Industry Issues | Surplus Lines Reform

PCI Files Comment on Texas DOI Proposed Revisions to TAC Surplus Lines Insurance Chapter

The PCI and AIA organizations filed a joint comment letter (attached) in response to the Texas Department of Insurance (TDI) proposed reorganization and revisions to the Surplus Lines Insurance Chapter 15 of the Texas Administrative Code.

PROPOSAL: https://www.tdi.texas.gov/rules/2018/documents/chptr15.pdf#Chapter 15

The joint letter also comments on certain proposed revisions that have been filed by the Surplus Lines Stamping Office of Texas (SLTX).

In summary, the comment letter addresses:

  • New section 15.2, the definition of "admitted or authorized insurer" and how it relates to a Texas domestic surplus lines insurer. 
  • Minor edits in new sections 15.5 and 15.9.
  • New section 15.104, the need to reference fully the entity known as the NAIC's International Insurers Department for purposes of surplus lines eligibility of alien insurers.
  • New section 15.115, a proposed revision by the SLTX related to surplus lines insurance policies procured through a purchasing group.
  • New section 15.301, additional eligibility requirements proposed by the SLTX.

PCI still seeks member response on the following two questions. This will provide valuable information in preparation for expected further discussion on how the TAC addresses surplus lines placement of unaffiliated member group polices procured by a risk purchasing group.

For a surplus lines placement of an unaffiliated member group policy procured through a risk purchasing group, should PCI/AIA advocate that the "insured" is 1) the RPG or 2) each individual insured member, for purposes of determining the home state with the exclusive authority to regulate that placement?

Should PCI/AIA advocate that placement of such an unaffiliated member group policy be treated as a single policy placement or the placement of individual, mutually exclusive insurance policies?


Texas Updates Surplus Lines Insurer Filing Requirements

According to the Texas Department of Insurance (TDI), surplus lines insurer filing requirements for 2014 have been updated in accordance with Texas Insurance Code Chapter 981 as amended. This year, a rule-making process is underway to update Texas Administrative Code, 28 TAC Chapter 15 to conform current law pursuant to enacted SB 951 to the Dodd-Frank Non-Admitted Reinsurance Reform Act (NRRA).

Failure to comply with the evidence filing requirements may subject the insurer to removal from the list. The appropriate checklist must be completed and filed with the required documents. For NAIC required filings, a checklist or notification to the department is not necessary. Required documents otherwise must be submitted to both the TDI and Surplus Lines Stamping Office of Texas (SLSOT).

Filing Requirements for 2014 Surplus Lines Eligibility
Texas Enacts SB951 on Surplus Lines

Senate Bill 951 was approved on June 14, 2013 and becomes effective immediately. This legislation amends Chapter 981 of the Texas Insurance Code relating to surplus lines insurance to conform to the NRRA. Specifically, C.S.S.B. 951 clarifies that Chapter 981 applies to surplus lines insurance if the insured's home state is Texas, provides applicable definitions, defines an exempt commercial purchaser, and states that agreements regarding uniform surplus lines insurance standards made between Texas and other states are binding.


Senate Bill 951 Up for Vote 9

In the Texas Senate, Senate Bill 951, companion bill to House Bill 1909, was filed on Feb. 28, 2013. On March 12, 2013, it received a first reading and then referred to the Committee on Business and Commerce. On April 2, the Committee reported adversely, with a favorable Committee Substitute by unanimous vote (C.S.S.B. 951). C.S.S.B. 951 will now be scheduled for a vote by the full Senate.

C.S.S.B. 951 amends current law relating to surplus lines insurance. The bill seeks to conform Chapter 981 of the Texas Insurance Code to the NRRA. Specifically, C.S.S.B. 951 clarifies that Chapter 981 applies to surplus lines insurance if the insured's home state is Texas, provides applicable definitions, defines an exempt commercial purchasers, and states that agreements regarding uniform surplus lines insurance standards made between Texas and other states are binding.

