation adopted by the states under such agreement or compact, multiplied by such state's tax rate, and (C) to the extent that another state where properties, risks or exposures are located has failed to enter into an agreement or compact with this state, the portion of the gross premiums otherwise allocable to such other state shall be allocated to this state.

(4) The agreement or compact that the Insurance Commissioner is authorized to enter under this subsection may provide for (A) recordkeeping requirements, (B) audit procedures, (C) exchange of information, (D) collection of taxes not paid by licensees within the time required under subsection (c) of this section, (E) disbursements of funds to other states that are parties to such agreement or compact, and (F) any additional provisions that will facilitate the administration of the agreement or compact.

(5) Notwithstanding any provision of section 12-15, the Insurance Commissioner may, under the terms of the agreement or compact entered into under this subsection, disclose information relating to surplus lines brokers or nonadmitted insurance permitted to be placed through surplus lines brokers to any official of another state that is a party to such agreement or compact whose official duties require such disclosure.

(6) The Insurance Commissioner may enter into cooperative agreements with processing entities located in this state or other states related to the capturing and processing of nonadmitted insurance premiums and nonadmitted insurance premiums tax data. Notwithstanding any provision of section 12-15, the Insurance Commissioner may, under the terms of any such cooperative agreement, disclose information relating to surplus lines brokers or nonadmitted insurance permitted to be placed through surplus lines brokers to any official of the processing entity whose duties require such disclosure.

Sec. 3. Subsections (b) and (c) of section 38a-271 of the general statutes are repealed and the following is substituted in lieu thereof (Effective from passage):

(b) The provisions of sections 38a-271 to 38a-278, inclusive, as amended by this act, other than section 38a-277, as amended by this act, do not apply to: (1) The lawful transaction of surplus lines insurance; (2) the lawful transaction of reinsurance by insurers; (3) transactions, in this state, involving a policy lawfully solicited, written and delivered outside of this state covering only subjects of insurance not resident, located or expressly to be performed in this state at the time of issuance, and which transactions are subsequent to the issuance of such policy; (4) transactions involving contracts of insurance independently procured pursuant to the unsolicited application of the insured or his agent which are reported and on which a premium tax is paid in accordance with section 38a-277, as amended by this act; (5) attorneys acting in the ordinary relation of attorney-client in the adjustment of claims or losses; (6) transactions, in this state, involving contracts of insurance issued to one or more industrial insureds, provided nothing herein shall relieve an industrial insured from the taxation imposed upon independently procured insurance in [subsection (c) of] section 38a-277, as amended by this act. For the purpose of this subdivision, an "industrial insured" shall mean an insured (i) which procures the insurance of any risk by the use of the services of a full-time employee acting as an insurance manager or buyer, or the services of a regularly and continuously retained qualified insurance consultant and (ii) whose aggregate annual premiums for insurance, excluding life, accident and health insurance, total at least fifty thousand dollars; (7) transactions involving contracts issued by a life insurance or annuity company, organized and operated without profit, to any private shareholder or individual exclusively for the purpose of aiding and strengthening educational institutions or charitable, health and welfare organizations by issuing insurance and annuity contracts only to or for the benefit of such institutions or organizations and individuals engaged in the service of such institutions or organizations; (8) transactions in this state involving group life and group sickness and accident or franchise sickness and accident insurance or group annuities where the master policy of such groups was lawfully issued and delivered in and pursuant to the laws of a state in which the insurer was authorized to do an insurance business to a group organized for purposes other than the procurement of insurance, and where the policyholder is domiciled or otherwise has a bona fide situs; (9) transactions in this state involving any policy of insurance or annuity contract issued prior to January 1, 1970.

