2.1 Eligible Surplus Lines Insurers: Standards of s. 626.918
Key Takeaways
An eligible surplus lines insurer must keep surplus as to policyholders of at least $15 million (s. 626.918(2)(c)).
An alien surplus lines insurer must also keep a U.S. trust fund of at least $5.4 million for all its U.S. policyholders (s. 626.918(2)(c)).
OIR may waive the 3-year domicile experience rule for an insurer operating 1 year with at least $25 million in capital and surplus (s. 626.918(2)(a)).
Eligibility indicates only that an insurer appears sound and OIR has no credible contrary evidence; it is not a guarantee (s. 626.918(4)).
A surplus lines agent may place Florida business only with an eligible surplus lines insurer, except through the narrow unlisted-insurer procedure in s. 626.918(5) and (6), which is covered in the next section. Section 626.918 sets the conditions an unauthorized insurer must meet before OIR makes it eligible, and the exam tests those numbers directly.
Who Decides Eligibility
The Office of Insurance Regulation (OIR) makes insurers eligible, maintains the list, and withdraws eligibility. The Department of Financial Services (DFS) licenses and disciplines agents. The FSLSO receives filings, collects taxes and fees, and publishes a searchable eligible-insurer list for agents, but it does not grant eligibility. Under s. 626.918(3), the office must publish the list of currently eligible insurers from time to time and mail a copy to each licensed surplus lines agent at the agent's office of record.
Conditions for Eligibility: s. 626.918(2)
| Condition | Statutory standard |
|---|---|
| Domicile experience | Authorized in its home state or country for the kinds of insurance to be placed for at least the 3 years immediately preceding, or a wholly owned subsidiary of such an insurer, or a wholly owned subsidiary of an already-eligible surplus lines insurer for 3 years |
| Waiver of the 3 years | OIR may waive it if the insurer offers a product or service not readily available to Florida consumers, or has operated successfully for at least 1 year and has capital and surplus of at least $25 million |
| Financial statement | The requesting surplus lines agent or the insurer files an authenticated copy of the current annual statement in English with values stated in U.S. dollars |
| Surplus | Surplus as to policyholders of at least $15 million |
| Alien trust fund | An alien insurer must also keep a U.S. trust fund for all its U.S. policyholders of at least $5.4 million |
| Reputation | Good reputation for service to policyholders and payment of losses and claims |
| Management | Eligible as for authority to transact insurance under s. 624.404(3), which bars incompetent, untrustworthy, or inexperienced management |
Details worth knowing
- The surplus and trust fund must be held in investments eligible for similar funds of domestic insurers under Part II of Chapter 625. An alien insurer's surplus may instead be held in investments its home regulator permits if they are substantially similar in quality, liquidity, and security.
- Letters of credit that are clean, irrevocable, unconditional, and evergreen, and that are issued or confirmed by a qualified U.S. financial institution, may fund the alien trust.
- Insurance exchanges created under state law are measured differently. The exchange must maintain capital and surplus required by its state, or at least $50 million in the aggregate. If the exchange keeps at least $12 million for the protection of all its policyholders, each syndicate needs at least $3 million.
- The $15 million figure is the end of a phase-in. Insurers eligible on January 1, 1994 stepped up from $2.5 million in 1994 to $15 million on December 31, 2003 and thereafter.
- A surplus lines insurer whose holding company includes a Florida domestic insurer could elect to meet the s. 624.408 surplus standard instead, but only if its election form was on file with the former Department of Insurance before February 28, 1998.
- None of these capital conditions apply to insurers made eligible under s. 626.917 for wet marine, transportation, and aviation risks (s. 626.918(2)(f)).
What Eligibility Does Not Mean: s. 626.918(4)
Eligibility is not a solvency guarantee. The statute says OIR has no duty to determine the actual financial condition or claims practices of an unauthorized insurer. Eligibility means only that the insurer appears financially sound, appears to have satisfactory claims practices, and that OIR has no credible evidence to the contrary. A surplus lines agent should not tell an insured that the state guarantees the carrier, both because of this language and because the Florida Insurance Guaranty Association Act does not cover surplus lines insurance.
The Federal Overlay in One Paragraph
The federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), at 15 U.S.C. s. 8204, limits the eligibility standards a home state may impose. For example, a state may not prohibit placement with an alien insurer listed on the NAIC International Insurers Department's Quarterly Listing of Alien Insurers. Your exam, however, is built on the Florida statute. Learn the Florida numbers: 3 years, the $25 million waiver, $15 million surplus, and the $5.4 million alien trust.
Worked Scenarios
Scenario 1. A Texas-domiciled excess lines company has been authorized in Texas for 18 months and has $32 million in capital and surplus. It is not eligible under the 3-year rule, but it may qualify through the waiver: it has operated for at least 1 year and has at least $25 million in capital and surplus. OIR may waive the 3-year requirement; the waiver is discretionary.
Scenario 2. A Bermuda insurer with $60 million in surplus and 10 years of operation has no U.S. trust fund. It fails the alien-insurer condition. It needs a U.S. trust fund of at least $5.4 million, which may be funded with a qualifying letter of credit.
Scenario 3. A domestic-market commercial client asks whether "state eligibility" means the carrier is safe. The correct answer is that eligibility indicates only that the insurer appears sound and OIR has no credible contrary evidence. Surplus lines insureds have no guaranty-fund protection.
Under s. 626.918, what minimum surplus as to policyholders must an eligible surplus lines insurer maintain?
$15 million
$5.4 million
$25 million
$50 million
A London company seeks Florida surplus lines eligibility. Which additional requirement applies because it is an alien insurer?
It must deposit $50,000 with DFS for every Florida policy it writes
It must appoint a Florida-resident managing general agent as its only process agent
It must maintain a U.S. trust fund of at least $5.4 million for the protection of all its U.S. policyholders
It must obtain a Florida certificate of authority within 3 years
A client asks whether an insurer's presence on the Florida eligible surplus lines list means the state has verified that it will pay claims. What is the correct response?
Yes. OIR audits and guarantees the claims-paying ability of every eligible insurer
No. Eligibility indicates only that the insurer appears financially sound with satisfactory claims practices and OIR has no credible contrary evidence
Yes. Eligible insurers are backed by the Florida Insurance Guaranty Association
No. The list is published by the FSLSO without any OIR review
Sections you finish are checked off in the contents.