Surplus Lines Insurance

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Surplus Lines Insurance
The Safety Valve
Phil Ballinger, CPCU, ASLI, Executive Director
Surplus Lines Stamping Office of Texas
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States Regulate Insurance
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Insurer Solvency
Capitalization requirements Rate form
regulation Accounting principles Other
investments, reserving, reinsurance Certificate
of authority
Market Conduct Agent Licensing Taxes Fees
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AdmittedInsurance vs. Nonadmitted Insurance
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Surplus Lines Market
1. Risk must be rejected by licensed insurers

• no unfair competition with admitted market
• operates as market safety valve
• export lists

2. Typical risks distressed, unique,
complex, high-capacity
3. Market foundation is freedom of rate and form
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Surplus Lines Market
4. Based upon distribution systems retail
wholesale intermediaries (rapid response,
innovation, new product development,
entrepreneurial spirit a market of
relationships utmost good faith)
a. Technical / product knowledge
b. Market Knowledge
c. Market Access binding authority brokerage
market
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Surplus Lines Intermediaries

• General Agent (MGA)
• Surplus Lines Broker (aka ES Broker)
• Wholesale Broker (Independent or National)
• Underwriting Manager (Managing Agent)
• Program Manager
• Lloyds Broker

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Insured
Retail Agent / Broker
WholesaleBroker
ManagingGeneral Agent
UnderwritingManager
Lloyds Broker
InsuranceCompany
Syndicate
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Surplus Lines Market
5. States regulate market through specially
licensed agents
a. Diligent effort
b. Maintenance of records
c. Regulatory filing
d. Collect pay premium taxes
e. Financial soundness of insurer
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Surplus Lines Market
6. Eligible surplus lines insurers US (foreign)
non-US (alien)
a. Minimum capitalization typically 15 million
b. White lists
c. Black lists
d. Broker responsibility
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Surplus Lines Market
7. No guaranty fund protection
8. Some prohibited lines (e.g., workers comp,
primary private passenger auto liability, other
residual markets)
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Surplus Lines Market
9. Stamping offices (15) promote stable
efficient, financially strong surplus lines market

• Evaluate insurers for surplus lines eligibility

• Encourage / obtain compliance

• Improve quality of policies issued

• Provide technical assistance / distribute
  information

• Education to agents and insurers

• Accumulate statistics on surplus lines market

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Role of Insurance Cycles
Hard market licensed insurers restrict
underwriting raise rates business flows to
surplus lines market Soft market licensed
insurers compete for business lower rates
underwriting losses
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Texas Market Statistics

• More than 3.3 billion in surplus lines premium
  in 2004 (TX ranks 2 nationally behind CA)
• gt95 commercial lines
• US surplus lines insurers have gt75 of Texas
  surplus lines market share

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Hook-em Horns!