Current through Register Vol. 49, No. 9, September, 2024
Section 1.
Purpose
The purpose of this Rule is to clarify existing legislation
regarding surplus lines insurance in order to provide clear guidance to
originating producers and brokers and surplus line brokers in Arkansas licensed
under Ark. Code Ann. §§
23-65-301,
et seq. This Rule provides direction regarding forms and
documents necessary for proper reporting and accounting on property, casualty,
surety and marine insurance issued by surplus line insurers through surplus
line brokers.
Forms SL-2, SL-3, and SL-4 referenced herein are available on the
Arkansas Insurance Department's website at
http://www.insurance.arkansas.gov/Accounting/divpage.htm.
At the discretion of the Commissioner, the forms may be accepted in electronic
format.
Section 2.
Authority
This Rule is promulgated pursuant to the authority granted to the
Commissioner under Ark. Code Ann. §§
23-61-108,
23-65-301,
et seq., and
25-15-201,
et seq.
Section
3.
Applicability and Scope
The provisions of this Rule shall be applicable to resident and
non-resident producers and brokers licensed for property, casualty, surety and
marine insurance transactions in this State and serving as the originating
producer or broker on Arkansas surplus line policies and surplus line brokers
licensed pursuant to Ark. Code Ann. §§
23-65-301,
et seq.
Section
4.
Effective Date
The effective date of this Rule shall be the date on which it is
signed by the Commissioner.
Section
5.
Affidavits
A. In
accordance with Ark. Code. Ann. §
23-65-306, Form
SL-2, the surplus line broker's affidavit, must be completed in full and
forwarded to the Commissioner by the surplus line broker within sixty (60) days
of the end of the month in which the coverage was procured.
B. The originating producer or broker,
pursuant to Ark. Code. Ann. §
23-65-305,
must make a diligent effort to place the business in admitted insurers. To this
end, the originating producer or broker must attempt to place the business with
those admitted insurers which he has reason to believe are actually marketing
in this State the kind or class of insurance sought to be placed, before the
business may be placed in surplus line insurers.
C. In regard to the affidavit of the surplus
line broker, he may rely on the diligent effort made by the originating
producer or broker. If the surplus line broker also serves as the originating
producer or broker, the surplus line broker must make the diligent effort to
secure coverage through the admitted market.
D. If the originating producer or broker is
made aware of an offer of renewal in the admitted market from any source, the
property, casualty, surety or marine policy cannot be written on a surplus line
basis unless it qualifies under Section 5(E) below.
E. Any offer of similar coverage by an
admitted insurer requiring a gross premium of twenty percent (20%) or more
higher than the total gross premium and charges, including taxes and expense of
underwriting, applicable to the procurable surplus line coverage may be
considered a declination by the originating producer or broker and the surplus
line broker.
F. In accordance with
Ark. Code. Ann. §
23-65-305,
if a portion of the property or risk can be written in an admitted insurer, it
must be written in that insurer. The amount of insurance placed in an approved
surplus line insurer can only be the balance remaining from the amount
procurable from admitted insurers.
G. It is permissible for the surplus line
broker to file a monthly affidavit, Form SL-2, with the insurers' names, total
premiums, total expense of underwriting, and total tax for each insurer with
which he placed business during that month, and a completed Form SL-2A for each
insurer.
H. Return premiums,
additional premiums, and premiums paid on a monthly payment method are to be so
identified on Form SL-2A. In the column designated as "Premium," the amount of
the premium and the amount of return premium (in parenthesis) are to be
inserted.
I. If the surplus line
broker desires to retain evidence of having filed Forms SL-2 with the
Department, the surplus line broker must forward one (1) additional copy
thereof so that the Department can stamp the copy "FILED" and return it to the
surplus line broker. The broker must request a file-marked copy and include a
postage paid, self-addressed envelope for use in returning the copy.
J. Due to the similarity of the names of many
insurers, the full and complete names as they appear on the Arkansas Approved
Surplus Lines Insurers List and the NAIC Non-Admitted Insurers Quarterly
Listing must be given on all forms.
