Industry Issues | Surplus Lines Reform

Florida Surplus Lines Regulatory Compliance Update


Policy Reconciliation -
According to the Florida Surplus Lines Service Office, each quarter it receives a large number of insurer policy filings that cannot be systematically reconciled with agent policy filings due to variances in required data fields. The data fields that allow the systematic reconciliation of insurer and agent filings are Effective Date and Policy Number.

Effective Date vs. Booking Date -
The effective date on the declarations page is the most important date when it comes to filing policy transactions. Effective date is what FSLSO uses to verify and reconcile transactions.

It is extremely important that the company file the policy transaction using effective date (not booking date), as it appears on the policy declarations page. If you do not use the effective date, your transactions will not be reconciled. 

Analysis has shown that a large percentage of unreconciled transactions are due to the submission of booking dates instead of effective dates.

Policy Number -
Policy number can be a little tricky. The policy number shown on the policy declarations provided to the insured should always match the policy number submitted by both the insurer and the agent or IPC submitter.

When prefixes, suffixes, or internal codes are added, the transactions will not reconcile. 

When these data fields do not match, a representative from FSLSO will contact the insurer and/or the agent to determine where the error occurred and who (insurer or agent) needs to correct the filing.

To avoid being contacted by our office, submit policy information as it appears on the policy binder, declarations page, or other proof of insurance.

The More You Know ...
The FSLSO Compliance Review program is a tool to assist agents and agency staff in staying compliant and educating them on Florida surplus lines laws and regulations. Compliance Reviews are conducted approximately every three years, in which an FSLSO representative reviews the statutory requirements for the placement of surplus lines business in three categories: 1) Data; 2) Financial; and 3) Regulatory

The Regulatory category, which includes questions on the diligent effort requirement and the policy face page (also known as the front page), historically receives the lowest score of the three review categories.   

FSLSO developed the Diligent Effort/Disclosure Matrix to assist customers in determining whether a diligent effort form or disclosure form is required for a specific line of coverage. Additionally, FSLSO provides the Statement of Diligent Effort Form and a sample Surplus Lines Disclosure Form for retail agents to use when exporting risks to the surplus lines market. These forms are available on under Business Forms. As a reminder, the diligent effort search must be performed and the Statement of Diligent Effort must be completed for all specified lines each time a risk is exported to the surplus lines market.

The most common items consistently missing from the policy face page are:

  • The name and the address of the producing (retail) agent;
  • The name, license number, and signature of the Florida appointed surplus lines agent; and
  • The applicable disclaimer language.

The easiest way to improve your compliance review score is to ensure all of the required information is included on the policy face page by using the FSLSO Sample Face Page located on our website under Business Forms.

The Sample Face Page and the Diligent Effort and Disclosure Forms resources can serve as valuable tools to facilitate compliance with Florida surplus lines laws and regulations. Questions about compliance reviews should be directed to Barry Lanier, FSLSO Compliance Manager, at 800-562-4496, ext. 129.

Conference Call - Thursday, June 7, 1:00 pm CT
State Legislative & Regulatory Update
Kickoff of State Planning of 2019 Advocacy Priorities

Annual Meeting - Thursday, August 23, 8:30 am - 3:30pm CT, PCI Chicago HQ
Featured Speakers:

  • Louisiana Insurance Commissioner and Chair of the NAIC Surplus Lines Task Force, Jim Donelon
  • Florida Surplus Lines Service Office Executive Director, Gary Pullen
  • Guy Carpenter Executive Vice President, Bill Allen and Managing Director and US Sales Leader for GC's Excess & Surplus Lines Specialty Practice, Garrick Smith
  • AIR Worldwide Casualty Analytics Vice President and founder of Arium (liability risk modeling specialist), Robin Wilkinson
  • General Star Chief Underwriting Officer, Lane DeCoster, 

WSIA Director of Government Relations, Keri Kish

Surplus Lines Service Office Releases NIMA National Clearinghouse Analysis

At a meeting of the Florida Surplus Lines Service Office (FSLSO) Board of Governors on July 25, 2012, FSLSO Executive Director Gary Pullen provided an update on the Nonadmitted Insurance Multi-State Agreement National Clearinghouse, which is being operated by the FSLSO. Pullen presented the updated findings of a Clearinghouse Analysis (attached) that was prepared by FSLSO staff. In January 2012, as required by the Florida Legislature, the Florida Office of Insurance Regulation presented a report, which included the amounts of multi-state premium processed by the FSLSO and an assessment of the potential shared tax revenue as part of Florida's participation in NIMA.

Based on additional data from the first two quarters of 2012, this updated Clearinghouse Analysis presented a significantly different assessment.

The Analysis highlights NIMA's effort to address the Congressional intent for nationwide uniformity, including implementing uniformity in state filing requirements. As stated in the overview section, "they [NIMA states] have reduced the number of reporting and payment requirements from 50 states to 45," as the five NIMA states are using one set of rules for tax filing. Note, by that logic, the number should be 46. Additionally, PCI has been critical of the lack of consistency in the taxation rules related to premiums allocable to non-participating states.

