Pennsylvania Code

CHAPTER 124. SURPLUS LINES INSURANCE

Sec.

124.1.    Definitions.
124.2.    Notice to insured.
124.3.    Conditions of binding authority.
124.4.    Evidence of insurance.
124.5.    Diligent search of admitted insurers.
124.6.    Export list coverages.
124.7.    Unique forms of coverages.
124.8.    Surplus lines licensee bond requirements.
124.9.    Requirements to qualify as an eligible surplus lines insurer.
124.10.    Eligible surplus lines insurer filing requirements.
Authority

   The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P. S. § §  991.1601—991.1625), unless otherwise noted.

Source

   The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.B. 1542, unless otherwise noted.
§ 124.1. Definitions.

(a)  The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

   Act—Article XVI of The Insurance Company Law of 1921 (40 P. S. § §  991.1601—991.1625).

   Alien insurer—An insurer incorporated or organized under the laws of a foreign nation or of a province or territory other than a state or a territory of the United States or the District of Columbia.

   Binding authority—The authority delegated to a surplus lines licensee by an eligible surplus lines insurer to obligate the eligible surplus lines insurer to accept a particular risk.

   Commissioner—The Insurance Commissioner of the Commonwealth.

   Department—The Insurance Department of the Commonwealth.

   Eligible surplus lines insurer list—The most recent list of eligible surplus lines insurers published by the Department under section 1605(b) of the act (40 P. S. §  991.1605(b)).

   Foreign insurer—
     (i)   An insurer, other than an alien insurer, not incorporated or organized under the laws of the Commonwealth.
     (ii)   For purposes of this chapter, the term also includes a United States branch of an alien insurer which branch is not entered through and licensed to transact insurance or reinsurance in this Commonwealth.
(b)  Unless the context otherwise requires, other terms found in this chapter are used as defined in the act.
§ 124.2. Notice to insured.

The written notice required to be given to the insured under section 1608 of the act (40 P. S. §  991.1608) shall be:
   (1)  Substantially similar in content to that set forth in section 1608(1) and (2) of the act.
   (2)  Prominently printed on the first page of the quotation.
§ 124.3. Conditions of binding authority.

(a)  A surplus lines licensee may not exercise binding authority in this Commonwealth on behalf of an eligible surplus lines insurer unless there is in force a written contract executed by all parties to the contract setting forth the terms, conditions and limitations governing the exercise of binding authority by the surplus lines licensee. The written contract shall, at a minimum, contain the following:
   (1)  A description of the classes of insurance for which the surplus lines licensee holds binding authority.
   (2)  The geographical limits of the binding authority.
   (3)  The maximum dollar limitations on the binding authority for any one risk for each class of insurance.
   (4)  The maximum policy period for which the surplus lines licensee may bind a risk.
   (5)  A prohibition against delegation of binding authority by the surplus lines licensee or, if the binding authority is delegable by the surplus lines licensee, a prohibition against delegation of binding authority by the surplus lines licensee without the prior written approval of the eligible surplus lines insurer.
   (6)  A provision in the following or substantially similar language:
  It is understood and agreed that all insurance placed pursuant to this agreement on risks resident, located, or to be performed in this Commonwealth, shall be effected and written in accordance with Article XVI of the act of May 17, 1921 (P.L. 682, No. 284) (40 P. S. § §  991.1601—991.1625).
(b)  An executed copy of the written contract shall be maintained by the surplus lines licensee in its office in this Commonwealth. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.
(c)  If a surplus lines licensee, who is qualified under this chapter to exercise binding authority on behalf of the eligible surplus lines insurer, delegates binding authority to any other surplus lines licensee, the instrument delegating binding authority shall specifically identify the binding authority agreement between the delegating surplus lines licensee and the eligible surplus lines insurer. An executed copy of the instrument delegating binding authority shall be maintained by both the surplus lines licensee delegating binding authority and the surplus lines licensee to whom the authority is delegated in their offices in this Commonwealth. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.
§ 124.4. Evidence of insurance.

