PROPOSED RULEMAKING
[31 PA. CODE CHS. 35, 123 AND 124]
Surplus Lines Insurance
[28 Pa.B. 4932] The Insurance Department (Department) proposes to delete Chapter 35 and 123 (relating to surplus lines agents) and adopt Chapter 124 (relating to surplus lines insurance) to read as set forth in Annex A. The rulemaking is proposed under the authority of Article XVI of the Insurance Company Law (act) (40 P. S. §§ 991.1601--991.1625). The proposed rulemaking sets forth duties and requirements relating to surplus lines agents, producing brokers and surplus lines insurers transacting business in this Commonwealth.
Purpose
The surplus lines insurance market is intended to provide coverage for nonstandard or unique risks that do not fit the underwriting guidelines of insurers licensed to transact business in the market for standard or traditional insurance coverages (admitted insurers). Surplus lines insurance may be procured through licensed surplus lines agents (surplus lines licensees) from insurers that appear on a list of eligible surplus lines insurers published by the Department. A surplus lines licensee may place coverage as a result of being contacted directly by a consumer or in response to a request from another insurance broker (producing broker) who is dealing directly with the consumer.
The Commonwealth's surplus lines laws and regulations were adopted to establish a system of regulation that permits orderly access to surplus lines insurance in this Commonwealth with reputable and financially sound insurers and provides for adequate protections in the insurance marketplace. The Commonwealth's initial Surplus Lines Insurance Law (act of January 24, 1966, 1965 (P. L. 1509, No. 531)) was replaced by Article XVI of the act in 1992. The purpose of this rulemaking is to replace the regulations adopted under the authority of the initial Surplus Lines Insurance Law with updated regulations consistent with Article XVI of the act.
Explanation of Regulatory Requirements
Section 124.1 (relating to definitions) defines key terms used to identify the types of insurers that fall within the scope of the chapter and other terms needed to supplement the definitions in section 1602 of the act (40 P. S. § 991.1602). The definitions clarify terms used in the chapter without unnecessary duplication of definitions in the act.
Section 1608 of the act (40 P. S. § 991.1608) requires that insureds be given written notice when all or part of their insurance is placed with a nonadmitted insurer (an eligible surplus lines insurer or other insurer that is not authorized and not licensed to do business in this Commonwealth). The notice must be provided at the time an insured is presented with a quotation and must advise the insured that: (1) the nonadmitted insurer is not licensed by the Department and is subject to only limited regulation; and (2) losses will not be covered by the State guaranty fund if the insurer becomes insolvent. Section 124.2 (relating to notice to insured) requires that the notice be substantially similar in content to that in section 1608 of the act and prominently printed on the first page of the quotation. These provisions are intended to assure that this important information is clearly and accurately conveyed to consumers before they purchase surplus lines insurance.
Section 1618 of the act (40 P. S. § 991.1618) specifically provides that a surplus lines licensee who is granted binding or underwriting authority by an eligible surplus lines insurer is subject to regulations promulgated by the Department. Section 124.3(a) (relating to conditions of binding authority) prohibits a surplus lines licensee from exercising binding authority without a properly executed written contract with the eligible surplus lines insurer that sets forth the terms, conditions and limitations of the surplus lines licensee's binding authority. In addition, § 124.3(a) lists the minimum provisions required in binding authority contracts. These minimum requirements are intended to assure that a contract clearly defines the limits of the surplus lines licensee's authority and either expressly prohibits the licensee from delegating that authority or, if the contract permits delegation, requires the licensee to obtain the insurer's written approval prior to delegating binding authority. Section 124.4(b) and (c) requires that executed copies of the contracts or any instruments delegating authority granted under the contracts be maintained in this Commonwealth and available for examination by the Department for at least 5 years following termination. These retention requirements provide the Department with the access needed to determine compliance with the regulations.
Section 1612(a) of the act (40 P. S. § 991.1612(a)) requires the surplus lines licensee to deliver the insurance contract to the insured or the producing broker upon placing surplus lines insurance. If the insurance contract is not immediately available, the licensee may deliver a cover note, binder or other evidence of insurance that contains at least the information required in section 1612(a) of the act. Section 124.4 (relating to evidence of insurance) requires the surplus lines licensee to deliver the contract or other evidence of insurance within 15-calendar days after either binding the coverage or receiving notice from the insurer that it has assumed the risk. The 15-day requirement establishes a clearly defined time frame for delivery of the contract or other evidence of insurance under section 1612 of the act.
