PUBLISHED ON: August 14, 2012
For the past year, industry professionals have been trying to determine whether or not the Nonadmitted and Reinsurance Reform Act (NRRA) applies to captives and, if so, what they should do about it. This relatively small addition to the landmark Dodd-Frank financial reform caused outsized tremors across the captive insurance industry because the language of the statute was less than clear about whether it applied only to surplus lines insurers or to captives as well. While the NRRA was the result of a long-standing effort to organize the way premium taxes are collected from surplus lines insurance companies, the lack of clarity allows for differing interpretations.
Rather than using a definition that limited the statute to surplus lines companies, the NRRA states that it applies to any “nonadmitted insurer,” which it defines as “an insurer not licensed to engage in the business of insurance” in the policyholder’s home state. Naturally, this sparked discussion over whether Congress, in its haste to insert a minor provision into the already unwieldy Dodd-Frank Act, inadvertently upended one of the organizing principles of the captive insurance world: regulation and taxation by the captive’s domicile.