Surplus Lines Regulatory Framework

Question 1

US Insurers-Non-Admitted Insurer Eligibility

Answer 1

• Insurer meets the criteria established through the non-admitted and reinsurance reform act, in accordance with the NAIC non-admitted insurance model act (870)
• Insurer is authorized to write the type of insurance in its domiciliary jurisdiction
• Must meet minimum capital and surplus in their state of domicile or 15M, whichever is greater
• Be a domestic surplus lines insurer

Question 2

Domestic Surplus Lines Insurer Qualifying Criteria

Answer 2

• Meet minimum capital and surplus requirement
• Eligible surplus lines insurer in at least one other jurisdiction
• Board of director resolution
• Insurance commissioner’s approval

Question 3

Non-Admitted Insurer Eligibility: Non-US Insurers

Answer 3

• Must be listed on the NAICs quarterly listing of alien insurers
• Approved by NAICs international insurers department and the surplus lines working group

Question 4

Quarterly Listing Core Requirements

Answer 4

1. Capital Requirements
2. Trust Fund Requirements
3. Ethics and integrity Evaluation

Question 5

Quarterly Listing Core Requirement: Capital Requirements

Answer 5

Minimum required capital and surplus is 50 million
- equity requirement is evaluated
- adequacy is determined given the insurers risk profile
- inadequate equity will result in an equity requirement above the minimum

changes for Lloyds: 100m in US trust find

Question 6

Quarterly Listing Core Requirement: Trust Fund Requirements

Answer 6

Entities on the quarterly listing required to establish a US trust fund; minimum is a percentage of the US gross surplus lines liabilities, cannot be less than 6.5 or in excess of 250 million

Question 7

Quarterly Listing Core Requirement: Ethics and Integrity Evaluation

Answer 7

Key officers and directors of a quarterly listing
(a) required to meet high ethics and integrity standards
(b) must have proven and demonstrable track record of relevant experience and competence

Question 8

Ongoing Quarterly Listing Eligibility

Answer 8

Annual Renewal filing

Trust fund monitoring

Notification of decline in equity

Notification of change in control and re-application

Question 9

Broker Licensure

Answer 9

• Hold property and casualty license
• Pass written examination
• Paying fee
• Keep records that regulators can access and audit
• Bond required in some states

Question 10

Non-Admitted US Market Regulation

Answer 10

• Protects provide trust and peace of mind
• Reputable and solvent non-admitted insurers
• Permits orderly access to surplus lines insurance
• Non-admitted market encourages admitted insurers to provide new and innovative types of insurance
• Prescribed process for tax payment

Question 11

State Surplus Lines Law

Answer 11

Undercut Premiums
- state prohibit the non-admitted market from undercutting rates of admitted insurers
- this is done for consumer protection
- risk placed in the non-admitted market because admitted insurers will not take on the risk

Diligent Search Effort
- surplus lines brokers must complete a diligent search effort
- some established export lists
- some states have eliminated the requirement altogether

Disclosure
- Surplus lines brokers must provide written noticed of non-licensure
 This means they are exempt from the same oversight as an admitted insurer
 The policy is not covered by the solvency protection of a state guaranty fund

Documentation
- Surplus lines broker required to report each non-admitted transaction according to the state’s schedule
- This is to confirm that place was handled and reported correctly

Taxes
- Surplus lines transaction is subject to premium tax levied by an insureds home state
- Responsibility of tax collection falls on the surplus lines broker

Question 12

Surplus Lines Laws Resource

Answer 12

• Locke Lord LLP
• Financial Data: Domestic US surplus lines insurer
  ○ Schedule T

Question 13

State Stamping Offices

Answer 13

• Ensure reputable and financially stable surplus lines market
• Monitor activities of licensees to facilitate regulatory compliance
• Protect tax revenue of state

Question 14

Stamping Office Responsibilities

Answer 14

• Placements reviewed to assure compliance with state laws and regulations
• Premium data compiled for statistical purposes
• Reports filed with the regulator concerning the surplus lines transactions in the state
• Accurate and timely remittance of the surplus lines premium tax is facilitated
• In a limited number of states, the stamping office performs insurer analysis

Question 15

Surplus Lines Associations

Answer 15

• A group of surplus lines professionals that advocate for the surplus lines industry and that provide information on local issues

Question 16

Surplus Lines Associations Initiatives

Answer 16

• Ensure compliance with the laws of the state
• Communicate and educate consumers
• Complete financial reviews
• Work with other state regulators and the legislation
• Collect data and work with brokers on timely collection of taxes
• Work with the insurance department on various issues

Question 17

Surplus Lines (c) Working Group

Answer 17

• Maintains and drafts new guidance within the IID plan of operation
• Reviews and considerations appropriate decisions regarding applications for admittance to the quarterly listing
• Provides a forum for surplus lines related discussion
• Determines final eligibility of insurers on the quarterly listing

Question 18

Surplus Lines (c) Task Force

Answer 18

• Provides oversight into the work produced within the surplus lines working group
• Provides a forum for discussion of current and emerging surplus lines related issues and topics of public policy and determines appropriate regulatory response and action
• Reviews and analyze quantitative and qualitative data on our domestic and alien surplus lines industry results and trends
• Monitors federal legislation related to the surplus lines market and ensure all interested parties remain apprised
• Develops or amends relevant NAIC model laws, regulations, and/or guidelines