Section 124.4(c) requires the contract or other evidence of insurance to contain a service of process clause with language substantially similar to the language in that subsection. The clause is intended to facilitate compliance with section 1624 of the act (40 P. S. § 991.1624) providing for service of process in actions against surplus lines insurers. Specifically, section 1624(a) of the act requires the contract or other evidence of insurance to contain a provision stating the substance of that section and designating the person on whom process shall be served.
Section 1604(2) of the act (40 P. S. § 991.1604(2)) sets forth three criteria, at least one of which must be satisfied before a surplus lines licensee may place coverage with an eligible surplus lines insurer. Section 1604(2)(i) of the act, the first criterion, permits placement of surplus lines insurance when the full amount or kind of insurance cannot be obtained from admitted insurers, if a diligent search has been made among the admitted insurers who are writing, in this Commonwealth, coverage comparable to the coverage being sought. Section 124.5 (relating to diligent search of admitted insurers) establishes the minimum duties and requirements that apply to producing brokers and surplus lines licensees in conducting a diligent search of the licensed market.
Current declaration forms required under section 1609(a)(1)(i) of the act (40 P. S. § 991.1609(a)(1)(i)) to be executed by the producing broker (or by the surplus lines licensee when acting as the producing broker) require the producing broker to identify at least three admitted insurers which have declined to insure the risk. Section 124.5(a)(1) will permit a producing broker who has less than three agent appointments to obtain declinations from less than three admitted insurers. While brokers may be appointed by admitted insurers to act as agents, they are not required to maintain appointments. The provisions for less than three declinations have been included in the regulation to recognize that a producing broker with less than three agent appointments may not be able to obtain at least three declinations. In addition, § 124.5(a)(5) permits a producing broker to assume that an admitted insurer has declined a risk if the insurer fails to respond within 5 business days of the broker's request.
Section 124.5(a)(3) requires the producing broker to create a written record of a declination of coverage, either by obtaining a written declination from the insurer or creating a written record to document an oral declination. Section 124.5(a)(4) lists the information required to be included in a written record created to document an oral declination. This documentation is an important part of the record of insurance contracts placed in the surplus lines market under section 1609(a)(1)(i) of the act.
Section 124.5(b) refers to the statutory duties imposed on surplus lines licensees in the conduct of a diligent search of the licensed market. Specifically, the licensee is required to file a written declaration of the licensee's lack of knowledge of how the coverage could have been procured from admitted insurers. In addition, if a surplus lines licensee acts as both the producing broker and the surplus lines licensee, the licensee must also execute the declaration form applicable to the producing broker. These references have been included in the regulation to integrate and clarify the various statutory duties related to a diligent search of admitted insurers when coverage is placed in the surplus lines market under section 1604(2)(i) of the act.
Section 124.5(c) establishes qualification requirements for persons authorized to decline coverage on behalf of admitted insurers. The person must be a full-time employe of the admitted insurer with underwriting responsibility or a full-time employe of an underwriting manager for the insurer. In addition, § 124.5(d) prohibits declinations from being obtained from an affiliate of an admitted insurer that has already declined the risk and also prohibits surplus lines insurance from being placed with an affiliate of a declining insurer, except when the affiliated insurers are independent of each other as defined in § 124.5(d)(3). These restrictions are needed to assure that a proper diligent search is made of the admitted market before coverage is placed in the surplus lines market under the criterion in section 1609(a)(1)(i) of the act.
Section 1604(2)(ii) of the act permits coverage to be placed in the surplus lines market if no admitted insurers are writing coverage comparable to the coverage being sought. Under this second criterion for placement of surplus lines insurance, the Insurance Commissioner has published an export list of the coverages declared to be generally unavailable in the admitted market. (See 27 Pa.B. 2795 (June 7, 1997).) Section 124.6 (relating to export list coverages) clarifies that the diligent search requirement in section 1604(2)(i) of the act and related reporting requirements do not apply to the placement of coverage that appears on the export list. Within 45 days of placing coverage that appears on the export list, § 124.6(c) requires the surplus lines licensee to file a copy of the declaration page of the policy or other evidence of insurance with the Department.
