Surplus Lines Broker

The non-admitted insurance market for risks that cannot be placed in the standard admitted market due to unique characteristics, high risk, or lack of available coverage. Excess and surplus lines insurers are not licensed (admitted) in the state where the risk is located, which provides them flexibility in rates and policy forms not subject to state prior approval requirements. However, they must meet financial requirements and are listed on state-approved eligible surplus lines insurer lists. The E&S market serves as a critical safety valve for the insurance system, providing coverage for unique, high-risk, or emerging exposures. Common E&S placements include high-value properties, unusual liability risks, and specialized commercial coverages. The U.S. surplus lines market exceeded $131 billion in direct premiums written in 2024, representing approximately 12% of the total property and casualty market.

The requirement that a surplus lines broker must make a good-faith effort to place insurance coverage with admitted carriers in the standard market before resorting to the non-admitted (surplus lines) market. The diligent search typically requires the broker to contact a specified number of admitted insurers (often three or more, depending on state requirements) and document their declinations or inability to provide adequate coverage. The broker must maintain records of the search efforts, including which carriers were contacted, dates of contact, and reasons for declination. This requirement protects the admitted market and ensures that surplus lines are used only when standard market options are genuinely unavailable.

A tax imposed by states on surplus lines (non-admitted) insurance premiums, typically ranging from 2% to 6% of the premium amount. The surplus lines tax is collected by the surplus lines broker at the time of policy placement and remitted to the state where the insured risk is located (the 'home state' under the Nonadmitted and Reinsurance Reform Act). This tax serves as a substitute for the premium taxes that admitted insurers pay. The broker is responsible for calculating, collecting, and remitting the tax, along with required filings documenting the placement. Stamping offices often facilitate the collection and distribution of surplus lines taxes across multiple states.

Insurance placed with carriers not licensed (admitted) in the state where the insured risk is located. Non-admitted insurers, also called surplus lines insurers, are not subject to state rate and form approval requirements, giving them flexibility to underwrite unique or high-risk exposures. However, they must meet financial requirements and be listed on the state's approved eligible surplus lines insurer list. Non-admitted policies are not protected by state guaranty funds in the event of insurer insolvency, though historical insolvency rates for surplus lines carriers are low. Non-admitted insurance can only be placed after a surplus lines broker conducts a diligent search in the admitted market and documents that coverage is not available from admitted carriers.

A business professional who analyzes probabilities of risk and risk management, including calculation of premiums, dividends, and other applicable insurance industry standards.

The process by which an insurer evaluates the risk of insuring a person or property and determines coverage terms and premium rates.

The ratio of losses paid plus loss reserves to premiums earned, used by insurers to measure underwriting profitability and pricing adequacy.

The sum of the loss ratio and expense ratio, measuring an insurer's overall underwriting profitability. A ratio below 100% indicates underwriting profit.