(a)  Section 1612 of the act (40 P. S. §  991.1612) requires the surplus lines licensee, upon placing surplus lines insurance, to deliver the contract of insurance to the insured or to the producing broker. A cover note, binder or other evidence of insurance shall be delivered by the surplus lines licensee if the contract of insurance is not immediately available.
(b)  Delivery of the contract or other evidence of insurance by the surplus lines licensee shall occur within 15 calendar days after:
   (1)  Coverage has been bound by the surplus lines licensee, if the surplus lines licensee holds binding authority on behalf of the eligible surplus lines insurer.
   (2)  The surplus lines licensee has received written notification from the eligible surplus lines insurer or other nonadmitted insurer that it has assumed the risk, if the surplus lines licensee does not hold binding authority on behalf of the eligible surplus lines insurer.
(c)  Under section 1624 of the act (40 P. S. §  991.1624), a contract or other evidence of insurance delivered by the surplus lines licensee shall contain a service of process clause substantially similar to the following:
SERVICE OF PROCESS CLAUSE
   It is agreed that in the event of the failure of the Insurer(s) or Underwriter(s) herein to pay any amount claimed to be due hereunder, the Insurer(s) or Underwriter(s) herein, at the request of the Insured (or reinsured), will submit to the jurisdiction of any court of competent jurisdiction within the United States of America and will comply with all requirements necessary to give such court jurisdiction, and all matters arising hereunder shall be determined in accordance with the law and practice of such court. It is further agreed that in any such action instituted against any one of them upon this contract, Insurer(s) or Underwriter(s) will abide by the final decision of such court or of any appellate court in the event of an appeal.
   Service of process shall be made pursuant to the procedures provided by 42 Pa.C.S. Ch. 53 Subch. B (relating to interstate and international procedure). When making service of process by mail, such process shall be mailed to
. The above-named is authorized and directed to accept service of process on behalf of the Insured(s) or Underwriter(s) in any such action or upon the request of the insured (or reinsured) to give a written undertaking to the insured (or reinsured) that it or they will enter a general appearance for the Insurer(s) or Underwriter(s) in the event such an action shall be instituted.
   Further, pursuant to any statute of any state, territory or district of the United States of America, which makes provisions therefor, the Insured(s) or Underwriter(s) hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute or his successor or successors in office, as the true and lawful attorney upon whom any lawful process may be served in any action, suit or proceeding instituted by or on behalf of the insured (or reinsured) or any beneficiary hereunder arising out of his contract of insurance (or reinsurance), and hereby designates the above-named as the person on whom such process or a true copy thereof shall be served.

§ 124.5. Diligent search of admitted insurers.