Section 1604(2)(iii) of the act, the third criterion under which coverage may be placed in the surplus lines market, permits coverage to be placed in the surplus lines market if it is a unique form of coverage not available in the admitted market. Section 124.7 (relating to unique forms of coverages) requires the surplus lines licensee to file a declaration reporting these transactions in a form prescribed by the Department within 45 days of placing the coverage. The filing requirements relating to export list and unique forms of coverage will allow the Department to monitor the placement of these coverages in the surplus lines market.
Section 1615(b)(4) of the act (40 P. S. § 991.1615(b)(4)) requires a surplus lines licensee to file with the Department and maintain a surety bond in the amount of at least $50,000. The bond is to be conditioned that the surplus lines licensee will conduct business in accordance with Article XVI of the act and will promptly remit the taxes as provided by law. Section 1621 of the act (40 P. S. § 991.1621) imposes a 3% tax on all premiums charged for insurance placed with an eligible surplus lines insurer or other nonadmitted insurer. The surplus lines licensee is responsible for the collection of the 3% tax from the insured or the producing broker at the time of delivery of the initial contract or other evidence of insurance. On or before January 31 each year, the surplus lines licensee is required to file a report of all transactions during the previous calendar year with the tax due for those transactions. Section 124.8(a) (relating to surplus lines licensee bond requirements) requires a bond in the amount of at least $50,000 for the initial term of a license. Section 124.8(b) requires the amount of the bond for renewal of a license to be based on the total amount of the licensee's taxable surplus lines premiums for the preceding calendar year, as determined by a table in § 124.8(b). These requirements are needed to assure that the required minimum amount of a licensee's bond is commensurate with the licensee's obligation to remit the 3% premium tax.
Section 124.9 (relating to requirements to qualify as an eligible surplus lines insurer) sets forth requirements that insurers must meet to be considered under section 1605(b) of the act (40 P. S. § 991.1605(b)) for placement on the Department's list of eligible surplus lines insurers. In addition to the requirements of Article XVI of the act, the insurer must be licensed in its domiciliary jurisdiction to transact the kinds of insurance it proposes to provide in this Commonwealth. The insurer also must have been engaged in transacting surplus lines insurance in at least one jurisdiction, or have been an affiliate of an admitted insurer, for the 3 years immediately preceding the insurer's application for inclusion on the Department's list. Under section 1605(a)(2)(i) of the act (40 P. S. § 991.1605(a)(2)(i)) an alien insurer is required to maintain an irrevocable trust fund in the United States in an amount not less than currently required by the National Association of Insurance Commissioners (NAIC) for the protection of all policyholders in the United States. Section 124.9(3) requires alien insurers to provide evi-dence of their inclusion on the list of alien insurers that have met the NAIC's criteria. The qualifications in the regulation are consistent with the eligibility requirements in section 1605 of the act and assure that insurers transacting surplus lines business in this Commonwealth are reputable and financially sound.
Section 124.10 (relating to eligible surplus lines insurer filing requirements) lists the information that must be included in applications by foreign and alien insurers for consideration for inclusion on the Department's list of eligible surplus lines insurers. After placement on the Department's list, the insurers are required to provide the Department with any updates to the information within the time frames provided in § 124.10(b) and (d). The information required in this section will enable the Department to assess the financial condition of applicants and determine whether the applicants satisfy the requirements of Article XVI for the act and the regulations, including the trust fund requirements applicable to alien insurers.
External Comments
In drafting this updated rulemaking, the Department requested comments from the Pennsylvania Surplus Lines Association, surplus lines associations in 12 other states, The Insurance Federation of Pennsylvania, Inc., the Professional Insurance Agents Association, the Independent Insurance Agents of Pennsylvania and a number of firms appointed as United States contacts for alien surplus lines insurers. The comments received in response to the Department's request were considered in the development of this proposed rulemaking.
