Procedural Updates

Beginning January 1, 2013, the Texas Department of Insurance (TDI) will require agents, when reporting to the Stamping Office, to identify policies that were procured for an “Exempt Commercial Purchaser” (ECP) without conducting a diligent effort for coverage in the admitted market. This may be done in one of three ways:

1. Paper Filers – Paper filers must submit the new “Exempt Commercial Purchaser Form” (sample attached).
2. EFS Filers (programmatic method) – EFS filers submitting business through the Electronic Filing System (EFS) using the programmatic method simply set the ECP flag to “Yes”. Instructions can be found in the Technical Reference Supplement on the EFS website, as previously informed by global email on 07/28/11.
3. EFS Filers (web entry) – Those filing through web entry will only need to change “No” to “Yes” on the ECP button.

Note this requirement is for policies filed with the Stamping Office on or after January 1, 2013. Please refer all questions regarding the regulation of an exempt commercial purchaser policy to the Texas Department of Insurance.

Is the Buyer an “Exempt Commercial Purchaser?”

A surplus lines agent is not required to meet the Texas diligent effort law if the buyer qualifies as an ECP under the federal Nonadmitted & Reinsurance Reform Act (NRRA) and follows the “streamlined application” procedures permitted under the NRRA. Those procedures require the agent first to disclose to a purchaser who meets the NRRA definition of an ECP that coverage “may or may not be available from the admitted market that may provide greater protection with more regulatory oversight.” After receiving this disclosure, the exempt commercial purchaser must request in writing that the agent procure the coverage in the surplus lines market. The NRRA defines an ECP as a buyer who meets the following requirements:

1. Employs or retains a qualified risk manager.
2. Pays aggregate nationwide commercial property and casualty insurance premium in excess of $100,000 in the immediately preceding 12 months.
3. Satisfies at least one of the following:

a. Possess a net worth in excess of $20 million;
b. Generate annual revenues in excess of $50 million;
c. Employ more than 500 full-time employees per individual insured or be a member of an affiliated group employing more than 1,000 employees in the aggregate;
d. Be a not-for-profit organization or public entity generating annual expenses of at least $30 million; or
e. Be a municipality with a population in excess of 50,000 persons.

NRRA Qualified Risk Manager Requirements

Under the NRRA, a qualified risk manager with respect to a policyholder of commercial insurance means a person who meets all of the following requirements:

A. The person is an employee of, or third-party consultant retained by, the commercial policyholder.

B. The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance.

C. The person –

(i)(I) has a bachelor’s degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a State insurance commissioner or other State regulatory official or entity to demonstrate minimum competence in risk management; and

(II)(aa) has 3 years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance; or

(bb) has –

(AA) a designation as a Chartered Property and Casualty Underwriter (CPCU) issued by the American Institute for CPCU / Insurance Institute of America (now known as The Institutes);

(BB) a designation as an Associate in Risk Management (ARM) issued by The Institutes;

(CC) a designation as Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education & Research;

(DD) a designation as a RIMS Fellow (RF) issued by the Global Risk Management Institute; or

(EE) any other designation, certification, or license determined by a State insurance commissioner or other State insurance regulatory official or entity to demonstrate minimum competency in risk management;

(ii)(I) has at least 7 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and

(II) has any 1 of the designations specified in subitems (AA) through (EE) of clause (i)(II)(bb);

(iii) has at least 10 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; or

(iv) has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a State insurance commissioner or other State regulatory official or entity to demonstrate minimum competence in risk management.

Lone Star Lines
Volume 18, July – September

Lone Star Lines
Volume 18, April – June

Lone Star Lines
Volume 18, January – March & Special Report

Even though Texas has not joined an agreement or compact with other states to allocate premium taxes on multi-state policies, the Texas Comptroller of Public Accounts and the Texas Department of Insurance are requiring you to report allocation of premium for each state covered under the policy, by individual state name, when Texas is the home state on a multi-state policy. This is effective with policies reported to the Stamping Office 01/01/12 and after.

For EFS users filing programmatically, this change is available in version 2.1, as you have been previously notified as referenced in the Programmers Technical Reference Supplement Guide. The change will occur automatically for those EFS users filing by web entry. The Breakdown of States Summary / Other States / Exempt Premium form has been modified to allow entry of individual states and their associated premium for those of you still filing by paper. Please remember that the premium for each individual state must total to the premium entered for the Breakdown of States Summary. Refer to the bulletins below for detailed information previously provided regarding the reporting of the breakdown of states premium.

