4.1 Eligible Surplus Lines Insurers, Minimum Capital and Surplus, and Domestic Surplus Lines Insurers
Key Takeaways
- An eligible surplus lines insurer must be authorized by its domiciliary state or country for the same kind of insurance it writes in Texas (TIC § 981.051) and must maintain capital and surplus of at least $15 million (TIC § 981.057).
- Alien insurers qualify by being listed on the NAIC Quarterly Listing of Alien Insurers and are exempt from the $15 million test (TIC §§ 981.057(b), 981.058).
- The insurer must meet the eligibility requirements as of the inception date and each annual anniversary date of the contract, and a surplus lines agent may place coverage only after the Stamping Office provides evidence to TDI that the insurer is eligible (TIC §§ 981.004(a)(3), 981.210).
- A domestic surplus lines insurer (DSLI) is a Texas property and casualty company with $15 million of capital and surplus designated by the commissioner under TIC § 981.072; it may not write admitted business or policies used to satisfy mandatory insurance laws (TIC § 981.074).
- DSLI policies are exempt from the Texas rate and form laws and the TPCIGA statute, carry their own statutory statement instead of the § 981.101(b) notice, and remain subject to the 4.85% surplus lines tax (TIC §§ 981.073, 981.075; 28 TAC § 15.5).
4.1 Eligible Surplus Lines Insurers, Minimum Capital and Surplus, and Domestic Surplus Lines Insurers
Because surplus lines insurers do not file rates or forms with TDI and are not backed by the guaranty association, Texas concentrates its surplus lines regulation on who may write the coverage. The outline tests this under "eligible unauthorized insurers" and "minimum capital and surplus." The key terms come from TIC § 981.002:
- Eligible surplus lines insurer: an insurer that is not an authorized insurer but is eligible under Subchapter B or B-1 of Chapter 981.
- Surplus lines insurance: coverage placed, in accordance with Chapter 981, with an eligible surplus lines insurer or the insurer's managing underwriter.
1. Eligibility Requirements Under Subchapter B
| Requirement | Statute | What It Means |
|---|---|---|
| Domiciliary authorization | TIC § 981.051 | The insurer must hold authorization from its domiciliary state or country for the same kind or class of insurance it will write in Texas, and must provide satisfactory evidence of that authorization to the commissioner |
| Capital and surplus | TIC § 981.057 | At least $15 million of capital and surplus; alien insurers on the NAIC Quarterly Listing are exempt from this dollar test |
| Alien insurers | TIC § 981.058 | An alien surplus lines insurer must be listed on the NAIC Quarterly Listing of Alien Insurers maintained by the NAIC International Insurers Department |
| Uniform standards | TIC § 981.066 | The insurer must comply with the nationwide uniform standards Texas adopted under the federal NRRA (15 U.S.C. § 8204) |
| No tie-in sales | TIC § 981.054 | An eligible insurer may not require the insured to place other, non-surplus-lines insurance with it as a condition of writing new or renewal surplus lines coverage |
Timing and Evidence
- Eligibility is tested as of the inception date and each annual anniversary date of every contract, cover note, or confirmation of insurance (TIC § 981.004(a)(3)). The rules also apply when a contract is extended beyond its original expiration date (TIC § 981.065).
- A surplus lines agent may not place coverage with an insurer unless the insurer meets the Subchapter B or B-1 requirements and the Stamping Office has provided evidence to TDI that it does (TIC § 981.210).
- Non-domestic surplus lines insurers provide TDI and the Stamping Office with evidence of domiciliary authorization and capital and surplus, plus the insurer's name, addresses, NAIC number, contact person, domicile, and authorized lines (28 TAC § 15.301). SLTX publishes the resulting list of eligible insurers on its website.
What TDI Does Not Guarantee
TIC § 981.063 states that Subchapter B does not make the commissioner or TDI responsible for determining an unauthorized insurer's actual financial condition or claims practices. That responsibility falls on the surplus lines agent's own due diligence (Section 4.3). If an insurer fails to meet the eligibility requirements, the commissioner may order revocation of the contracts it issued (TIC § 981.064).
2. The NRRA Uniform Eligibility Standard
The federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA) limits how far any state may go in restricting eligible markets. Under 15 U.S.C. § 8204, a state may not prohibit a surplus lines broker from placing coverage with:
- A U.S. nonadmitted insurer that is authorized to write that type of insurance in its domiciliary state and that holds capital and surplus of at least the greater of the home state's minimum requirement or $15 million (a state regulator may accept less after an affirmative finding of acceptability); or
- An alien insurer listed on the NAIC Quarterly Listing of Alien Insurers.
Texas's rules track that framework: $15 million for U.S. insurers (TIC § 981.057), the Quarterly Listing for alien insurers (§ 981.058), and compliance with the uniform standards (§ 981.066).
3. Domestic Surplus Lines Insurers (Subchapter B-1)
Until 2018, a Texas-domiciled insurer could not write surplus lines business in Texas. H.B. 2492 (85th Legislature, 2017) added Subchapter B-1, effective January 1, 2018, creating the domestic surplus lines insurer (DSLI).
