Bits & Pieces for 2008

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1 H The Geeslin Appoints New Directors page 2 Premium Taxes Due March 1 page 2 Surplus Lines Company Filing Requirements Released TDI Issues Data Call SLSOT Employee News EFS Quick Tips Helpful Hints Premium Comparison page 4 plus... Special Report Volume 14 January - March 2008 Lone Star Lines Quarterly Publication of the Surplus Lines Stamping Office of Texas Bits & Pieces for 2008 Agency Licensing Guidelines Please review carefully the bulletin on Agent Compliance Guidelines distributed in mid-january 2008 (www. slsot.org/bulletins/jan pdf). If at all possible, an agency should not file policies with SLSOT nor report premium taxes to the Comptroller using the individual license of an employee. The employer agency should hold the surplus lines license and report all business under it. Also, Stamping Office filings and tax payments should be done under the same license name and number. This prevents confusion and minimizes concerns from state officials regarding compliance with regulatory and tax requirements. Independently Procured Insurance IP procurements remain one of the most misunderstood types of nonadmitted insurance. An unlicensed, ineligible insurer that writes business directly in Texas, then declares it to be independently procured insurance and has the taxes paid by the insured, should not assume it is a legal transaction. An insurer cannot undertake any of the acts defined as the business of insurance in Texas unless it is licensed or an eligible surplus lines insurer. These insurance activities include negotiating coverage, taking or receiving an application, receiving or collecting premium, and issuing or delivering a policy to a resident of Texas. If any of these are committed within the state by an unlicensed, ineligible insurer, the transaction may be deemed unauthorized insurance, which is a third degree felony. Penalties are severe. Be extremely cautious of the enticement we can do it as a direct procurement. When in doubt, consult legal counsel. SLIMPACT At its Annual Meeting in mid-november, the National Conference of Insurance Legislators (NCOIL) approved a resolution expressing support for the adoption of the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) by all states and calling upon the NAIC and state insurance regulators to advocate for the enactment of the compact in their respective states. SLIMPACT has been in development over the past 18 months by a working group (the Group of 60 ) as one possible solution to the regulatory and tax compliance problems that agents face when procuring surplus lines policies insuring risks located in multiple states. Proposed TDI Regs Re: Termination of Coverage for USTs The Texas Department of Insurance has proposed regulations (28 TAC ) concerning required notice of termination of insurance for underground storage tanks, as mandated by HB 1956, passed in the 80 th Texas Legislature last year. The required notice must be sent by the Bits & Pieces, cont. on page 2

2 Hine Huckaby Reynolds Geeslin Appoints New Directors Commissioner Mike Geeslin has named James Huckaby, ARM-P, Director of Risk Management, Mesquite Independent School District, and Bill Reynolds, President, Atlantic Casualty Insurance Company to the Surplus Lines Stamping Office of Texas Board of Directors. The Commissioner also reappointed Gil Hine, CPCU, President, McClelland & Hine, Inc., who was previously serving the unexpired term of a former Board member. Each director will serve 3-year terms. Congratulations to the new appointees...we look forward to their participation on our Board! Other members of the SLSOT Board of Directors include Banos Georgiou, Burnett & Co. Inc; David Kester, Harris County; Bart Koch, Tejas American General Agency, LLC; Tom Mace, Nabors Industries; Martha Rider, Retired; and Carl Roeder, Western Surplus Lines Agency, Inc. Premium Taxes Due March 1st Premium taxes for all 2007 surplus lines business are due to the Texas Comptroller of Public Accounts by March 1, If you held a surplus lines agent s license at any point during 2007, you are required to file a tax report, even if no tax is due. Tax forms were mailed to each surplus lines agent at the end of January. If you did not receive a form, please call (800) Remember each agency must pay premium taxes based on its own internal accounting records, not on SLSOT s Agent s Annual Report. This report is a summary of policies processed by the Stamping Office during 2007 and could differ significantly from tax liability based upon agency records. Agents in certain states file taxes directly from the report received from the stamping office. That is not the case in Texas. Bits & Pieces, cont. from page 1 insurer to the Texas Commission on Environmental Quality within 30 days after cancellation or non-renewal of insurance coverage. Surplus lines insurers are included under the definition of insurer. The proposed regulations include information regarding the content of the notice and would apply only to notices issued on or after April 1, See link below for detailed information: /1220E-059.html Agency Branch Offices Systems enhancements at the Stamping Office soon will permit branch offices to make individual paper filings. What this means to 2 Lone Star Lines you is that a branch office could report policies directly with SLSOT; we would in turn provide batch edits and other important reports back to the filing office, rather than solely to the primary license office address. (This is already a feature of the Electronic Filing System.) Once enhancements are finished, agencies wishing to authorize filing by their branch offices can do so. At that time, we will require that you provide us various identifying information, including the name(s) of the individual surplus lines licensee(s) for each office. Each branch office must be registered with TDI and also have an individual surplus lines license holder registered under the corporate license. (To register a branch office with TDI, use Form LHL203, Registration of Assumed Name and/or Office Location or Official Name Change of Corporation or Partnership.) This change by SLSOT would not affect the currect practice of an agency filing a single tax report with the Comptroller under its surplus lines license for all business written by the primary and all branch offices. Please refer all tax questions to the Comptroller at (512) and questions on branch office registration to TDI at either Agent License (512) or Company Registration (512)

