National Underwriter - March 12, 2012

NAPSLO: No NRRA Tax-Sharing Plan Is
Better Than Two Competing Approaches

NRRA’s intent was to streamline and provide consistency within the industry; having two entirely different approaches, with different rules and regulations, clearly accomplishes neither goal, in NAPSLO’s view.

Therefore, the organization asserts, no arrangement is superior to two inconsistent ones.

And indeed, the most popular “allocation” option among the states right now: not to participate in any tax-sharing agreement.

Currently, 24 states representing 63 percent of nationwide premium volume have no plans to participate in tax-sharing agreements.

And this “100-percent approach”—in which each home state collects 100 percent of the tax on every surplus-lines policy—finds plenty of favor among surplus-lines executives.

“It is the clear, simple approach for our industry,” says James Drinkwater, president of the brokerage division of Kelly also points out that “the cost/ benefit of tax sharing is not clear. Most surplus-lines transactions represent single-state transactions, and based on recent data…any ultimate amount of tax sharing will likely be insignificant in relation to the cost of tax sharing.” NU

The 100-percent approach—in which each home state collects 100 percent of the tax on every surplus lines policy—is the “clear, simple approach for our industry.”

James Drinkwater, President of the Brokerage Division of Am WINS and Co-chair of the NAPSLO Legislative Committee

BY CHAD HEMENWAY

ALTHOUGH THE Nonadmitted and Reinsurance Reform Act (NRRA) went into effect in July of last year, states are continuing to debate which, if any, tax-sharing option to adopt.

As a result, neither of the two competing compacts—NIMA (the Nonadmitted Insurance Multistate Agreement)

and SLIMPACT (the Surplus Lines Insurance Multistate Compliance Compact)—has been implemented.

And that inaction is just fine for the surplus-lines industry—or at least better than the alternative, say legislative committee leaders of the National Association of Professional Surplus Lines Offices (NAPSLO).

At NAPSLO’s Mid-year Leadership Forum in Scottsdale, Ariz., industry executives on the association’s legislative committee updated membership on the NRRA.

And their message: No tax-sharing agreement is better than the compliance nightmare of two competing systems.

“That is not workable,” says Brady R.
Kelley, NAPSLO’s executive director. “That is
anything but uniform.”
While NRRA is meant to encourage
nationwide adoption of uniform
requirements, forms and procedures for the
reporting, payment, collection and allocation
of surplus-lines premiums taxes, it does not
require the states to standardize procedures.

Catastrophes, Reserves Halve Liberty Mutual’s Q4 Earnings

BY CHAD HEMENWAY

NET INCOME at Liberty Mutual In- surance fell nearly 51 percent in 2011’s fourth quarter and about 78 percent for the year on catastrophe losses and reserve strengthening.

Liberty Mutual profited $284 million during Q4 2011, down from $576 during Q4

2010. The combined ratio for the period was 104.2, up 5 points from 2010.

“Another quarter, another catastrophe,” David H. Long, president and CEO of Liberty Mutual, said during a conference call.

During the last three months of 2011 the company suffered $90 million in losses related to the flooding in Thailand. Most of the loss is attributable to a Lloyd’s syndicate. Local companies took about $20 million in losses, Long said during the call.

Liberty Mutual recorded a total of $234 million in cat losses during the fourth quarter, compared to $198 million during the same time the prior year. The company posted net income of $365 million for 2011, down drastically from $1.68 billion in 2010.

Results included hundreds of millions in reserve

strengthening. After a “ground-up reserve study,” Liberty Mutual strengthened asbestos-related reserves $294 million in 2011.

Additionally, a re-estimation of current accident-year loss reserves resulted in a Q4 2011 net-incurred loss of $121 million.

“I’m pretty happy it’s no longer 2011,” Long said. “At least, I thought so until last weekend,” when severe storms and tornadoes ravaged a dozen states.

David H. Long, President and CEO, Liberty Mutual

included increases of 10.6 percent and 6.8 percent in net-written premium during the fourth quarter and year, respectively.

Long said Liberty Mutual continues to see favorable growth trends in domestic personal lines, with rate increases of more than 3 percent in auto and 5. 5 percent in homeowners’ insurance.