The Analysis reflects significant policy filing activity in the second quarter of 2012, during which time 60% of total premium attributed to multi-state policies over the 12-month rolling period were reported. The earlier projections in the January 2012 report, were based upon an estimation that just 3.4 percent of premium was multi-state premium, whereas based on the updated data, it is estimated at 10 percent of total premium. Of that amount, 54 percent of the premium was allocated to exposures in states other than Florida, versus a previously indicated 94%.

Using some simplistic assumptions, the Analysis states that on a nationwide basis total multi-state premium is estimated at $3.1 billion, generating approximately $136.5 million in taxes, based on a national weighted average tax rate of 4.4 percent. It further calculates that if the 54 percent allocation rate demonstrated in Florida were applied, the amount of tax revenue to be allocated among the states would be approximately $74 million. The Analysis concludes, "The successful establishment of a national Clearinghouse demonstrates to Congress and the Federal Insurance Office (FlO) that the state-based regulatory system is capable of providing nationwide uniformity while accommodating the needs of state legislatures and regulators to tax policies and entities at differing rates and provide exemptions to promote business development or respond to market disruptions in their state."

The Analysis also highlights Risks to Project Success, including competition (OPTins), resource constraints, legal liability, insufficient revenue, and the "life span" of NIMA (additional state withdrawal).

The Analysis includes premium projections, which assume that 10 percent of total premium is multi-state premium and there is no growth from 2010 premium figures. Based on these assumptions, and also including estimated single-state premium that may be processed, for the six quarters beginning July 1, 2012 and ending December 31, 2013, the Clearinghouse would generate approximately $2.7 million in service fee revenue. Detailed projections of Clearinghouse revenue and expenses were computed, which allocate anticipated revenue to correspond with the increasing percentage of multi-state filings made in each quarter for the year analyzed. Based upon the estimated projections, the Clearinghouse revenue would exceed expenses by the third quarter of 2013.

Additionally, based on notes from the BOG meeting provided by PCI local counsel, we report that Florida Insurance Consumer Advocate Robin Westcott raised the issue of lobbying that has taken place to advocate against NIMA and in favor of states' retention of 100 percent of the taxes paid on multi-state polices when a state is the home state of the insured. Westcott inquired as to whether the Clearinghouse has considered advocating at the national level to combat these efforts and advance the future of NIMA. Pullen responded that he agrees support from professional resources with a governmental presence should be sought to provide access to those in the industry who could be helpful in this regard. Pullen reported that he has had discussions with firms that could offer such services and he indicated he would like to work with the Executive Committee to further explore the prospects and commit resources to this effort. 'Time is of the essence', as Pullen and Westcott agreed that it would be beneficial to have discussions on the topic at the upcoming NAIC Summer Meeting. Westcott made a motion to permit Pullen to work with the Executive Committee on this endeavor, and a motion in support was carried.

Florida CFO Reverses FSLSO Taxation of Non-U.S. Premiums

The Florida Surplus Lines Service Office released Bulletin 2012-03 providing guidance on filing changes on multi-state risks bearing non-U.S. premium.

This bulletin is in response to a directive from the Florida Chief Financial Officer, Jeff Atwater. Mr. Atwater states in the attached letter to the FSLSO Executive Director, "Recently, I was advised that your office is collecting premium taxes on policies covering risks outside the United States when Florida is the home state of the insured." He concludes, "The imposition of additional taxation, especially without clear authority to do so, is outside the purview of any non-legislative entity and, therefore, should cease."

Bulletin 2012-03 therefore provides notification that, effective June 5, 2012, Florida surplus lines agents and Independently Procured Coverage (IPC) filers will no longer be required to report Non-U.S. premium allocations on multi-state policy filings to the Florida Surplus Lines Service Office (FSLSO). Non-U.S. premium is defined as premium charged on exposures occurring or located outside of the United States and its territories.

Florida OIR Establishes Federally Authorized Insurer Status Per NRRA

PCI and Florida Office of Insurance Regulation staff met via teleconference on May 10, to discuss Florida's surplus lines insurer eligibility and filing requirements, and how they align with the uniform standards provision of the federal law pursuant to the NRRA.

During that call, OIR staff stated that the Florida company admissions (application) process for surplus lines insurers has recently been updated. In light of the enacted NRRA, the OIR has established a new and additional eligible status, SURPLUS LINES - FEDERALLY AUTHORIZED. Currently, there is no published OIR or FSLSO bulletin or notice on this new eligible status. It was explained that a Federally Authorized surplus lines insurer is one that meets the standards for surplus lines insurer eligibility pursuant to section 524 of the NRRA, as part of the Dodd-Frank Act of 2010. Though deemed eligible under federal law, the OIR requests and recommends that such insurers email notification of their intent to place surplus lines business in the state to the OIR via Additionally, the e-mail notification should include attachment of a completed service of process form.

The OIR is considering an update to the iApply online system to allow companies to use it to provide this notification as a "federally authorized" surplus lines insurer. For the time being, again, email notification is requested.