(c) The provisions of section 38a-27 do not apply to: (1) The lawful transaction of surplus lines insurance; (2) transactions, in this state, involving a policy lawfully solicited, written and delivered outside of this state covering only subjects of insurance not resident, located or expressly to be performed in this state at the time of issuance, and which transactions are subsequent to the issuance of such policy; (3) transactions involving contracts of insurance independently procured pursuant to the unsolicited application of the insured or his agent which are reported and on which a premium tax is paid in accordance with section 38a-277, as amended by this act; (4) attorneys acting in the ordinary relation of attorney-client in the adjustment of claims or losses; (5) transactions, in this state, involving contracts of insurance issued to one or more industrial insureds, provided nothing in this section shall relieve an industrial insured from the taxation imposed upon independently procured insurance in [subsection (c) of] section 38a-277, as amended by this act; (6) transactions involving contracts issued by a life insurance or annuity company, organized and operated without profit, to any private shareholder or individual exclusively for the purpose of aiding and strengthening educational institutions or charitable, health and welfare organizations by issuing insurance and annuity contracts only to or for the benefit of such institutions or organizations and individuals engaged in the service of such institutions or organizations; (7) transactions in this state involving group life and group sickness and accident or franchise sickness and accident insurance or group annuities where the master policy of such group was lawfully issued and delivered in and pursuant to the laws of a state in which the insurer was authorized to do an insurance business to a group organized for purposes other than the procurement of insurance, and where the policyholder is domiciled or otherwise has a bona fide situs; (8) transactions in this state involving any policy of insurance or annuity contract, other than a reinsurance contract, issued prior to January 1, 1970. For the purposes of subdivision (5) of this subsection, an "industrial insured" means an insured (A) which procures the insurance of any risk by the use of the services of a full-time employee acting as an insurance manager or buyer, or the services of a regularly and continuously retained qualified insurance consultant, and (B) whose aggregate annual premiums for insurance, excluding life, accident and health insurance, total at least fifty thousand dollars.

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill allows the Department of Insurance (DOI) and the Department of Revenue Services (DRS) to take actions necessary to carry out provisions of the federal Nonadmitted and Reinsurance Reform Act of 2010. Conformance with this federal statute will allow the state to continue to collect approximately $17.5 million in current surplus lines premium and unauthorized insurers premium taxes annually. Of these funds, $11.3 million is collected by DOI from surplus lines brokers and $6.2 million is collected by DRS from those who procure insurance from an unauthorized insurer.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

OLR Bill Analysis

sSB 1217

AN ACT CONCERNING NONADMITTED INSURERS.

SUMMARY:

To carry out the provisions of the 2010 federal Nonadmitted and Reinsurance Reform Act (NRRA), this bill (1) makes various changes to the premium taxes on nonadmitted (i.e., unauthorized) insurance policies and (2) allows the revenue services and insurance commissioners to enter into an agreement with other states regarding the allocation of such premium taxes among the states. Under the NRRA, states must adopt, by July 21, 2011, uniform requirements and procedures for allocating and collecting premium taxes on nonadmitted insurance policies in order to continue collecting the tax.

Under current law, the state imposes a 4% tax on gross premiums charged by nonadmitted insurers on insurance policies procured directly or through licensed surplus lines brokers. To conform the tax to the NRRA, the bill applies that tax only to nonadmitted insurance policies where Connecticut is the insured's “home state.” These changes apply to any nonadmitted insurance policy procured, continued, or renewed on or after July 1, 2011.

Among other things, the bill also:

1. modifies the timeline for individuals and brokers to file returns and remit tax payments;

2. amends the late filing penalty and interest for delinquent taxpayers;

3. allows the revenue services and insurance commissioners to enter into an agreement with other states that provides a formula for allocating premium taxes and establishes other administrative requirements and procedures; and

4. allows the commissioners to disclose to certain individuals tax return and other information that is otherwise confidential under state law, pursuant to their interstate agreement.

EFFECTIVE DATE: Upon passage and applicable to nonadmitted insurance coverage procured, continued, or renewed on or after July 1, 2011.

NONADMITTED INSURANCE PREMIUM TAX

Applicability

Under current law, the premium tax on independently procured unauthorized insurance (i.e., policies not purchased through a broker) applies to any individual procuring, continuing, or renewing insurance with an unauthorized insurer on an insured risk that (1) resides, (2) is located, or (3) is performed in the state. The premium tax on policies procured through a licensed surplus lines broker applies to the gross premiums for all policies the broker sells, minus any premium amounts returned to policyholders.

To conform to NRRA provisions, the bill instead applies the tax to any nonadmitted insurance policy procured directly or through a licensed surplus lines broker where Connecticut is the insured's home state. Under the NRRA, an insured's “home state” is the state in which an insured maintains its principal place of business or residence. If the insured risk is located entirely outside of the state in which the insured resides or maintains its principal place of business, the “home state” is the state to which the greatest percentage of the insured's taxable premium is allocated. In the case of an affiliated group that is insured on a single nonadmitted insurance contract, the “home state” is the state to which the largest percentage of premium is allocated.

The bill provides that the tax applies even if the policy covers an insured risk that is only partially in Connecticut.

As under current law, the tax on surplus lines broker premiums does not apply to policies issued to (1) the state, (2) any town, or (3) any special taxing district if any of these are named on the policy and responsible for paying its premiums. Also, as under current law, the tax on independently procured policies does not apply to (1) individual life or disability, (2) wet marine, or (3) transportation insurance.

