Jun 27, 2017

Bills to raid NJSLIGF reported out of legislative committees

Legislation (S-3328/A-5005) that would transfer $8 million from the Surplus Lines Insurance Guaranty Fund to the state’s general fund was reported out of both the Assembly Budget Committee and the Senate Budget and Appropriations Committee on June 26. The bills, sponsored by Sen. Paul Sarlo, D-36, and Assemblyman John Burzichelli, D-3, respectively.

The NJSLIGF was established to provide a safety net for policyholders and claimants of insolvent surplus-lines insurance companies by ensuring the payment of claims. All surplus-lines companies in New Jersey are required to be members of the fund and to contribute funds for its operation. Each member insurer is responsible for making an initial one-time payment of $25,000 into the fund. Additionally, a surcharge, in an amount determined by DOBI, is collected on any surplus-lines coverage policy issued in New Jersey.

However, the surcharge has not been collected since 1993 and the Department of Banking and Insurance ceased to collect the initial $25,000 payment as of July 21, 2011, due to limits imposed by the federal "Dodd-Frank Wall Street Reform and Consumer Protection Act." In neither case has the DOBI found a need to reinstatement of the fees to be necessary to meet the current and projected obligations and expenses of the fund. Instead the fund has generated revenue from net investment and 1. interest income; and 2. distributions collected in connection with insolvency proceedings.

Since its inception the NJSLIGF has paid benefits due to the insolvency of 14 surplus-lines insurers. However, only three of those three insolvencies have occurred in this millennium. Due to the lack of claims, $100 million in resources have been diverted from the fund since 2000.

At the end of 2015, the fund carried a balance of $12.2 million with a combined indemnity and loss adjustment expenses reserves of $1.3 million. The governor’s proposed $8 million transfer in from the NJSLIGF to the general fund would leave the NJSLIGF with a balance of approximately $4.2 million.

PIA opposes the raiding of the NJSLIGF over concerns that $4 million remaining in the fund may not be sufficient to meet its current obligation, which could result in surcharges being assessed to policyholders. PIA also is concerned that this transfer could weaken the New Jersey surplus-lines market. PIA supports the total elimination of the SLIGF in order to prevent unnecessary surcharges to surplus-lines policyholders.

The bills now head to the Assembly and Senate floor, respectively for further consideration.