- Texas maintains a list of eligible surplus lines insurers (see Other Comments section #1).
- Texas does have a Surplus Lines Association and a Stamping Office (see Other Comments section #8).
- Texas does not have an Export List.
- Texas does have an industrial insured exemption but adopted legislation in 2013 which aligns the Exempt Commercial Purchaser definition of the NRRA.
- Surplus lines tax: 4.85% (+ stamping fee of .075% (.00075)) (reduced from .15% effective January 1, 2021), payable by broker (TX DOI imposes assessments/enforcement actions for late filings).
- Texas has not affiliated with any existing compact but has adopted legislation allowing it to keep 100% of surplus line premium tax where Texas is the home state (SB 1, Article 18).
- Texas does allow domestic surplus lines insurers in the state.
Eligibility and Filing Requirements (All Insurers):
- The provisions of the NRRA are effective July 21, 2011.
- The placement of nonadmitted insurance is solely subject to the statutory and regulatory requirements of the insured’s home state.
- Nonadmitted insurance includes both surplus lines and independently procured insurance but does not include unauthorized insurance transactions by a non-licensed insurer that may be subject to regulatory actions and taxation by a state.
- New and renewal policies and any modifications made with an effective date prior to July 21, 2011, remain subject to the laws and regulations of each state as of the policy effective date.
- New and renewal policies and any modifications made with an effective date on or after July 21, 2011, are only subject to the laws and regulations of the home state of the insured.
- The NRRA provisions should be applied to multi-year and continuous-until-cancelled policies on the policy’s first anniversary date on or after July 21, 2011.
- Only the home state of an insured can require premium tax on a multi-state policy; however, states may join an agreement or compact to allocate the taxes among the various states afforded coverage under the policy.
Eligibility and Filing Requirements (Alien Insurers Only):
(For Alien Insurers Not on NAIC Quarterly List but Grandfathered under New Law Effective 6/14/13)
- Annual Report: expressed in US Dollars.
- Certificate of Authority: must be certified and indicate the kind and classes of business the company is entitled to write.
- List of Texas Surplus Lines Agents.
- Three Year Business Plan: using Form FIN 424.
- Biographical Affidavits: (current within 3 years) for each officer, director and management of the insurer.
- Trust Agreement and Current Statement of Account.
- Premium Report.
- Actuarial Opinion: due August 1.
Eligibility and Filing Requirements (Foreign Insurers Only):
- Certificate of Authority or License: certified copy from insurer’s state of domicile.
- Financial Statements: The Texas DOI may review statements filed with the NAIC and in accordance with NAIC’s guidelines.
- Lines of Business: Anticipated to be written in Texas.
- Texas Insurance Code, Chapter 229, gives the Comptroller the authority to join in a tax compact or other agreement. If the Comptroller decides to join in such an agreement, the industry will be notified in order to prepare for any necessary reporting and filing changes.
- The NRRA does not preempt any state law, rule or regulation that applies to the placement of workers’ compensation or excess insurance for self-funded workers’ compensation plans.
Types of Insurance Exempted from Surplus Lines Regulation:
None. (see Other Comments section #3 below).
Other Comments or Requirements:
- Texas eligibility search available at https://www.tdi.texas.gov/insurer/surpluslines.html or at Surplus Lines Service Office of Texas: https://www.sltx.org/insurers/eligible-insurer-list/eligible-insurers/.
- Onus is on broker to ascertain financial stability of insurer.
- Texas Insurance Code (Chapter 225) provides tax exemption for premiums on risks or exposures which are properly allocated to federal waters, international waters or under jurisdiction of a foreign government. Risks located in Texas waters are taxable under state law. Tax exemption does not pre-empt the reporting of the surplus lines policy to the Surplus Lines Stamping Office of Texas, unless 100% of the exposure is tax-exempt or located in other state(s).
- If a non-resident broker license is being sought by a corporation or partnership, at least one officer or director must also obtain an individual surplus lines license to receive the corporate license for the agency or partnership. If there are any other officers, directors, partners or employees in the agency that will be doing the acts of a surplus lines agent, they will be required to have an individual surplus lines license as well. Applicant must also have either an underlying General Lines P&C Agent license or an MGA license in Texas. SB697 adopted in the 83rd Legislative session does not require an underlying license for certain non-resident surplus lines agents who meet specific criteria outlined in Texas Insurance Code section 981.203(a-1).
- All insurance companies, including surplus lines insurers, are required to promptly refund to the insured any unearned premium for a policy.
- Rates charged by all insurers, including surplus lines insurers, must be “just, fair, reasonable, adequate, not confiscatory and not excessive for the risks to which they apply, and not unfairly discriminatory.”
- Texas no longer requires a surety bond or other proof of financial responsibility for licensure of surplus lines agents.
- Texas Surplus Lines AssociationWebsite: www.tsla.org.
Contact: Jean Patterson, Executive DirectorTexas Stamping Office
Contact: (TBD), Executive Director
- In 2009, Texas created an unauthorized insurance guaranty fund to help pay the claims of unauthorized insurers. Funds will be derived from fines and penalties imposed on unlicensed insurance entities and licensed entities that are doing insurance business in Texas without a license.
- The Texas legislature enacted legislation in 2011 which made significant reforms to the operation of the Texas Windstorm Insurance Association. It affects surplus lines insurers in that it redefines the types of policies subject to premium allocation reporting and potential surcharging for the funding of Class 2 public securities. It specifies that only fire and allied lines, farm and ranch owners, residential property, private passenger automobile liability and physical damage, commercial automobile liability and physical damage, and the property portion of commercial multi-peril insurance policies are subject to surcharging.
