Surplus Lines Premium on the Rise in Texas

The amount of surplus lines insurance premium written in Texas rose by 25 percent as of the end of October compared with the same period the year before, signaling a boost to companies operating in this sector. The state of Texas also stands to benefit as taxes collected on surplus lines policies go directly into the state’s general fund.

“Texas consistently ranks as the 2nd or 3rd largest surplus lines market in the U.S.,” Texas Insurance Commissioner Eleanor Kitzman told attendees at the recent annual meeting of the Texas Surplus Lines Association (TSLA). “In 2011 you had $2.25 billion in premium that was reported. It was one-eighth of the entire U.S. surplus lines market. And $160 million in tax revenue was generated by your industry. … We appreciate that very much.”

Premium reported to the Surplus Lines Stamping Office of Texas (SLSOT) through October 2012 was $3.335 billion. Of that, $252 million was non-Texas premium on multi-state policies, which is taxed as Texas premium in a post-Nonadmitted and Reinsurance Reform Act (NRRA) world, according to SLSOT.

Kitzman said multi-state policies amounted to only 0.5 percent of the total number of policies reported to the stamping office.

But, she noted, the premiums from those multi-state policies “can be sizeable. The projected $15 million increase in tax revenue is kind of surprising because a lot of people assumed that the impact [of the NRRA] on Texas based on the home state rule would be greater. And a lot of people argued that was one of the reasons Texas didn’t want to play ball … there was a perception that if there were a sharing of this premium that Texas would be a loser, we would be a donor state. The preliminary numbers indicate that that is just not as significant as some people thought that it would be.”

Also in a post-NRRA environment, agents may procure surplus lines policies for some exempt commercial insurance purchasers without having to go through a due diligence effort to find coverage for those customers in the admitted insurance market. However, the Texas Department of Insurance requires those purchases to be identified and reported to the stamping office.

Beginning Jan. 1, SLSOT will begin tracking information related to exempt commercial purchasers. TDI will use that information, Kitzman said, to evaluate the effect of new rule.

“There’s a concern that business that doesn’t comply with the terms of that exemption is actually undermining the rest of the market,” Kitzman said.

She estimated that sometime in 2014, the department would be able to discern the preliminary impact of the exempt commercial purchaser rule after analyzing the stamping office’s reports.