3 Surplus Lines Company Filing Requirements Released The Texas Department of Insurance (TDI) has released the annual Evidence Filing Requirements Letter for surplus lines insurers in The Stamping Office distributed the letter in a bulletin published January 17, These filing requirements are in accordance with the Texas Insurance Code (Code) and related provisions of the Texas Administrative Code (Rules). The Code and Rules require TDI to maintain a Surplus Lines TDI Policy Count Data Call For the third year, a Texas Department of Insurance Commissioner s Bulletin (#B ) has required that all insurers, including surplus lines insurers, provide to the agency the number of Texas policies in force as of December 31, The Stamping Office is responding to this data call again this year on behalf of those surplus lines carriers not wishing to directly provide the information themselves. SLSOT s involvement has been at the request of both NAPSLO and PCI. The Stamping Office provided preliminary data to each insurer in mid- January and will update the information in March. Please refer questions regarding this matter to Elaine White, Director of Data Services, at (512) Insurers List compiled from the information submitted by insurers that meet the eligibility provisions. The minimum capital and surplus requirement remains at $15 million. All surplus lines insurers wishing to retain or gain Texas surplus lines eligibility must file complete and legible evidence by the due dates contained in the TDI letter. The evidence filed must clearly identify the insurer. The first filing deadline for foreign (U.S.) insurers is March 31, Please note that certain evidence can be transmitted electronically. Insurers failing to file required evidence in a timely manner may be subject to removal from the insurers list and have Restricted Eligibility imposed until the requirement deficiency is corrected. Restricted eligibility allows an insurer to remain on the Insurers List to service existing policyholders, but prohibit any new business. You can locate a copy of these requirements at E F S Quick Tips HelpfulHints l H - Paper Filing of Policies SLSOT Employee News In January, the Stamping Office welcomed Diane Hopingardner as the newest member to our staff. Diane is employed as a Records Prep Clerk in the Data Services Department. Lone Star Lines 3

4 Comparison of SLSOT Premium Processed by Line of Business Annual Statement Line of Business Premium through 1/31/2008 Premium through 1/31/2007 Percent Change 1 Fire (incl. allied lines) $46,170,106 $70,779, % 2 Allied lines $3,766,985 $3,779, % 3 Farmowners multiple peril $72,604 $110, % 4 Homeowners multiple peril $5,586,699 $5,432, % 5 Commercial multiple peril $7,371,866 $5,605, % 8 Ocean marine $589,965 $504, % 9 Inland marine $5,413,964 $5,101, % 11 Medical malpractice $3,197,782 $3,706, % 13 Group accident & health $10,782,693 $7,358, % 15 All other A&H $185,304 ($9,629) % 17 Other liability $127,014,125 $134,915, % 18 Products liability $2,590,003 $3,121, % 19.2 Other priv pass auto lia $0 $2, % 19.4 Other comm. auto liab $10,525,600 $9,115, % 21.1 Priv pass auto physical $114,950 $95, % 21.2 Comm auto phys.damage $4,372,942 $4,528, % 22 Aircraft (all perils) $203,728 $2,011, % 23 Fidelity $258,350 $22, % 24 Surety $4,715 $5, % 26 Burglary & theft $32,986 $220, % 27 Boiler & machinery $0 $211, % 28 Credit $39,407,137 $29,027, % 31 Aggregate/other business $45,052 $4, % TOTAL $267,707,556 $285,652, % Note: Due to rounding figures may not total Lone Star Lines Surplus Lines Stamping Office of Texas P.O. Box Austin, Texas phone (800) fax (512) info@slsot.org The Lone Star Lines newsletter is published quarterly by the Surplus Lines Stamping Office of Texas for surplus lines agents, companies, and others involved in the surplus lines industry. The Lone Star Lines staff includes Phil Ballinger, CPCU, ASLI; Dalén Keith; Elaine White, ASLI; and Brian Wilds, CPA, ASLI. We invite readers to suggest topics for articles that may be of interest to others. Copyright 2008 Surplus Lines Stamping Office of Texas All rights reserved 4 Lone Star Lines

