Compliance Guidelines

Broker Licensing

Information on obtaining a surplus lines license can be found on the Texas Department of Insurance (TDI) website.

The Texas Administrative Code identifies the surplus lines insurance activities that require a surplus lines license in Title 28, Section 15.3. They are as follows:

  • Supervision of unlicensed staff conducting activities where the employees do not receive any direct commission from the procurement of surplus lines policies, and the employee’s compensation is not varied by the amount of premiums received
  • Soliciting or procuring surplus lines insurance contracts for clients or offering information of surplus lines insurance products to brokers or clients beyond the scope of underwriting policies or contracts
  • Receiving any direct commission or variance in compensation based on the volume of surplus lines premiums obtained

Persons performing the following activities do not require a surplus lines license:

  • Full-time clerical and administrative services
  • Contacting clients to obtain or confirm information to process an application for surplus lines insurance
  • Underwriting any insurance policy, contract, or coverage, including pricing the policy or contract
  • Contacting clients, insureds, brokers, or insurers to gather and transmit information regarding the policy

Surplus lines insurance policies must be reported to SLTX using an agency surplus lines license. Failure to file under an agency license may subject the firm to enforcement actions.

An individual who is the principal or sole proprietor of a surplus lines insurance business may file using either an individual license or an agency license.

An agency must employ at least one person who holds an individual surplus lines license to acquire an agency license, but all employees of the agency may file using the agency surplus lines license.

Any agency that has multiple offices must register each office with TDI, and each office must have at least one employee who holds an individual surplus lines license.

The name of the procuring surplus lines licensee must appear on every insurance policy. If the policy was filed using an agency surplus lines license, the agency name must be included on the policy. Likewise, if it was filed using an individual license, the name of the individual license holder must be included. Ensure that filings with SLTX and tax payments made to the Texas Comptroller’s Office are completed under the same license number.

Policy Filings

Surplus lines brokers are required to timely file with SLTX a copy of each surplus lines insurance contract procured by the broker, under Section 981.213 of the Texas Insurance Code.

Additional information on policy filings can be found on the How to File page.

Late Filings

Surplus lines insurance policies must be filed with SLTX no later than the 60th day after the effective date or the issue date of the policy, whichever is later. Policies that are filed after the 60th day are considered late.

SLTX takes steps to work with brokers who have policies that may be late by producing monthly notices of any late policies that have been filed. Brokers who file through standard mail will receive this notice through the mail, while those who file through the Online Filing System will be able view it digitally.

If a broker receives notice that a policy was filed late and believes that the notification was made in error, the broker may request an adjustment. Adjustments are considered until March of the following calendar year and are granted based on evidence provided to SLTX. After that time, the Texas Department of Insurance (TDI) handles late policy disputes directly with recommendations from SLTX based on evidence submitted by the brokers.

Each year, SLTX must submit an Annual Late Filers Report to TDI, which details every late policy filed in the previous year. Texas Insurance Code Sec. 981.105 lists the following fees that may be assessed against a broker who files a surplus lines policy after the filing deadline:

When was the policy filed?Percentage of policies filed late in the prior yearFee per policy
61 to 180 days after the policy effective or issue dateNot more than 5 percent$50
61 to 180 days after the policy effective or issue dateGreater than 5 percent$100
181 to 364 days after the policy effective or issue dateLess than 2 percent$200

 

The following brokers who do not meet the filing deadline may also be subject to enforcement by TDI:

  • Brokers who fail to pay fees assessed on late policies within 30 days
  • Brokers who file surplus lines policies on or after the 365th date after the policy effective or issue date
  • Brokers who file surplus lines policies after the 180th but before the 365th day after the policy effective or issue date, and have filed more than 2 percent of policies late in the previous calendar year

TDI will provide notice to each broker of any fee assessed no later than June 15 of each year, and brokers must pay the fee assessed by the 30th day after the date of notice.

Diligent Effort

A surplus lines broker must make a diligent effort to obtain the full amount of required insurance from an insurer authorized to write that kind and class of insurance in Texas before surplus lines coverage is procured. See Section 981.004 of the Texas Insurance Code for more information on requirements that must be met before an eligible surplus lines insurer may provide surplus lines insurance.

State law does not define “diligent effort.” However, surplus lines brokers must make such an effort in every situation, unless the insured is an exempt commercial purchaser.

An exempt commercial purchaser (ECP) is defined as an entity that purchases commercial insurance and meets the following requirements:

  • Employs a qualified risk manager
  • Has paid more than $100,000 in aggregate property and casualty premium
  • Meets one of the following criteria:
    • Has a net worth of more than $20 million
    • Generates more than $50 million in annual revenue
    • Employs more than 500 full-time employees
    • Is a nonprofit or public entity that generates more than $30 million in expenditures
    • Is a municipality with a population of more than 50,000

For more information on exempt commercial purchasers, see Section 981.0031 of the Insurance Code. For record-keeping purposes, SLTX has created an optional form that may evidence or substantiate diligent effort.

Insurer Solvency
The Texas Insurance Code requires eligible surplus lines insurers to maintain capital and surplus of at least $15 million.

This requirement does not apply to alien (domiciled outside the U.S.) surplus lines insurers, who must have a minimum net worth of $45 million and must be listed on the National Association of Insurance Commissioners (NAIC) Quarterly Listing of Alien Insurers.

For more information on insurer eligibility, see the How to Become Eligible page.

Courtesy Filings

A courtesy filing is the reporting of a surplus lines insurance policy with SLTX and payment of premium taxes to the Comptroller by a licensed surplus lines broker who was not involved in the original transaction.

Under Title 28, Sec. 15.6(d) of the Texas Administrative Code, courtesy filings are not legal in the state of Texas, and could lead to disciplinary actions by the Texas Department of Insurance.