Industry Issues | Surplus Lines Reform

Ohio House Committee Holds Hearing on Domestic Surplus Lines Insurer Legislation

Legislative Update - Ohio

DSLI legislation is working its way through the Ohio House. The Ohio House Committee on Insurance held initial hearing of HB 749 on November 14. Under this bill, a domestic insurer may be authorized to offer surplus lines insurance products as domestic surplus lines insurer.

Sponsor written testimony and bill analysis were submitted as part of the hearing. The only other commentary was a committee member's inquiry into eliminating the "due diligence" requirement of contacting 5 authorized carriers prior to placement of insurance in the surplus lines market. Discussion on that inquiry was tabled for the hearing.

As it relates to the written testimony, Rep. LaTourette states, "Also, note that surplus lines are commercial lines and do not intrude on personal lines." PCI will closely monitor the legislative discussion to ensure that the DSLI is not unduly precluded from writing any personal lines coverage that may otherwise be written in the surplus lines market. Of the over $551M of total premiums reported in 2017 to be written surplus lines in OH (excluding Lloyds & Syndicates), under $2.5M are for personal lines coverage.

Additionally, the assistant majority floor leader states, "The benefits of the proposal largely flow to the surplus lines insurer. Currently, the owner likely must manage multiple regulatory relationships in terms of financial regulation - the relationship in their domiciliary state and the state of domicile for the surplus lines company. If adopted, this proposal would allow a company to streamline their organization into fewer domiciliary jurisdictions."

PCI will emphasize that the benefits of the proposal also flow to the consumers in Ohio who will garner another market for their hard-to-place risks. Additionally, the ODI would have the financial regulatory authority over a domestic carrier that not only writes surplus lines business in other states but ensures the solvency strength of a company writing such risks for the benefit of consumers of the state. And, to further clarify, the multiple regulatory relationships that would be streamlined are due to the existing requirement that - in absence of this proposed law - the surplus lines insurance company domiciled in Ohio must establish and capitalize another company, subject to another regulatory jurisdiction, in order to write surplus lines risks in Ohio. This proposal would allow the "owner" to be an eligible surplus lines insurer in all states with one company.

Most importantly, Rep. LaTourette concludes with the clarification that nothing in this proposal changes the ability to write coverage in Ohio except for companies domiciled in Ohio. Those surplus lines companies domiciled in Ohio - under this DSLI approach - will just then be able to write policies in Ohio.

It is expected that this HB 749 will ultimately be attached to another legislative vehicle. A companion senate bill is still pending. Further updates will be provided as they develop. 

Under proposed new section Sec. 3905.332.
(B) A domestic insurer shall not be designated a domestic surplus lines insurer unless all of the following are met:
(1) The domestic insurer possesses minimum capital and surplus of at least fifteen million dollars.
(2) The domestic insurer is seeking to become a domestic surplus lines insurer pursuant to a resolution adopted by its board of directors.
(3) The superintendent of insurance has authorized the designation of the insurer as a domestic surplus lines insurer in writing.

(C) A domestic surplus lines insurer shall be considered an unauthorized insurer for the purposes of writing surplus lines insurance coverage pursuant to the requirements of this chapter.

(D)(1) A domestic surplus lines insurer shall only write surplus lines insurance in this state in accordance with the  requirements of this chapter.
(2) A domestic surplus lines insurer may write surplus lines insurance in any other jurisdiction in which the insurer is eligible to write surplus lines insurance, provided that the domestic surplus lines insurer complies with any requirements of that jurisdiction.

(E) A domestic surplus lines insurer shall not engage in the business of insurance in this state on an admitted basis.

(F) Surplus lines insurance written by a domestic surplus lines insurer is subject to the tax on premiums as required in section 3905.36 of the Revised Code and is exempt from the tax on premiums required in section 5725.18 of the Revised Code.

(G) A domestic surplus lines insurer shall be considered a nonadmitted insurer as defined in 15 U.S.C. 8206 with respect to surplus lines insurance issued in this state.

(H) Surplus lines insurance policies issued in this state by a domestic surplus lines insurer are not subject to the provisions of Chapter 3955. of the Revised Code nor are they subject to the protection of either Ohio insurance guaranty association account established pursuant to section 3955.06 of the Revised Code.

(I) Surplus lines insurance policies issued in this state by a domestic surplus lines insurer are not subject to and are exempt, in the same manner and to the same extent as surplus lines insurance policies issued by an insurer domiciled in another state, from all statutory requirements relating to all of the following:
(1) Insurance rating and rating plans;
(2) Policy forms;
(3) Policy cancellation and renewal.

(J) Unless otherwise specified in this section or specifically exempted under this chapter, a domestic surplus lines insurer shall be subject to all financial, reserve, and solvency requirements under this title that are imposed on domestic admitted insurers, as applicable.