Under section 1604(2)(i) of the act (40 P. S. §  991.1604(2)(i)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if a diligent search is made among the admitted insurers who are writing, in this Commonwealth, coverage comparable to the coverage being sought. The following minimum requirements and conditions apply to the conduct of a diligent search among admitted insurers under section 1604(2)(i) of the act.
   (1)  Under section 1609(a)(1)(i) of the act (40 P. S. §  991.1609(a)(1)(i)), the producing broker shall execute and forward to the surplus lines licensee a written statement, in a form prescribed by the Department, declaring that a diligent effort to procure the desired coverage from admitted insurers was made.
     (i)   A diligent effort by the producing broker to procure the desired coverage from admitted insurers shall have been made if the producing broker declares on the prescribed form that at least three admitted insurers which are writing, in this Commonwealth, coverage comparable to the coverage being sought have declined to insure the particular risk.
     (ii)   A producing broker who obtains a declination from an admitted insurer shall either obtain the declination in writing from the admitted insurer or create a written record of an oral declination by the admitted insurer. A written record of an oral declination shall be made by the person who initially received the declination or by another person working for the business from information transmitted by the person who received the declination. A declination shall be obtained from the admitted insurer or recorded by the producing broker at or near the time of receipt of the declination and maintained in the regular course of business.
     (iii)   A written record documenting an oral declination shall include:
       (A)   The name, office location and phone number of the admitted insurer or firm acting in the capacity of underwriting manager for the admitted insurer.
       (B)   The name and position of the person contacted.
       (C)   The date of contact.
       (D)   An explanation of the declination.
     (iv)   If an admitted insurer fails to respond within 5 business days after first being contacted by the producing broker, the producing broker may assume that the insurer has declined to write the risk. The producing broker shall create a written record of the contact, including the manner in which contact was made and the information required under subparagraph (iii)(A)—(C).
     (v)   A declination of coverage by an admitted insurer shall be made by a person who is a full-time employe of the admitted insurer and who has underwriting responsibility for that admitted insurer or by a full-time employe of a firm acting in the capacity of underwriting manager for the admitted insurer.
     (vi)   For purposes of this subparagraph, the term ‘‘affiliate’’ is used as defined in section 1401 of The Insurance Company Law of 1921 (40 P. S. §  991.1401).
       (A)   A declination may not be obtained from an admitted insurer which is an affiliate of an admitted insurer from which a declination has already been obtained.
       (B)   Surplus lines insurance may not be placed with a nonadmitted insurer that is an affiliate of an admitted insurer from which a declination has been obtained.
       (C)   The restrictions in clauses (A) and (B) do not apply if the affiliated insurers write independently of each other using separate and independently developed underwriting criteria and marketing plans, and for underwriting purposes, compete with each other for the same type of coverage or class of insurance.
   (2)  Under section 1609(a)(2) of the act, the surplus lines licensee shall file with the Department a written declaration of the licensee’s lack of knowledge of how the coverage could have been procured from admitted insurers and shall simultaneously file the written declaration of the producing broker required under section 1609(a)(1) of the act. Under section 1609(a)(3) of the act, if the surplus lines licensee acts as both the producing broker and surplus lines licensee in a particular transaction, the surplus lines licensee is required to execute the declarations required under section 1609(a)(1) and (2) of the act.
§ 124.6. Export list coverages.

(a)  Under section 1604(2)(ii) of the act (40 P. S. §  991.1604(2)(ii)), the Commissioner may create and maintain an export list of insurance coverages for which the full amount or kind of insurance cannot be obtained from admitted insurers.
(b)  The diligent search requirement of section 1604(2)(i) of the act and the reporting requirements of section 1609(a) of the act (40 P. S. §  991.1609(a)) do not apply to the placement of an insurance coverage which appears on the export list.
(c)  Within 45-calendar days after the placement of an insurance coverage which appears on the most recent export list published by the Commissioner, the surplus lines licensee shall file with the Department or its designee a copy of the declaration page of the policy, cover note, binder or other evidence of insurance delivered by the surplus lines licensee in accordance with section 1612(a) of the act (40 P. S. §  991.1612(a)) with the word ‘‘EXPORT’’ stamped in red letters in the upper right hand corner.
§ 124.7. Unique forms of coverages.

Under section 1604(2)(iii) of the act (40 P. S. §  1604(2)(iii)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if the kind of insurance sought to be obtained from admitted insurers requires a unique form of coverage not available in the admitted market. Within 45-calendar days after a unique form of coverage has been placed, the surplus lines licensee shall file with the Department or its designee, a written declaration reporting the transaction in a form prescribed by the Department.
§ 124.8. Surplus lines licensee bond requirements.