Notwithstanding this new eligible status, the OIR still requests and recommends that insurers continue to file application and maintain the "approved status" pursuant to the eligibility requirements provided under Florida law.

Further update will be provided as more details develop.

Additionally of note, the FSLSO has released Bulletin 2012-02 regarding the broker and IPC filing of multi-state policies after the Surplus Lines Clearinghouse has become operational.
Florida OIR Submits Legislative Report on NIMA

Section 626.9362(7), Florida Statutes, requires the Office of Insurance Regulation (OIR) to prepare and submit a report to the President of the Senate and the Speaker of the House of Representatives by January 1, 2012, following the execution of the Nonadmitted Insurance Multistate Agreement (NIMA), which Florida entered with 10 other states and Puerto Rico.

The attachment provides, among other things, the OIR's report on the NIMA agreement, projected collections and allocation of related premium taxes for each participating state, and expectations of the administrative structure supporting the agreement.

According to the Department's analysis, an estimated annualized premium of $52.4M is projected to be written on multistate surplus lines policies where Florida is the home state. Of that, approximately $3.1M, or less than 6%, would be allocated to the other NIMA states.

Based on the provided tax rates of the participating states, that would translate to allocated tax revenue of approximately $2.5M to Florida and less than $126K to the other states.

This report also identifies the Florida Surplus Lines Service Office as the lead candidate for the NIMA Clearinghouse. Based on the indicated clearinghouse service fee (.3%), an estimated $157K would be charged by the FSLSO, based on the projected FL home-state multistate policy premiums.

FSLSO Bulletin Provides Tax Filing Guidance for Multi-State Policies

The Florida Surplus Lines Service Office (FSLSO) issued the attached bulletin to provide updated tax filing guidance regarding multi-state policies wherein Florida is deemed the “Home State” and the policy includes premium for an exposure in one or more Nonadmitted Insurance Multi-State Agreement (NIMA) states/territories.

Additionally, on December 8, 2011 3:00 p.m. - 4:00 p.m. EST, the FSLSO will present an insurer webinar, “Understanding How to Make a Successful Submission,” where FSLSO staff will address questions relative to submitting insurer filings and data element requirements. You can register for this webinar via the FSLSO weblink .

Florida Enacts Surplus Lines Reform

Florida enacted, Senate Bill 1816 , approved by Gov. Rick Scott on May 26 and takes effect upon becoming law. SB 1816 authorizes the Department of Financial Services and the Office of Insurance Regulation to enter into a multi-state agreement for the collection of non-admitted insurance taxes as set forth in the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA).

Bill Summary :
  • Agent Affidavit Filing Requirement
    Section 1 of Senate Bill 1816 amends Section 626.931(1) of the Florida Statutes to allow a surplus lines agent to file an affidavit of the agent's surplus lines transactions to the Florida Surplus Lines Service Office (FSLSO) 45 days after the end of the calendar quarter.
  • Surplus Lines Tax
    Section 2 amends Section 626.932(3) by adding language specifying that the surplus lines tax shall be computed on the gross premium when the surplus lines policy covers risks that are only partially in Florida and Florida is the home state as defined in the Nonadmitted and Reinsurance Reform Act (NRRA). The tax must not exceed the tax rate where the risk or exposure is located.
  • Service Fee
    Section 3 amends Section 626.9325 by requiring surplus lines agents to pay to the FSLSO all service fees related to policies reported during the previous quarter 45 days after each calendar quarter.
  • Cooperative Reciprocal Agreement
    Section 4 enacts Section 626.9362 to authorize the Florida Department of Financial Services and the Office of Insurance Regulation to enter into cooperative reciprocal agreements with other states to collect and allocate nonadmitted insurance taxes for multi-state risks pursuant to the NRRA.

    It is fully expected that Florida will enter the NAIC-endorsed NIMA tax-sharing agreement. Pursuant to its state's constitution, Florida takes the position that it is prohibited to enter the NCOIL-endorsed SLIMPACT compact due to a delegation of regulatory authority to the compact's Commission.
  • Report and Tax of Independently Procured Coverages
    Section 5 amends Section 626.938(3) by adding similar language as provided in section 2 regarding of taxation of premiums for independently procured coverages. Also, the section similarly amends the payment schedule for independent procurements by requiring applicable insureds to directly pay the tax and service fee to the FSLSO within 45 days following the calendar quarter.

    SB 1816 requires that for multi-state policies, taxes will be calculated on the entire premium by using the respective, individual state tax rate applicable to the premium allocated for each state where there is exposure (blended-tax rate). The FSLSO service fee, FL-specific assessments and any surcharges will, however, be separately calculated on the entire (not the FL-allocable) premium - again, when FL is the home state of the insured. The new tax provisions will apply to policies effective July 1st.

    While the surplus lines agent, or insured for independently procurements, is responsible for payment of the taxes owed, the FSLSO will provide a tax calculator on their website to use in determining the amount of the taxes to be remitted. Until such time that a NIMA clearinghouse is operation, it will be the FSLSO that will maintain the applicable state tax rates.
The Florida Surplus Lines Service Office provides additional reference materials and related guidance documents and presentation on the FSLSO Web site .