Designation (TIC § 981.072)
- A property and casualty company organized under TIC Chapter 822 whose capital and surplus meets the § 981.057 amount ($15 million) may apply to TDI for designation.
- When the commissioner approves the application, TDI issues a domestic surplus lines insurer certificate.
- A DSLI is not entitled to a certificate of authority to write admitted business.
What a DSLI Can and Cannot Do (TIC § 981.074)
- It may insure a Texas risk only as eligible surplus lines insurance under Chapter 981, and only for kinds of insurance its articles of incorporation authorize. Placement still runs through a Texas surplus lines agent, subject to the diligent-effort rules.
- It may not issue a policy in the admitted market.
- It may not issue a policy to satisfy the Texas Motor Vehicle Safety Responsibility Act (Transportation Code Chapter 601), workers' compensation coverage requirements (Labor Code Chapter 406), or any other law requiring coverage from an insurer authorized to do business in Texas.
Which Laws Apply (TIC § 981.073)
A DSLI is subject to Chapter 981 and to the other insurance laws that govern Texas property and casualty companies, including TDI's financial solvency oversight, except a list of exclusions. The exam-relevant exclusions are:
- Chapter 2251 (rates) and Chapter 2301 (policy forms);
- Chapter 462 (TPCIGA) and Chapter 463 (life and health guaranty association);
- § 981.051 (domiciliary authorization, which a Texas company does not need); and
- § 981.101(b) (the standard surplus lines notice).
Because § 981.101(b) does not apply, 28 TAC § 15.5(c) requires DSLI documents to carry this statement instead: "This insurance contract is issued and delivered as surplus lines coverage under the Texas Insurance Code. The insurer is not a member of the property and casualty insurance guaranty association created under Insurance Code Chapter 462. Insurance Code Chapter 225 requires payment of a ___ (insert appropriate tax rate) percent tax on gross premium."
Taxes (TIC § 981.075)
DSLI premiums are subject to the Chapter 225 surplus lines premium tax (4.85%). A DSLI also pays the maintenance tax as if it were an authorized insurer.
4. Comparison Table
| Dimension | Admitted Insurer | U.S. Surplus Lines Insurer | Texas DSLI | Alien Surplus Lines Insurer |
|---|---|---|---|---|
| Texas status | Certificate of authority | Eligible, non-admitted | Designated DSLI; non-admitted in Texas | Eligible, non-admitted |
| Qualification | Chapter 801 licensing | Domiciliary authorization + $15M (§§ 981.051, .057) | Chapter 822 company + $15M + designation (§ 981.072) | NAIC Quarterly Listing (§ 981.058) |
| Rates and forms | Chapters 2251 and 2301 | Not filed; § 981.102 form limit | Exempt from Chapters 2251 and 2301 | Not filed; § 981.102 form limit |
| TPCIGA | Yes | No | No (§ 981.073(b)(2)) | No |
| Required notice | None of this type | § 981.101(b) notice | 28 TAC § 15.5(c) statement | § 981.101(b) notice |
| Premium tax | Admitted premium tax paid by insurer | 4.85% collected by SL agent | 4.85% | 4.85% |
5. Placement Scenario
A Dallas wholesale surplus lines agent must place $10,000,000 of commercial excess liability for an oilfield service contractor.
- Diligent effort: Commercial excess or umbrella liability is one of the commercial lines listed in TIC §§ 2251.0031 and 2301.0031. Under § 981.004(g), the diligent-effort and excess-only rules therefore do not apply unless the commissioner has temporarily reinstated rate and form filing for that line (Section 5.2).
- Carrier A (Ohio): Authorized in Ohio to write liability insurance, with $18.5 million of capital and surplus, and shown as eligible through the Stamping Office. It qualifies under §§ 981.051, 981.057, and 981.210.
- Carrier B (Texas DSLI): Designated DSLI with $22 million of capital and surplus. It may write the placement. Its policy carries the § 15.5(c) DSLI statement, the agent files it with SLTX and collects the 4.85% tax, and the policy is not protected by TPCIGA.
- Carrier C (Delaware): Holds $12 million of capital and surplus. It fails the $15 million test and is not eligible, so the agent may not place coverage there.
An insurer domiciled in Arizona is licensed there to write commercial liability insurance and reports $13 million of capital and surplus. Can a Texas surplus lines agent place a Texas commercial liability risk with it as an eligible surplus lines insurer?
As of what dates must an eligible surplus lines insurer meet the Chapter 981 eligibility requirements for a Texas policy?
Which statement about a Texas domestic surplus lines insurer (DSLI) is correct?
An eligible surplus lines insurer tells a Texas manufacturer that it will write the manufacturer's hard-to-place products liability coverage only if the manufacturer also moves its standard commercial auto policy, which is available from authorized insurers, to the same insurer. How does Chapter 981 treat this condition?