The New York State Senate has passed a bill authorizing the formation and licensing of New York domestic excess lines insurance companies. The bill would allow such companies to write insurance in New York on the same basis as unlicensed excess lines insurers even though incorporated in New York.

Currently, U.S. domestic surplus lines insurers are required to be licensed as admitted insurers in at least one state (typically its state of domicile). This requirement for admitted status generally prevents a U.S. domestic surplus lines insurer from insuring surplus lines risks in its state of domicile. Surplus lines insurers writing multistate risks have traditionally been required to provide coverage on the portion of the risk attributable to their state of domicile from a second insurer, often an affiliate domiciled in another jurisdiction. This creates unnecessary inefficiencies and additional costs which are eventually passed on to the insured. By comparison, under the Nonadmitted and Reinsurance Reform Act, which came into effect on July 21, 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), non-U.S. surplus lines companies that appear in the quarterly listing of alien insurers published by the NAIC International Insurers Department (or “IID-listed alien insurers”) can write insurance as surplus lines in all fifty states and can write nationwide coverage for multistate risks without the need to separate any portion of the risk.

Several states have crafted a solution to the admitted status problem through the adoption of “domestic” surplus lines insurer statutes. Domestic surplus lines insurer laws treat electing insurers organized in the state as nonadmitted for certain purposes, including the ability to write surplus lines insurance business in the state. Thus, a surplus lines company domiciled in a state with a domestic surplus lines insurer law can write surplus lines business across all states, including in its state of domicile. Six states (Arkansas, Delaware, Illinois, New Hampshire, New Jersey and Oklahoma) have enacted domestic surplus lines insurer laws, and the proposed legislation would add New York to this growing list of states. Illinois was the first state to enact such a law and had licensed thirteen domestic surplus lines insurance companies as of November 18, 2010 when such information was most recently reported. The Delaware and New Jersey statutes became effective in 2011, and New Jersey has since licensed one domestic surplus lines insurer.