Tax Administration

Under current law, individuals who procure an insurance policy from a nonadmitted insurance company must withhold 4% of the premium for premium taxes, file an annual tax return, and remit the tax by March 1^st to the Department of Revenue Services (DRS). Licensed surplus lines brokers, on the other hand, must file quarterly tax returns and remit the tax to the Department of Insurance (DOI) by the first day of February, May, August, and November. The bill requires both individuals and brokers to file quarterly tax returns and remit the tax to DRS and DOI, respectively, by the 15^th day of these months.

Late Filing Penalty and interest

Under current law, surplus lines brokers that fail to pay the premium tax are subject to a penalty of 10% of the tax due plus at least 1% interest for each full or partial month that the tax remains unpaid. The bill makes the interest rate 1% and subjects individuals who fail to pay the tax on independently procured policies to the same penalty and interest. Currently, these taxpayers are subject to a penalty of 10% of the tax due or $75, whichever is greater, plus 1% interest.

Under current law, the DRS commissioner may ask the attorney general to recover any delinquent taxes on independently procured policies. The bill authorizes the attorney general to also recover any related interest and penalties. As under current law, the DRS commissioner may waive all or part of the penalty if he finds that the taxpayer's failure to pay the tax has a reasonable cause and is not intentional or due to neglect.

Preemption

The bill requires that its provisions be construed so as to avoid preemption under the NRRA.

NONADMITTED INSURANCE PREMIUM AGREEMENT

The bill allows the DRS and DOI commissioners to enter into a cooperative or reciprocal agreement or compact with other states to allocate nonadmitted insurance premium taxes among them in accordance with the NRRA's requirements. The agreement may include, but is not limited to, the National Association of Insurance Commissioners' (NAIC) Nonadmitted Insurance Multistate Agreement (NIMA). Under the bill, if the agreement's provisions differ from those in the bill, the agreement prevails.

Premium Allocation

The agreement may provide a formula for allocating nonadmitted insurance premiums for policies that cover insured risks that are only partially in the state. For such policies, premiums allocated to Connecticut are subject to the state's 4% tax, while premiums allocated to other states that are a party to the agreement are subject to each state's respective tax rate. To the extent that a policy covers an insured risk in a state that is not a party to the agreement, the portion of gross premiums otherwise allocable to that state must be allocated to Connecticut.

Administrative Requirements

The agreement may include requirements or procedures for (1) recordkeeping, (2) audits, (3) information-sharing, (4) collecting delinquent taxes, (5) disbursing funds to other states in the agreement, and (6) any additional provisions that will facilitate its administration.

Cooperative Agreements with Processing Entities

The commissioners may enter into cooperative agreements with processing entities in this or other states concerning the collection and processing of nonadmitted insurance tax premiums and data.

Disclosing Confidential Information

Although the DRS and DOI commissioners are generally prohibited from disclosing tax return information, the bill allows them to disclose return information related to insured individuals pursuant to the agreement's terms. “Return information” includes, among other things, a taxpayer's identity and the nature, source, or amount of the taxpayer's income, tax liability, and tax payments. The bill also allows the DOI commissioner to disclose information concerning surplus lines brokers that is otherwise confidential under state law, pursuant to the agreement's terms.

Both commissioners may disclose the information to officials in (1) other states that are a party to the agreement and (2) entities that collect and process nonadmitted insurance premiums and related data, if their official duties require such information.

BACKGROUND

NRRA

The NRRA was signed into law on July 21, 2010 as part of The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (P. L. 111-203, 124 Stat. 1376 (2010)). Its provisions, most of which take effect on July 21, 2011, preempt state surplus lines laws on premium tax collection, allocation, and distribution.

Nonadmitted Insurance Multistate Agreement

This agreement establishes procedures for participating states' payment and allocation of premium tax revenue. It also establishes a clearinghouse for the coordination and dissemination of premium tax and transaction data related to nonadmitted insurance multi-state risks. States participating in NIMA must share tax revenue they are authorized to collect under the NRRA as the home state on a nonadmitted insurance placement.

Surplus Lines Insurance

Surplus lines insurance is property and casualty insurance coverage that is not available from licensed Connecticut insurers (also called admitted companies) and must be purchased from a nonadmitted carrier. Nonadmitted insurers are not licensed to transact business in the state but may still offer a line of insurance or a particular type of coverage in the state through a surplus lines broker. Examples of surplus lines insurance include commercial general liability insurance, fire insurance, mobile home policies, and medical malpractice insurance.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute