On May 24, 2007, optional federal charter (OFC) legislation was reintroduced into the Senate as the National Insurance Act of 2007 (S. 40) (NIA), co-sponsored by John Sununu (R-NH) and Tim Johnson (D-SD). A similar bill is expected to be reintroduced into the House by Ed Royce (R-CA) in the coming weeks. The bill closely resembles the original legislation filed last year by the same co-sponsors. The major changes in the new bill are provisions concerning surplus lines/nonadmitted insurers and the insolvency/guaranty funds.
In the new bill, surplus lines is added as a type of business that a person with a federal producer’s license would be authorized to sell under the federal charter program; moreover, the new bill prohibits/preempts the levying of state premium taxes on surplus lines policies except in the state where the insured maintains its principal place of business.
Regarding insolvency, the new bill would require that the rules adopted pertaining to federal receiverships be “substantially similar” (rather than “based upon”) provisions of Uniform Receivership Law. There are also more detailed provisions concerning coverage afforded by the federal guaranty fund, which would preempt the state guaranty funds that do not become “qualified” to guaranty federally-chartered insurers; moreover, this preemption would extend to state-chartered insurers doing business in states with non-qualified funds. To qualify, state funds would need to comply with the coverage standards afforded by the national fund. Also new is that state property/casualty and life guaranty associations may qualify separately under new law.
While industry proponents and opponents have been weighing in, it is unclear whether momentum for the NIA will be gained in Congress this year. Watch this space for further updates.