(a)  The bond required under section 1615(b)(4) of the act (40 P. S. §  991.1615(b)(4)) to be maintained concurrent with the term of a surplus lines agent’s license shall be in the amount of at least $50,000 for the initial term of the license.
(b)  The amount of the bond required for renewal of a surplus lines agent’s license shall be based on the total taxable surplus lines premium volume of the surplus lines agent during the preceding calendar year as reported to the Department of Revenue under section 1621 of the act (40 P. S. §  991.1621) and determined by using the following table:

Total Taxable Surplus Required Minimum

Lines Premium Volume Amount of Bond

$0—$1,999,999 $50,000

$2,000,000—$3,999,999 $100,000

$4,000,000—$5,999,999 $150,000

$6,000,000—$7,999,999 $200,000

$8,000,000—and over 3% of the total taxable surplus lines premium volume of the surplus lines licensee during the preceding calendar year or other amount acceptable to the Commissioner.

§ 124.9. Requirements to qualify as an eligible surplus lines insurer.

(a)  To be considered for placement on the most recent eligible surplus lines insurer list, a nonadmitted insurer shall meet the requirements of the act and this chapter. The nonadmitted insurer shall meet the following requirements:
   (1)  Currently licensed as an insurer in the state or country of its domicile for the kinds of insurance which it proposes to provide in this Commonwealth.
   (2)  Either engaged in doing the business of surplus lines insurance in one or more jurisdictions for at least 3 years immediately preceding the filing of an application to be an eligible surplus lines insurer; or an affiliate of an admitted insurer which has been so admitted for at least 3 years immediately preceding seeking approval to do business in this Commonwealth.
(b)  In addition to the requirements in subsection (a), an alien insurer shall provide documentation evidencing its inclusion on the most recent quarterly listing of nonadmitted alien insurers which have met the criteria in the plan of operation adopted by the National Association of Insurance Commissioners International Insurers Department, or successor organization.
§ 124.10. Eligible surplus lines insurer filing requirements.

