Typical Coverage Types

• Surplus lines insurers typically write property and casualty coverages, such as medical malpractice insurance, fire insurance and certain commercial liability policies.
  
  

Unique Risks

• Admitted insurance carriers may elect to not cover certain types of loss exposures, which provide a market for surplus lines carriers. Surplus lines carriers write policies that have been rejected by admitted or licensed insurance carriers. These types of coverages fall outside of the guidelines of standard insurance policies, which may include extraordinary risks --- certain types of companies may have extraordinary risks, such as demolition businesses, oil refineries and airline businesses. These unique liability exposures may not be covered by standard insurance policies.
  
  

State Requirements

• Surplus lines insurers aren't state-licensed insurers and don't compete with licensed or admitted insurance companies. Admitted insurance carriers are subject to the laws and regulations of the home state, and these insurers must be licensed. Nonadmitted or surplus lines insurers must be authorized to write policies in their home state. States may establish specific guidelines for the admission of surplus carriers. For instance, certain states may require these carriers to pay filing fees, submit articles of incorporation and submit details regarding their reinsurance arrangements.
  
  

Nonadmitted and Reinsurance Reform Act Standards

• Nonadmitted insurance companies aren't subject to specific state laws and regulations, whereas admitted insurance carriers must abide by state rules and regulations. Effective July 21, 2011, the Nonadmitted and Reinsurance Reform Act only allows the home state of the insurer to implement standard regulations and procedures for the requirements for surplus lines insurers. Surplus lines insurers aren't subject to tax payment laws in any state other than their home state, also known as the state of their principal place of business. If the insurer's home state doesn't adopt eligibility standards for surplus lines insurers, the Nonadmitted and Reinsurance Reform Act has set default standards. Under these default standards, the nonadmitted insurance companies must be authorized to write policies in their home state, and the insurer must maintain capital of at least $15 million, or maintain capital of the minimum amount required by the home state.
  
  

Important

• Surplus lines insurance policies aren't protected by state insurance guaranty associations, whereby standard, or admitted, policies are protected. Admitted insurers are required to make payments toward a state guarantee fund, and if the insurer becomes insolvent, the insurance guaranty association covers the financial losses.