C.S.S.B. 951 eliminates problematic provisions in HB 1909 related to "failure to pay penalty" and "failure to pay premium tax."


Texas Introduced House Bill 1909

On Feb. 26, 2013, Texas State Representative Craig Eiland, vice chair of the House Committee on Insurance, introduced House Bill 1909 related to the regulation and taxation of surplus lines insurance placed in accordance with Chapter 981-Surplus Lines Insurance, within the meaning and intent of the Nonadmitted and Reinsurance Reform Act (15 U.S.C. Chapter 108).

In summary, HB 1909:
  • Adds terms and definitions, including "home state" and "nonadmitted insurer"
  • Specifies that this chapter applies where Texas is the home state of the insured
  • Adds definition for "exempt commercial purchaser"
  • Adds definition for "qualified risk manager"
  • Adds provisions related to "failure to pay penalty" and "failure to pay premium tax" - Surplus Lines Stamping Office of Texas (SLSOT) has submitted question about both provisions.
  • Adds Uniform Standards provision in case Texas joins a tax compact or interstate agreement related to surplus lines regulation/taxation
  • Adds subsections related to filing requirements with the SLSOT in cases of exempt commercial purchasers


Texas Reports Surplus Lines Premium Growth in 2012

Based on premium reported to the Surplus Lines Stamping Office of Texas (SLSOT) through October 2012, the amount of surplus lines insurance written in Texas rose by 25 percent compared with the same period the year before.

According to a November 30, 2012 Insurance Journal Article, SLSOT reports $3.335 billion in premium through October year-to-date, of which $252 million was non-Texas premium on multi-state policies taxed as Texas premium pursuant to post-NRRA law. Only 0.5 percent of the total number of policies reported to the stamping office were identified as multi-state policies.

The article further quotes Texas Insurance Commissioner Eleanor Kitzman, who spoke at a recent meeting of the Texas Surplus Lines Association and noted that the premiums from those multi-state policies “can be sizeable. The projected $15 million increase in tax revenue is kind of surprising because a lot of people assumed that the impact [of the NRRA] on Texas based on the home state rule would be greater. And a lot of people argued that was one of the reasons Texas didn’t want to play ball … there was a perception that if there were a sharing of this premium that Texas would be a loser, we would be a donor state. The preliminary numbers indicate that that is just not as significant as some people thought that it would be.”


Texas Stamping Office Releases Surplus Lines Composite Financial Summary

The 4th Quarter 2012 Publication of the Surplus Lines Stamping Office of Texas highlights the Stamping Office's annual release of Composite Financial Summary of insurers operating on a surplus lines basis in Texas. The purpose of this composite is to display a snapshot of the relative size and strength of the insurers comprising the surplus lines company market in Texas over the most recent five-year span.

While the NRRA created new federal requirements for insurer eligibility and set in place preemptions of state insurer eligibility laws, the Stamping Office Plan of Operation has not been amended and continues to financially evaluate individual surplus lines insurers, albeit with fewer pieces of data and information.

Each Friday during the evaluation season, the Stamping Office publishes the five-year summaries for those insurers that have been evaluated during that week; these summaries contain the most current financial data available. The following link provides access to the Texas Surplus Lines Insurers List - March 1, 2012 - October 1, 2012 with Financial Summaries and Syndicate List.


Stamping Office Releases Statistics on Surplus Lines Policies

In the April-June 2012 issue of the SLSOT Lone Star Lines quarterly newsletter, the Texas Stamping Office released some interesting statistics related to surplus lines multi-state placements.

Between January and April 2012, there were only 939 policies reported to SLSOT insuring risks in states in addition to Texas. These represented only 0.7% of total policies filed during this period. Total non-Texas premium on multistate placements was $66.5 million. During this time frame, Texas premium reported by surplus lines agents increased more than $166 million.

"We can now see one positive effect of Texas deciding to tax 100% of the premium when it is the home state. Fully 40% of the increase in Texas premium in 2012 is the result of non-Texas premium being taxed as if it was attributable to in-state exposures."
* Texas has chosen not to participate in one of the two existing interstate tax-sharing agreements (NIMA and SLIMPACT).