(a)  A request to consider a foreign nonadmitted insurer for placement on the Department’s eligible surplus lines insurer list shall be made in writing by a surplus lines licensee and shall include the following:
   (1)  Charter. A copy of the charter of the nonadmitted insurer or similar document and any amendments, additions and deletions thereto certified by the corporate secretary of the nonadmitted insurer.
   (2)  Certificate of authority. A copy of the certificate of authority of the insurer or similar document setting forth its authority to issue policies and insure risks in the jurisdiction in which the insurer is incorporated, formed or organized.
   (3)  Financial statement.
     (i)   A copy of the latest annual financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized. The copy shall include all supplemental reports, exhibits and schedules required as part of the annual statement filing and shall be certified as provided under section 1605(3) of the act (40 P. S. §  991.1605(3)).
     (ii)   A copy of each subsequent quarterly financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized.
   (4)  Report of examination. A copy of the most recent report of examination of the insurer conducted by the insurance regulatory authority or similar governmental authority requiring the examination and certified by the proper official of that authority.
   (5)  Biographical information. Biographical data for each officer, director, person in managerial control, and like individual on a form provided by the Department.
   (6)  Kind of insurance. A written statement by an officer of the insurer identifying the kinds of insurance coverages the insurer intends to write and the types of risks the insurer intends to insure in this Commonwealth.
   (7)  Designee for service of process. A written designation of the name of the individual employed by the insurer or other appropriate representative to whom all lawful process shall be mailed. The designee shall maintain a legal residence, domicile or office in the United States.
   (8)  Additional information. Additional information as may be required by the Commissioner to determine whether the insurer meets the standards and requirements of the act and this chapter.
(b)  After placement on the eligible surplus lines insurer list, a foreign insurer shall submit to the Department through a surplus lines licensee:
   (1)  Changes or additions, or both, to the information in subsection (a)(7) within 10-calendar days of the occurrence.
   (2)  Changes or additions, or both, to the information in subsection (a)(1) and (5) within 30-calendar days of the occurrence.
   (3)  A certified copy of the information in subsection (a)(3)(i) within 30-calendar days after the date required for filing in its domiciliary jurisdiction. A copy of the information in subsection (a)(2) shall accompany the filing.
   (4)  A copy of the information in subsection (a)(3)(ii) within 45-calendar days from the close of the quarter for which the report is prepared.
   (5)  A certified copy of the information in subsection (a)(4) within 30-calendar days of the date it became a public document.
   (6)  Additional items as may be required by the Commissioner to determine whether the insurer continues to meet the standards under the act.
(c)  A request to consider an alien nonadmitted insurer for placement on the Department’s eligible surplus lines insurer list shall be made in writing by a surplus lines licensee and shall include the following:
   (1)  Charter. A copy of the charter of the insurer or similar document and any amendments, additions and deletions thereto certified by the corporate secretary of the insurer.
   (2)  Certificate of authority. A copy of the certificate of authority of the insurer or similar document setting forth its authority to issue policies and insure risks in the jurisdiction in which the insurer is incorporated, formed or organized.
   (3)  Annual financial statement.
     (i)   Two copies of the latest annual financial report of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized. One copy of the financial report or statement shall be expressed in language and currency of the place of incorporation, formation or organization of the insurer and the other copy prepared and expressed in the English language and United States currency at the current rate of exchange as of the statement date. Certification of the financial report or statement shall be in accordance with section 1605(3) of the act (40 P. S. §  991.1605(3)).
     (ii)   A copy of the latest annual financial statement of the insurer in the standard reporting format prescribed by the National Association of Insurance Commissioners’ International Insurers Department, or successor organization.
   (4)  Trust fund agreement.
     (i)   A copy of the trust fund agreement concerning the trust fund which the insurer maintains in the United States in either a National bank or a member of the Federal Reserve System in an amount as set out in the act for the protection of all of its policyholders in the United States, consisting of cash, securities, letters of credit or investments of substantially the same character and quality as those which are eligible investments for admitted insurers authorized to write like kinds of insurance in this Commonwealth.
     (ii)   The trustees of the trust fund shall give written verification of the amount initially deposited and presently on deposit by the insurer in the trust fund. The trustees shall immediately give written notification to the Department at any time the trust fund deposit is less than the minimum requirement as provided for in section 1605(a)(2)(i) of the act.
   (5)  Biographical sketches. Biographical data for each officer, director, person in managerial control, and like individual on a form provided by the Department.
   (6)  Kind of insurance. A written statement by an officer of the insurer identifying the kinds of insurance coverages the insurer intends to write and the types of risks the insurer intends to insure in this Commonwealth.
   (7)  Designee for service of process. A written designation of the name of the individual employed by the insurer or other appropriate representative to whom all lawful process shall be mailed. The designee shall maintain a legal residence, domicile or office in the United States.
   (8)  Additional information. Additional information as required by the Commissioner to determine whether the insurer meets the standards and requirements of the act and this chapter.
(d)  After placement on the eligible surplus lines insurer list, an alien insurer shall submit the following to the Department through a surplus lines licensee:
   (1)  Changes or additions, or both, to the information in subsection (c)(7) and (4)(i) within 10-calendar days of the occurrence.
   (2)  Changes or additions, or both, to the information in subsection (c)(1) and (5) within 30-calendar days of the occurrence.
   (3)  A certified copy of the information in subsection (c)(3)(i) within 30-calendar days after the date required for filing in its domiciliary jurisdiction. A copy of the information in subsection (c)(2), (3)(ii) and (4)(ii) shall accompany the filing.
   (4)  Additional items as may be required by the Commissioner to determine whether the insurer continues to meet the standards under the act.

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Total Taxable Surplus	Required Minimum
Lines Premium Volume	Amount of Bond
$0—$1,999,999	$50,000
$2,000,000—$3,999,999	$100,000
$4,000,000—$5,999,999	$150,000
$6,000,000—$7,999,999	$200,000
$8,000,000—and over	3% of the total taxable surplus lines premium volume of the surplus lines licensee during the preceding calendar year or other amount acceptable to the Commissioner.