5 H February 1, 2008 Lone Star Lines Special Report 5 Year Comparison of SLSOT Premium Processed by Line of Business Annual Statement Premium Premium Premium Premium Premium Line of Business through 12/07 through 12/06 through 12/05 through 12/04 through 12/03 1 Fire(incl. allied lines) $802,769,900 $813,893,674 $632,355,451 $812,850,000 $773,747,894 2 Allied lines $42,165,699 $33,677,905 $22,187,874 $31,379,966 $47,539,118 3 Farmowners multiple peril $1,208,704 $1,536,579 $2,008,587 $1,958,823 $1,559,732 4 Homeowners multiple peril $84,632,848 $93,435,403 $109,908,736 $137,768,874 $152,023,156 5 Commercial multiple peril $211,512,269 $142,666,094 $98,788,632 $80,999,554 $65,640,046 8 Ocean marine $10,490,844 $8,342,573 $6,505,847 $11,794,308 $9,031,000 9 Inland marine $81,706,286 $84,049,436 $71,690,926 $72,266,932 $52,381, Medical malpractice $64,286,074 $61,464,194 $74,106,940 $75,670,282 $63,274, Earthquake $256,266 $241,148 $21,895 $3,806 $513, Group accident & health $84,746,797 $94,471,635 $85,188,762 $102,548,959 $97,912, All other A&H $2,387,829 $2,733,132 $1,962,121 $1,350,574 $305, Other liability $1,775,381,626 $1,745,790,998 $1,547,554,418 $1,626,157,332 $1,377,832, Products liability $34,769,418 $40,805,801 $30,908,367 $51,911,868 $45,247, Other priv pass auto-liability $2,599 $4,464 $7,000 $22,097 $22, Other comm. auto liability $129,125,016 $149,5554,782 $134,386,844 $144,839,319 $106,120, Priv pass auto physical $1,544,331 $1,591,001 $1,181,000 $1,398,192 $1,331, Comm auto phys.damage $67,679,120 $72,813,966 $60,446,309 $70,973,859 $65,753, Aircraft (all perils) $7,785,726 $16,997,357 $8,871,352 $9,354,431 $4,642, Fidelity $1,199,415 $2,285,809 $3,106,134 $1,628,655 $1,499, Surety $141,665 $400,465 $3,815,165 $0 $0 26 Burglary & theft $1,542,152 $2,307,865 $2,113,329 $1,986,892 $1,380, Boiler & machinery $699,895 ($62,326) $65,241 $213,506 $125, Credit $319,935,794 $200,364,046 $148,755,248 $84,252,255 $77,268, Aggregate/other business $192,382 $749,493 $427,724 -$213,990 $323,445 TOTAL (Due to rounding figures may not total) $3,726,162,655 $3,570,105,497 $3,046,363,902 $3,321,116,494 $2,945,747,937 Source for all data unless otherwise stated: Surplus Lines Stamping Office of Texas

6 Texas Surplus Lines Market Share, U.S. vs. Non-U.S. Insurers Market share for non-u.s. insurers has dropped from 46% in 1991 to 25% currently. Paper vs. Electronic Policy Filing 100% 80% PAPER 60% 40% 20% ELECTRONIC 0% Jan Mar May July Sept Nov Jan Mar May July Sept Nov

7 2006 Top Ten Surplus Lines Premium States Texas Surplus Lines Premium 2007 Comparison by Line of Business Millions California* $7,245.2 Texas* $4,675.6 New York* $4, % Auto 2.5% Marine 2.3% A&H Florida* $4,567.7 New Jersey $1,252.1 Louisiana $1,216.6 Pennsylvania* $1,023.6 Georgia $942.7 Illinois* $918.5 Massachusetts $ % Other Total, Top 10 $27,254.0 Total, U.S. $38,676.8 Top 10 as % of Total 70.5% *states with operating stamping office Source: Business Insurance Property 50.3% Liability $4,000 $3,500 Texas Surplus Lines Premium Source: Texas Department of Insurance Surplus Lines Stamping Office of Texas Millions of Dollars $3,000 $2,500 $2,000 $1,500 $1,000 $500 $

8 Top Surplus Lines Groups in Texas Group Current Rank Prior Year Underwriters at Lloyd s 1 1 $697,037,799 $574,053,553 $462,284,585 $498,988,165 $442,670,499 American International Group 2 2 $621,068,131 $565,502,560 $491,594,213 $466,301,212 $431,228,887 Assurant 3 8 $156,265,031 $122,481,985 $101,945,874 $91,592,664 $83,210,226 Zurich Financial Services Group 4 3 $152,011,427 $161,907,552 $151,365,296 $176,283,357 $179,563,402 W.R. Berkeley Group 5 6 $146,693,091 $1,351,867 $112,386,092 $113,782,716 $95,568,160 ACE USA Group 6 7 $136,828,012 $135,105,107 $101,892,567 $118,053,198 $101,675,112 Nationwide Group 7 4 $132,796,512 $146,820,055 $141,579,230 $147,391,453 $137,303,756 St. Paul Travelers 8 5 $129,713,111 $145,226,237 $154,317,785 $207,142,276 $200,543,264 Markel Corporation Group 9 9 $114,386,283 $116,348,914 $105,594,001 $135,857,203 $126,978,584 Argonaut $89,526,724 $90,595,630 $72,112,886 $69,080,481 n/a Total Premium - Top Groups $2,376,326,121 $2,193,228,311 $1,895,072,529 $2,024,472,725 $1,798,741,890 % of Total Texas Surplus Lines Premium 64% 61% 62% 62% 61% Policies Processed & Average Premium Per Policy Policies Processed 550,000 Premium per Policy $8, , , , , , ,000 Policies Avg. $/Pol $7,500 $6,500 $5,500 $4,500 $3, , $2,