Additionally, the Newsletter addresses insurer eligibility in Texas. Whereas the SLSOT and Texas recognize that the NRRA restricts state activity in granting insurer eligibility, SLSOT plans to continue its insurer evaluation process, as required under both current law and its Plan of Operation. Further, the Stamping Office will continue to publish on its website a five-year summary of selected financial information for each insurer.

PCI will continue its efforts to work with states to amend their regulatory practices in conformance with the federal law under the NRRA.


SLSOT Publishes Bulletin

A Surplus Lines Stamping Office of Texas (SLSOT) bulletin has been published that provides a memorandum from the Texas Department of Insurance (TDI) listing the requirements and due dates for filing documentation for 2012 eligibility for surplus lines insurers.



Texas Enacts Surplus Lines Reform

Texas enacted Senate Bill 001, approved by Gov. Rick Perry on July 19. An amendment to SB 001 provides for Article 18 that amends Texas law applicable to surplus lines to conform to the provisions of the Nonadmitted and Reinsurance Reform Act of 2010. Whereas this act does not specifically authorize participation in a tax sharing compact or agreement, pursuant to the NRRA, it does reference existing authority delegated under Chapter 229 of the Texas Insurance Code (attached) - established under enacted House Bill 3315 during the 2007 legislative session.

The bill did not receive 2/3 votes in both houses and therefore Article 18 does not become effective until September 28, 2011.

Summary of Major Provisions Amends the Insurance Code to specify that Texas law relating to the surplus lines insurance premium tax apply for any risk in which Texas is the home state of the insured. Prohibits the state, consistent with federal law (NRRA), from imposing a premium tax on nonadmitted insurance premiums for insurance in which Texas is not the home state of the insured. Authorizes the comptroller by rule to establish an alternate basis for taxation for multistate and single-state policies for the purpose of achieving uniformity.

Changes the basis on which the surplus lines insurance premium tax is computed for a multi-state policy to be the entire policy premium in which Texas is the home state of the insured and adds the condition to this computation that the state not have entered into a cooperative agreement, reciprocal agreement, or compact with another state for the collection of surplus lines tax. Removes a provision exempting premiums properly allocated to another state that are specifically exempt from taxation in that state from taxation in Texas.

Requires the surplus lines insurance premium tax, if the state enters a cooperative agreement, reciprocal agreement, or compact with another state for the allocation of the surplus lines tax as authorized by Chapter 229, to be allocated and reported in accordance with the terms of the agreement or compact.

Makes conforming provisions of law relating to an independently procured insurance premium tax applicable to an insured who procures an independently procured insurance contract for any risk in which Texas is the home state of the insured.

Defines "affiliate," "affiliated group," "control," "home state," and "independently procured insurance" and redefines "premium" for purposes of certain provisions of law relating to surplus lines insurance premium tax and relating to unauthorized and independently procured insurance premium tax.

Makes the changes in law made by this article relating to the surplus lines insurance premium tax and the independently procured insurance premium tax applicable only to an insurance policy that is delivered, issued for delivery, or renewed on or after July 21, 2011.

The Texas Department of Insurance is currently drafting a bulletin to provide further clarification and interpretation to be issued in the coming weeks.


Texas Stamping Office Issues NRRA Implementation Bulletins

The attached bulletins were issued by the Surplus Lines Stamping Office of Texas to provide general guidance on the changes resulting from the federal Nonadmitted and Reinsurance Reform Act. It is stipulated that the bulletins are not provided on behalf of the Texas Department of Insurance ("TDI") or the Texas Comptroller's Office and should not be considered legal or tax advice. These bulletins provide information necessary to bind business and report policies. Future bulletins from Texas insurance regulators and tax officials will provide a broader summary of all aspects of the NRRA. After July 21, any sections of the Texas surplus lines laws that conflict with the NRRA are preempted.