Current through Register Vol. 49, No. 2, February 2024
Section
1.
Purpose
The purpose of this Rule and Regulation is to clarify existing
legislation regarding this subject matter so that originating agents and
brokers, 'resident surplus line brokers in Arkansas licensed under Ark. Code
Ann. §§
23-65-301, et
seq., and non-resident surplus line brokers for purchasing groups pursuant to
Ark. Code Ann. § 23-94-104(b) (2) (Supp. 1989) are provided with clear
guidelines in conducting surplus line business. It is the purpose of this Rule
and Regulation to adopt 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.
Section 2.
Authority
This Rule and Regulation is promulgated pursuant to the authority
granted to the Insurance Commissioner under Ark. Code Ann. §§
23-61-108;
23-65-301, et
seq.; 23-94-104(b);
25-15-201, et
seq.; and other applicable provisions of Arkansas law.
Section 3.
Applicabiliy and
Scope
The provisions of this Rule shall be applicable to resident and
non-resident agents and brokers licensed for property, casualty, surety and
marine insurance transactions in this State, and serving as the originating
agent/broker on Arkansas surplus line policies; Arkansas resident surplus line
brokers licensed pursuant to Ark. Code Ann. §§
23-65-301, et
seq.; and non-resident surplus line brokers for purchasing groups only,
licensed pursuant to Ark. Code Ann. § 23-94-104(b).
Section 4.
Effective
Date
The effective date of this Rule shall be September 2,
1991.
Section 5.
Affidavits
A.
Attached to this Regulation is Form SL-1 which provides for the Affidavit of
the Originating Agent or Broker, and Form SL-2 which provides for the Affidavit
of the Surplus Line Broker. In accordance with Ark. Code. Ann. §
23-65-306, 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. The executed originating agent's
affidavit must be maintained in the office of the originating agent or
broker.
B. The originating agent 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 agent 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 reported to have been made by
the originating agent or broker in the affidavit Form SL-1. If the surplus line
broker also serves as the originating agent or broker, the surplus line broker
must make the diligent effort to secure coverage through the admitted
market.
D. If the originating agent
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 qualifying therefor under subsection (CE)
below.
E. The originating agent or
broker and the surplus line broker may consider to be a "declination" any offer
of similar coverage by an admitted insurer wherein such insurer would require a
gross premium of twenty percent (20%) or more higher than the total gross
premium and charges for insurance (including taxes and expense of underwriting)
applicable to the procurable surplus line coverage.
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,
this must be done, and the amount of insurance placed in an approved surplus
line insurer can only be the balance over the amount procurable from admitted
insurers.
G. The originating agent
or *broker shall complete each month a separate affidavit Form SL-1 for each
surplus line broker through whom business was placed in the surplus line market
for that month. The originating agent or broker must list thereon all risks
placed through each broker for each month. These affidavits should be
maintained in the office records of the originating agent or broker.
H. It is permissible for the surplus line
broker to file one completed 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.
I. Each
affidavit must contain original signatures and rubber stamped or facsimile
signatures are unacceptable.
J.
Return premiums, additional premiums, and premiums paid on the monthly payment
method are to be so identified on Form SL-2A [in the column marked (7) Proper
Designation]. In the column designated as "Premium", the amount of the premium
and the amount of return premium (in parenthesis) are to be inserted.
K. 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 also attach a postage paid, self-addressed envelope for use in returning
the copy.
L. 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.
M. The guidelines and procedures outlined in
this Regulation and as provided for by law shall apply anew each time a
particular coverage which has been placed in the surplus line market is
proposed to be rewritten or renewed on a surplus line basis.
N. Computer-generated Forms SL 1, 2, 3 and 4
are permissible for use so long as they follow the format outlined in the
Exhibits to this Rule; and specimen forms are submitted to the Commissioner for
approval prior to use in this State.
Section 6.
Endorsement of
Contract
Particular attention should be given to compliance with Ark. Code
Ann. §
23-65-307,
which requires that 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 and have stamped upon it the following: "This contract is
registered and delivered as a surplus line coverage under the Surplus Lines
Insurance Law."
Section 7.
Required Procedure of Originating Agent or Broker
A. With the exception of coverages for
members of registered purchasing groups under subsection (E) below, the
originating agent or broker must procure surplus line business through a
licensed Arkansas resident surplus line broker. If the licensed originating
agent or broker is a non-resident broker, or alternately uses a non-resident
broker for facilitating surplus line coverage for Arkansas risks, it is the
responsibility of the originating agent or broker to assure that surplus line
reports and tax payments are filed with the Commissioner by a licensed resident
surplus line broker,
B. Pursuant to
Ark. Code. Ann §
23-65-306(b)
and § 23-94-104Cb )(2), originating agents or brokers procuring surplus line
insurance for Arkansas property or risks of members of purchasing groups
registered in this State must procure surplus line business through either a
licensed resident Arkansas surplus line broker or through a non-resident
surplus line broker for purchasing groups only, as duly licensed in this State.
If the licensed originating agent or broker is/uses a
non-resident broker for facilitating surplus line coverage for purchasing group
members, it is the responsibility of the originating agent or broker to assure
that surplus line reports and tax payments are filed with the Commissioner by a
licensed resident Arkansas surplus line broker or a licensed non-resident
surplus line broker for purchasing groups only.
Section 8.
Disclosure to Surplus
Line Insured
Attached to this Regulation is Form SL-3, Disclosure to Surplus
Line Insured, which must be signed by the insured and retained by the
originating agent or broker in his office records together with the Form
SL-1.
Section 9.
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
or § 23-94-104(b)(2) (B).
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
and §23-g4-104(b)(2)(B). 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 Regulation within which such licenses must be
obtained in order for such corporations, partnerships and individuals to remain
in compliance with this Regulation.
Section 10.
Records of Surplus
Line Brokers
In addition to the items of information required to be maintained
by the surplus line broker, pursuant to Ark, Code Ann. §
23-65-313(a)(9),
it shall also be required that surplus line brokers maintain complete records
as to expenses incurred designated as "expenses of underwriting", as well as
the amount of such expense collected from insureds. It shall be sufficient for
these records to be maintained in total for each surplus line insurer, and it
shall not be necessary to maintain records on an individual risk basis.
Section 11.
Statement
to be Filed Annually
A. Attached
to this Regulation is Form SL-4 which 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, pursuant to Ark. Code Ann. §
23-65-314.
B. All surplus line brokers must file Form
SL-4 even if he 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 12.
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 13.
Severability
If any section or portion of a section of this Regulation or the
application thereof to any person or circumstances is held invalid by a court,
the remainder of the Regulation, or the application of such provision to other
persons or circumstances shall not be affected thereby.