K. The guidelines and procedures outlined in
this Rule and Ark. Code Ann. §§
23-65-301,
et seq., shall apply anew each time it is proposed that a
particular coverage, which has been placed in the surplus line market, be
rewritten or renewed on a surplus line basis.
L. Computer-generated Forms SL-2, SL-3, and
SL-4 are permissible for use if they follow the format outlined in the forms
located on the Department's website. Specimen forms must be submitted to the
Commissioner for approval prior to use in this State.
Section 6.
Endorsement of
Contract
Pursuant to Ark. Code Ann. §
23-65-307,
all insurance contracts procured and delivered as surplus line coverage shall
be initialed by, or bear the name of, the surplus line broker who procured it.
In addition, the contract shall contain a conspicuous statement substantially
similar to the following:
This contract is registered and delivered as a surplus line
coverage under the Surplus Lines Insurance Law, and it may in some respects be
different from contracts issued by insurers in the admitted markets, and,
accordingly, it may, depending upon the circumstances, be more or less
favorable to an insured than a contract from an admitted carrier might be. The
protection of the Arkansas Property and Casualty Guaranty Act does not apply to
this contract. A tax of four percent (4%) is required to be collected from the
insured on all surplus lines premiums.
Section 7.
Disclosure to Surplus Line
Insured
Form SL-3, Disclosure to Surplus Line Insured, must be signed by
the insured and retained by the originating producer or broker.
Section 8.
Licensing of
Corporations and Partnerships Acting as Surplus Line Brokers
A. All individuals acting as surplus line
brokers in this State must first individually qualify for and be issued a
surplus line broker's license pursuant to Ark. Code Ann. §
23-65-308.
B. Hereinafter, any corporation or
partnership which provides a facility for transacting business on a surplus
line basis shall be required to apply for and obtain a surplus line broker's
license in the name of the corporation or partnership pursuant to Ark. Code
Ann. §
23-65-308.
Each individual to act as a surplus line broker under the license must qualify
individually for a surplus line broker's license and upon doing so will be
added to the license of the corporate or partnership broker. As to corporations
and partnerships currently operating on this basis but not being corporately
licensed, a period of sixty (60) days is granted beyond the effective date of
this Rule within which such licenses must be obtained in order for such
corporations, partnerships and individuals to remain in compliance with this
Rule.
Section 9.
Records of Surplus Line Brokers
In addition to the other items of information required to be
maintained by the surplus line broker, pursuant to Ark. Code Ann. §
23-65-313(a)(9)
surplus line brokers shall also maintain complete records as to expenses of
underwriting as well as the amount of such expense collected from insureds. It
shall be sufficient for these records to be maintained as a total for each
surplus line insurer, and it shall not be necessary to maintain records on an
individual risk basis.
Section
10.
Statement to be Filed Annually
A. Form SL-4 must be completed in full by all
licensed surplus line brokers and submitted to the Department on or before the
first day of March of each year as required by Ark. Code Ann. §
23-65-314.
B. All surplus line brokers must file Form
SL-4, even if the broker did not write any Arkansas business on a surplus line
basis during the preceding calendar year, noting thereon that no business was
transacted.
C. As to surplus line
brokers who write business only through a corporation or partnership which is
also licensed as a surplus line broker, only a Form SL-4 filed by the
corporation or partnership shall be necessary.
Section 11.
Surplus Line Tax
The filing of each Form SL-2 must be accompanied by full payment
of the 4% tax required by Ark. Code Ann. §
23-65-315. The
filing of Form SL-4, due March 1 annually, must be accompanied by full payment
of the balance of taxes due, if any, for surplus line insurance procured during
the preceding calendar year. Expense of underwriting shall be considered as
part of the premium for surplus line tax purposes.
Section 12.
Severability
If any section or portion of a section of this Rule or the
application thereof to any person or circumstances is held invalid by a court,
the remainder of the Rule, or the application of such provision to other
persons or circumstances shall not be affected thereby.