Guidelines for Texas Surplus Lines Agents – Compliance with the NRRA

New Filing Form: “Breakdown of States Summary/Other States/Exempt Premium” with Examples

Fees, Safe-Harbor Provision, and Enforcement Matters
Concerning Late-Filed Surplus Lines Policies

The Texas Department of Insurance (TDI) issued the attached bulletin to inform surplus lines agents about new requirements under Section 981.105 of the Texas Insurance Code. The requirements, which became effective May 28, 2011, include late-filing fees, a safe harbor provision, and possible enforcement actions. TDI is offering a December 2011 settlement program for resolving pending disciplinary matters regarding late-filed surplus lines policies.

TO: ALL SURPLUS LINES INSURANCE AGENTS LICENSED IN TEXAS

RE: Fees, safe-harbor provision, and enforcement matters concerning late-filed surplus lines policies

The Texas Department of Insurance (TDI) issues this bulletin to inform surplus lines (SL) agents about new requirements under Texas Insurance Code Section 981.105. The requirements, which became effective May 28, 2011, include late-filing fees, a safe harbor provision, and possible enforcement actions. TDI is offering a December 2011 settlement program for resolving pending disciplinary matters regarding late-filed SL policies.

Late-Filing Fees

Texas Insurance Code Section 981.105(a) requires an SL agent to file a new or renewal SL policy with the Surplus Lines Stamping Office of Texas (SLSOT) within 60 days of the date a policy is issued or becomes effective. The new law provides two regulatory options for SL agents who have filed policies late: fees and penalties. The chart below shows the fee amounts.

If you must pay a fee, TDI will send you notice of the late filings and corresponding fees. TDl’s Enforcement Section will not initiate formal disciplinary action for those late-filed policies if the fees are paid timely. For more information about the calculation or remittance of fees, please contact Kathy Wilcox at 512-322-3535 or Kathy.Wilcox@tdi.state.tx.us.

Safe-Harbor Provision

Until January 1, 2012, agents may self-report late-filed policies with effective or issue dates before January 1, 2010, and pay a $50 fee per policy. This provision does not apply to policies that have already been listed on an SLSOT late-filers report.

Penalty Provisions

The new law provides for disciplinary action and penalties if:

• the late-filed policy fee is not paid within 30 days;
• a policy is filed on or after the 365th day; or
• a policy is filed 181 to 364 days after the policy issue or effective date and more than 2 percent of SL policy filings were late in the prior year.

TDI December 2011 Settlement Program

To help resolve pending SL late-filed policies disciplinary matters, TDl’s Enforcement Section will offer special incentives for settlement during December 2011. Pending disciplinary matters include actions about:

• late-filed policies with issue or effective dates before January 1, 201 O, that appeared on the SLSOT late filed reports and
• late-filed policies with issue or effective dates after January 1, 2010, that are subject to the noted penalty provisions.

Staff will contact agents with pending disciplinary matters to offer resolution through Consent Orders. The fines will be $50 per late filed policy. The fines may be adjusted as mitigating circumstances warrant. Acceptance of these special settlement offers is optional. For questions about the settlement program, please contact Stephen Chen at 512-322-3428 or Stephen.Chen@tdi.state.tx.us. After the December 2011 Settlement Program, penalties for late filers will be assessed based on the guidelines in Texas Insurance Code Section 84.022.

Eleanor Kitzman
Commissioner of Insurance

The Texas Comptroller has published guidelines for paying Texas taxes under the Nonadmitted and Reinsurance Reform Act (NRRA). You can access the document below.

Guidelines for Premium Tax Compliance with the Nonadmitted and Reinsurance Reform Act
Comptroller Brochure

Lone Star Lines
Volume 17, October – December

Many of you have asked for confirmation that your request for correction or adjustment to transactions listed on a monthly late filing report has or has not been accepted. We now have a form available on the SLSOT website for you to fill out and submit – by e-mail – along with the appropriate, supporting documentation. Instructions are on the form. You must follow them completely for the confirmation to be returned to you. Please remember these adjustments are only for the monthly late filers reports. The form and supporting documentation must be e-mailed to SLTX.

Lone Star Lines
Volume 17, July – September