Agency Compliance Guidelines

• An individual who procures surplus lines business as an employee of an agency should not report the policies to the Stamping Office under the individual license name and number of the employee. Filing under the individual surplus lines license implies that the business belongs to that individual, not the employer agency. The filings should be made under the surplus lines license of the agency (whether a corporation, LLC, or partnership). Taxes should be paid to the Texas Comptroller’s Office in this same manner. Stamping Office filings and Comptroller tax payments should be made under the same license number.
• For those states where the employer agency cannot hold a surplus lines license, filings must be made under the individual license name and number of the employee. However, if the employee leaves the agency, and no other employee holds a surplus lines license, there is then no lawful way to continue servicing the accounts. An individual surplus lines agent license holder cannot loan or rent the license to the employer agency or any other individual or entity. Confusion can arise for nonresident agents in the states that do not issue corporate surplus lines licenses. Since Texas law requires that the name of the procuring surplus lines licensee appear on every insurance policy, it is not sufficient to display only the name of the employer agency, if it does not hold a surplus lines license. In this situation, the name of the individual Texas surplus lines licensee must also appear on the policy. Otherwise, it can be argued that an improperly licensed entity is procuring Texas surplus lines business.
• Each branch office of an agency must be registered with the Texas Department of Insurance. A branch office that conducts surplus lines business must have at least one employee who holds an individual surplus lines license. The agency that holds a surplus lines license is responsible for reporting taxes on all business conducted by the agency and all of its branch offices. Any employee of an agency who holds an individual surplus lines license must file an annual tax report with the Comptroller’s Office, even if no business was written under that individual’s license for the tax year.
• 28 TAC §15.3 identifies the “surplus lines insurance activities” requiring an employee to be individually licensed as a surplus lines agent. Relevant sections of this regulation are shown below:

Sec. 15.3. Licensing of Surplus Lines Agents.

(a) Persons performing any of the following surplus lines insurance activities are required to have a surplus lines license:

(1) supervising unlicensed staff engaged in activities described in subsection (b) of this section, except that supervision of staff may be conducted through the supervision of the staff’s unlicensed supervisors;

(2) negotiating, soliciting, effecting, procuring, or binding surplus lines insurance contracts for clients or offering advice, counsel, opinions, or explanations of surplus lines insurance products to agents or clients beyond the scope of underwriting policies or contracts, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent or agency that then completes the surplus lines transaction; or

(3) receiving any direct commission or variance in compensation based on the volume of surplus lines premiums taken and received from, or as a result of, another person selling, soliciting, binding, effecting, or procuring surplus lines insurance policies, contracts, or coverages, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent or agency that then completes the surplus lines transaction.

(b) The following activities in a surplus lines agency do not require a surplus lines license if the employee does not receive any direct commission from selling, soliciting, binding, effecting, or procuring insurance policies, contracts or coverages, and/or the employee’s compensation is not varied by the volume of premiums taken and received:

(1) full-time clerical and administrative services, including, but not limited to, the incidental taking of information from clients, receipt of premiums in the office of a licensed agent, or transmitting to clients, as directed by a licensed surplus lines agent, prepared marketing materials or other prepared information and materials, including without limitation, invoices and evidences of coverage;

(2) contacting clients to obtain or confirm information necessary to process an application for surplus lines insurance so long as the contact does not involve any activities for which a license would be required under subsection (a)(2) of this section;

(3) performing the task of underwriting any insurance policy, contract, or coverage, including without limitation, pricing of the policy or contract; or

(4) contacting clients, insureds, agents, other persons, or insurers to gather and transmit information regarding claims and losses under the policy to the extent that the contact does not require a licensed adjuster as set forth under Insurance Code Chapter 4101.

(c) This section shall not be construed to prohibit distribution of agency profits to unlicensed persons, including shareholders, partners, and employees.