- The Texas Legislature enacted Legislation in 2013 which aligns state law to the NRRA requirements.
- A policy issued by an eligible surplus lines insurer or a certificate of insurance issued by the surplus lines agent must contain a provision stating and designating the Person to whom the commissioner is to mail process. The plaintiff must supply this address in any citation served under this section.A surplus lines document must state, in 11-point type, the following:This insurance contract is with an insurer not licensed to transact insurance in this state and is issued and delivered as surplus line coverage under the Texas insurance statutes. The Texas Department of Insurance does not audit the finances or review the solvency of the surplus lines insurer providing this coverage, and the insurer is not a member of the property and casualty insurance guaranty association created under Chapter 462, Insurance Code. Chapter 225, Insurance Code, requires payment of a (insert appropriate tax rate) percent tax on gross premium.
A surplus lines document must show:
(1) the description and location of the subject of the insurance;
(2) the coverage, conditions, and term of the insurance;
(3) the premium and rate charged, and premium taxes to be collected from the insured;
(4) the name and address of:
(A) the insured;
(B) the insurer; and
(C) the insurance agent who obtained the surplus line coverage; and
(5) if the direct risk is assumed by more than one insurer:
(A) the name and address of each insurer; and
(B) the proportion of the entire direct risk assumed by each insurer.
- Texas enacted Legislation in 2017 which exempts from diligent effort requirements any industrial insureds that employ qualified risk managers, have aggregate nationwide commercial insurance premiums of $25,000 in the previous year and have 25 full-time employees.
- In 2018, the Texas Department of Insurance (“TDI”) repealed and replaced Chapter 15 of the Texas Administrative Code (“the Code”). The repeal of existing Chapter 15 and the adoption of new Chapter 15 were necessary to implement legislation that amended Insurance Code Chapter 981, concerning surplus lines insurance.SB 951 amended Insurance Code Chapter 981 to comply with the Non-admitted and Reinsurance Reform Act (NRRA). The NRRA is a section of the Dodd-Frank Act that governs surplus lines insurance. SB 951 clarified that Chapter 981 applies to surplus lines insurance if the insured’s home state is Texas, provides applicable definitions, exempts commercial purchasers, and states that agreements regarding uniform surplus lines insurance standards made between Texas and other states are binding. The repeal of sections conflicting with SB 951 and new §§15.1, 15.4, 15.110, 15.111, and 15.301 address requirements of SB 951.HB 1405 amended Insurance Code Chapters 225 and 981 and relates to the collection of surplus lines insurance premium taxes for insurance placed with a managing underwriter. HB 1405 clarifies that in instances where more than one individual with a surplus lines license is involved in a transaction, the parties may enter into a written agreement at or before the time coverage is bound under the policy stating which party is responsible for the typical agent’s duties. HB 1405 requires the surplus lines agent and the managing underwriter maintain a record of the agreement with each policy to which the agreement applies. New §15.108 addresses requirements of HB 1405.SB 697 amended Insurance Code Chapter 981 to allow non-resident surplus lines agents to do business in Texas without a property and casualty license, provided they comply with their domiciliary state’s licensing requirements. To qualify, the non-resident surplus agent must also have a professional relationship with a licensed property and casualty agent in Texas who first conducts a search for available coverage from an admitted insurer in Texas before placing insurance through the non-resident surplus lines agent. The non-resident surplus lines agent must also supply sufficient information to the Commissioner demonstrating that the agent’s home state does not require property and casualty licensure to obtain a surplus lines license. New §15.4 and §15.5 address requirements of HB 697.
HB 1559 amended Chapter 981 to authorize a surplus lines agent to offer coverage to an industrial insured that employs or retains a qualified risk manager and either pays annual premiums of at least $25,000 or employs at least 25 employees, without first satisfying Insurance Code §981.004(a)(1). Insurance Code §981.004(a)(1) addresses whether the full amount of required insurance can be obtained, after a diligent effort, from an insurer authorized to write and writing that kind and class of insurance in Texas. The bill also requires that the surplus lines agent keep certain records related to the insured’s qualifications as an industrial insured. New §15.110 and §15.112 address requirements of HB 1559.
HB 2492 amended Chapter 981 to authorize a property and casualty insurance company organized under statutory provisions of the Insurance Code that has capital and surplus in an amount of at least $15 million dollars to apply to TDI for designation as a domestic surplus lines insurer. New §15.5 and §15.301 address requirements of HB 2492.
Also included in the repeal of Chapter 15 is the repeal of tax rules related to the calculation or allocation of premium taxes, because taxes are under the scope of the Texas Comptroller of Public Accounts. Repealing these types of tax rules in Chapter 15 avoids potential conflicts between TDI’s and the comptroller’s rules. The comptroller’s rules are in 34 TAC Part 1.
In addition to statutory reasons and rule review, the newly adopted sections contain language to clarify requirements for the industry and consumers. In addition to organizing the sections into four subchapters, it also breaks requirements into short subsections and paragraphs to aid readability.
In total, there are six new sections that do not contain provisions similar to those in the repealed sections: §15.3, relating to regulation of policies; §15.7, relating to submission of applications, notices, and correspondence; §15.111, relating to exempt commercial purchaser documentation; §15.112, relating to industrial insured documentation; §15.114, relating to untimely filed policies; and §15.201, relating to Commissioner approval of the stamping office’s plan of operation.
- Texas enacted legislation in 2019 eliminating the diligent search requirement for exporting flood insurance to the surplus lines market.