Fiscal Impact
The reporting, recordkeeping and qualification requirements in Chapter 124 will impose no significant costs on surplus lines licensees, producing brokers or surplus lines insurers transacting business in this Commonwealth. Department costs associated with the review of applications and reports filed under Chapter 124 will not increase as a result of this proposed rulemaking. The chapter will have a beneficial fiscal impact by eliminating current costs imposed on regulated parties and the Department related to the filing and review of binding authority contracts. The chapter will serve to enhance the protection of Commonwealth revenues by imposing minimum bonding requirements consistent with premium tax liability. The chapter will not impact on costs to political subdivisions. While the chapter has no immediate fiscal impact on the general public, the general public will benefit to the extent that adoption of the chapter enhances the efficiency and effectiveness of the Commonwealth's regulation of surplus lines insurance under Article XVI of the act.
Paperwork
Chapter 124 eliminates filing requirements related to binding authority contracts. The chapter will require producing brokers to maintain records to demonstrate that a diligent search of licensed insurers was made before coverage is placed in the surplus lines market. These recordkeeping requirements provide guidance to producing brokers in efforts to conduct a proper search of the licensed market and enhance compliance with the statutory conditions that must be met before coverage in placed in the surplus lines market. The requirements will also enhance the Department's ability to monitor transactions in the surplus lines market.
Persons Regulated
This proposed rulemaking applies to all surplus lines agents, producing brokers and surplus lines insurers transacting business in this Commonwealth.
Contact Person
Questions or comments regarding this proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Office of Special Projects, 1326 Strawberry Square, Harrisburg, PA 17120, (717) 787-4429, within 30 days following the publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on September 23, 1998, the Department submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Insurance and the Senate Committee on Banking and Insurance. In addition to submitting this proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the agency in compliance with Executive Order 1996-1. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, if IRRC has objections to any portion of the proposed amendments, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the regulations by the Department, the General Assembly and the Governor of objections raised.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-170. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART I. GENERAL PROVISIONS
CHAPTER 35. (Reserved) (Editor's Note: The Insurance Department proposes to delete Chapter 35, §§ 35.1--35.4, 35.11--35.13, 35.21 and 35.22 as set forth at 31 Pa. Code pps. 35-1 to 35-7, serial pps. (195127) to (195133).)
§§ 35.1--35.4 (Reserved).
§§ 35.11--35.13. (Reserved).
§ 35.21. (Reserved).
§ 35.22. (Reserved).
PART VIII. MISCELLANEOUS PROVISIONS
CHAPTER 123. (Reserved) (Editor's Note: The Insurance Department proposes to delete Chapter 123, §§ 123.1, 123.4, 123.11, 123.12, 123.21, 123.31--123.42 and 123.51--123.63 as set forth at 31 Pa. Code pps. 123-1 to 123-14, serial pps. (227532) to (227544).)
§ 123.1. (Reserved)
§ 123.4. (Reserved).
§ 123.11. (Reserved).
§ 123.12. (Reserved).
§ 123.21. (Reserved).
§§ 123.31--123.42. (Reserved).
§§ 123.51--123.63. (Reserved).
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. § 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--An insurer, other than an alien insurer, not incorporated or organized under the laws of the Commonwealth. 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. Section 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) At a minimum, the producing broker shall obtain declinations from admitted insurers with which the producing broker holds agent appointments and which are writing, in this Commonwealth, coverage comparable to the coverage being sought in accordance with the following table:
Number of Agent Number of Required Appointments Declinations 0 1 1 1 2 2 3 or more 3 (ii) A producing broker who obtains less than three declinations shall attach a notarized statement, affirming the number of agent appointments held, to the declaration form required under section 1609(a) of the act.
(iii) 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.
(iv) 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.
(v) 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 (iv)(A)--(C).
(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.
(3) 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.
(4) For purposes of this paragraph, the term ''affiliate'' is used as defined in section 1401 of The Insurance Company Law of 1921 (40 P. S. § 991.1401).
(i) 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.
(ii) 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.
(iii) The restrictions in paragraph (1)(i) and (ii) 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.
§ 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) Be 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) Have been 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 be 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 subsections (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 insurer 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 required by the Commissioner to determine whether the insurer continues to meet the standards under the act.
[Pa.B. Doc. No. 98-1602. Filed for public inspection October 2, 1998, 9:00 a.m.]
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