Compliance Guidelines
Broker Licensing
The Texas Administrative Code identifies the surplus lines insurance activities that require a surplus lines license in Title 28, Section 15.101. They are as follows:
- Supervising unlicensed staff engaged in activities described in subsection (b) of this section, although unlicensed intermediary supervisors may supervise unlicensed staff engaging in these activities if the ultimate supervisor is licensed;
- Negotiating, soliciting, effecting, procuring, or binding surplus lines insurance contracts for clients or offering advice, counsel, opinions, or explanations of surplus lines insurance products to agents or clients beyond the scope of underwriting policies or contracts, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent that then completes the surplus lines transaction; or
- Receiving any direct commission or variance in compensation based on the volume of surplus lines premiums taken and received from, or as a result of, another person selling, soliciting, binding, effecting, or procuring surplus lines insurance policies, contracts, or coverages, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent that then completes the surplus lines transaction.
Persons performing the following activities do not require a surplus lines license:
- Full-time clerical and administrative services, including, but not limited to, the incidental taking of information from clients; receipt of premiums in the office of a licensed agent; or transmitting to clients, as directed by a licensed surplus lines agent, prepared marketing materials or other prepared information and materials including, without limitation, invoices and evidences of coverage;
- Contacting clients to obtain or confirm information necessary to process an application for surplus lines insurance so long as the contact does not involve any activities for which a license would be required under subsection (a)(2) of this section;
- Performing the task of underwriting any insurance policy, contract, or coverage, including and without limitation, pricing of the policy or contract; or
- Contacting clients, insureds, agents, other persons, and insurers to gather and transmit information regarding claims and losses under the policy to the extent the contact does not require a licensed adjuster as set forth under Insurance Code Chapter 4101.
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
Additional information on policy filings can be found on the How to File page.
Late Filings
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, and cannot make the correction in the system, the broker may request an adjustment. Adjustments are considered in accordance with the dispute resolution process found in 28 TAC, 15.114, outlined below:
| Monthly Reports | Deadline for Disputes |
|---|---|
| January – October | 90 days after report date |
| November – December | By February 15th |
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 year | Fee per policy |
|---|---|---|
| 61 to 180 days after the policy effective or issue date | Not more than 5 percent | $50 |
| 61 to 180 days after the policy effective or issue date | Greater than 5 percent | $100 |
| 181 to 364 days after the policy effective or issue date | Less 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.
Correcting Errors
Policy Reversals Only
- Create a new batch. Enter the license number, item count, and total gross as 0.00.
- Once the batch has been created, navigate to “Transactions,” then select “Reversals New or Renew.”
- Enter the policy number, effective date of the policy, and reverse policy ID number (total gross is not needed).
- With re-entry, please select “Yes” for “Re-Entry due to Correction?” and enter the original filing’s policy ID.
Please note, if the policy has endorsements (child transactions), they must be reversed before the policy is reversed.
Policy Updates Only (if class code needs to be corrected and coverage code is already correct)
- To correct a class code, create a new batch. Enter the license number, item count as 1, and total gross as 0.00.
- Once the batch has been created, navigate to “Transactions” and select “Update/Policy.”
- Enter the policy number, effective date of the policy, new class code, and Qualified Policy ID.
Please note, “Update” transactions can only be used for a “Policy” transaction type. These steps can also be followed to update zip code information or windstorm exclusions.
Reversal of Endorsement
- Create a new batch. Enter the license number, item count as 1, and total gross as 0.00.
- Once the batch has been created, navigate to “Transactions” and select “Reversals/Premium Change.”
- Enter the policy number, effective date of the endorsement, and Reverse Policy ID (total gross is not needed).
- After the information is entered, select and post from the Batch Manager.
Export List
Texas does have an export or whitelist for specific commercial surplus lines coverages. Otherwise, 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. You may find more information about Texas’s diligent effort requirements, including a list of coverages that may be exported or directly written in the surplus lines market, on the Diligent Effort page.
Workers’ compensation and (primary) private passenger auto are prohibited coverages in the Texas excess and surplus lines market.
Insurer Solvency
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.
Domestic surplus lines insurers (DSLI), which are insurers domiciled in the state of Texas who are authorized to write business in Texas, must apply to the Texas Department of Insurance for designation as a DSLI. These insurers must maintain capital and surplus of at least $15 million.
For more information on insurer eligibility, see the How to Become Eligible page.
Courtesy Filings
Under Title 28, Sec. 15.102(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.
Sales Tax Exemptions
Many people confuse sales tax exemptions with exemptions from surplus lines tax. While they may be exempt from sales tax, your client/the insured is not/may not be exempt from the surplus lines tax; in fact, very few are. Surplus lines policies are exempt from taxation only if the exposures cover risks that are allocated to federal waters, international waters, or are under the jurisdiction of a foreign government (TIC 225.004). Also, Federally Chartered Credit Unions are preempted from surplus lines taxes. There are also specific rules pertaining to tribal lands. Please see the Surplus Lines Tax Exemptions/Preemptions brochure from the Comptroller’s Office. Please direct any tax related questions to the Comptroller’s Office.