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Surplus Lines

Last Updated 5/11/2022

Issue:  The surplus lines market is a unique segment of the property & casualty industry consisting of non-admitted specialized insurers covering risks not available within the admitted market. This market consists of U.S. domiciled insurers, Lloyd’s syndicates, and non-U.S. insurers that have been admitted to the NAIC Quarterly Listing of Alien Insurers.

Overview: Surplus lines insurers primarily focus on the development of new coverages and the structuring of policies and premiums for these unique risks. These new and innovative insurance products typically don’t have loss history and are difficult to price using common actuarial methods. It is for this reason these coverages are not available in the admitted market. After the new coverage has generated sufficient data, it may become a more standard product and become available in the admitted market.

The U.S. surplus lines market experienced direct premium growth of 15.7% in 2020, representing the largest year-over-year premium increase since 2003. As of year-end 2020, surplus lines direct premiums written totaled $66 billion, representing 9.1% of the $726 billion in direct premiums written within the U.S. property & casualty market. Of that $66 billion, $47.5 billion was written by U.S. domestic insurers, $12.7 billion was written through Lloyd’s syndicates, and $5.8 billion was written through non-U.S. insurers. Although the surplus lines premium seems small compared to the total property & casualty market, in the absence of this market, many insureds would be unable to secure insurance coverage.

U.S. domiciled surplus lines insurers are subject to regulatory requirements and are overseen by their domiciliary state. Whereas, non-U.S. domiciled insurers and Lloyd’s syndicates admitted to the NAIC Quarterly Listing of Alien Insurers are overseen by the NAIC International Insurers Department and Surplus Lines (C) Working Group and are required to adhere to the IID Plan of Operation.

It is important to note that it is the surplus lines transaction that is regulated. The licensed surplus lines broker is responsible for ensuring the surplus lines insurer meets eligibility criteria to write policies in the state and remits payment of the surplus lines premium tax to the “home state.” Surplus lines brokers and producers must be licensed to sell surplus lines insurance. Moreover, state insurance departments may suspend, revoke, or non-renew the license of a surplus lines broker or producer for various reasons, such as:

  • Failure to file required reports;
  • Failure to collect or remit required tax on surplus lines premiums;
  • Failure to remit premiums due insurers or return premiums due insureds within reasonable time limits; or
  • For any other cause for which action can be taken against an insurance broker or producer.

A consumer protection within the admitted market, but not available to surplus lines market, is protection by the state’s guaranty fund. This guaranty is funded by admitted insurers and will pay claims should an admitted insurer become insolvent.  Due to the strong and effective state-based solvency monitoring framework, the insolvency rate of surplus lines insurers has been historically low.

Status: Issues regarding the activity and financial condition of U.S. and non-U.S. surplus lines insurers are addressed by Surplus Lines (C) Task Force whose primary mission is to monitor the surplus lines market and its operation and regulation. The Task Force is also charged with developing or amending relevant NAIC model laws, regulations and/or guidelines. The Surplus Lines (C) Working Group provides the NAIC International Insurers Department (IID) guidance and expertise relative to regulatory policy and practices with respect to individual insurers and Lloyd's syndicates that are either listed on or seeking admission to the NAIC Quarterly Listing of Alien Insurers.  During an interim meeting following the 2022 Spring National Meeting, the Surplus Lines (C) Task Force exposed draft changes to the Nonadmitted Insurance Model Act (Model #870).

Committees Active on This Topic

Additional Resources

Surplus Lines (Insurance Information Institute)

2021 Excess and Surplus Lines Laws in the United States (Locke Lord)

Contacts

Media queries should be directed to the NAIC Communications Division at 816-783-8909 or news@naic.org.

Andy Daleo
Sr. Manager, P/C & Title Financial Analysis
Phone: 816.783.8141 

NAIC Center for Insurance Policy and Research (CIPR)

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