Part 2801. Surplus Line Business Requirements
Authority: Implementing Section 445 and authorized by Section 401
of the Illinois Insurance Code (215 ILCS 5/445 and 401).
§ 2801.10. Policies or contracts of insurance
Policies or contracts of insurance may not be placed with companies not authorized
to do business in Illinois other than through surplus line producers licensed
pursuant to Section 445 of the Illinois Insurance Code (the Code).
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.20. License expiration
A surplus line producer license issued pursuant to
Section 445 of the Illinois
Insurance Code shall expire twelve (12) calendar months after its issuance unless
the license is renewed as permitted by Section 2801.100 of this
Part.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.30. Unauthorized companies
a) A surplus line producer may procure insurance from an
unauthorized company:
1) Which based upon information available to the surplus line producer
has a policyholders' surplus of not less than $15,000,000 determined in accordance
with accounting rules as set forth in the Illinois Insurance Code which are
applicable to authorized companies (Section 445 of the Code); and
2) Which has standards of solvency and management which are adequate
for the protection of policyholders (Section 445 of the Code).
b) Information available to the surplus line producer at the time of
procurement includes financial information published by the unauthorized company,
the financial information and quarterly listing of alien insurers published
by the National Association of Insurance Commissioners' Non-Admitted Insurers
Office1 and information published by Best's Insurance Reports or other independent
market reporting agencies.
c) In determining whether the standards of solvency and management of
an unauthorized company at the time of procurement are such that meet requirements
necessary for the protection of policyholders, the surplus line producer shall
consider the financial condition of the company, the ready acceptance of the
company in responsible commercial markets, the general reputation of the company,
and the company's past and current performance of its obligations.
d) When an unauthorized company does not meet the standards set forth
in subsection (a)(1) or (a)(2) of the Section or a surplus line producer is
unable to verify such facts, the surplus line producer may procure insurance
from that company only if prior written warning of such fact or condition is
given to the insured by the insurance producer or surplus line producer. Evidence
of the warning and its delivery shall be maintained by the insurance producer
and surplus line producer, together with the evidence of coverage. Such written
warning shall be in a form substantially similar to the sample warning set forth
in Illustration A of this Part.
e) If the Director at any time determines that the further assumption
of risks might be hazardous to the policyholders of an unauthorized company,
the Director shall order the Surplus Line Association of Illinois not to countersign
insurance contracts evidencing insurance in such company. Said determination
will be made by examining the criteria contained in the Illinois Insurance Code
for authorized companies. In such event the Director shall also direct all surplus
line producers to cease procuring insurance from such company.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988; amended at 20 Ill. Reg. 5846, effective
April 9, 1996.
2801.40. Maintenance of funds in Illinois
Nothing contained in this Part shall be construed to prohibit an unauthorized
company from maintaining funds in Illinois to service its business.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; section repealed,
new section adopted at 12 Ill.Reg. 11754, effective July 1, 1988.
2801.50. Procurement of policies or contracts
a) The Surplus Line producer must exert diligent effort to procure
the policies or contracts required by the insureds from companies which are
authorized to transact business in Illinois (Section 445 of the Code). Diligent
effort by the Surplus Line producer shall be deemed to have been exercised if
the Surplus Line producer or the referring insurance producer shall submit a
risk to three or more authorized companies, which are engaged in writing in
Illinois the type of coverage sought, or if there are no companies actually
engaged in writing such coverage, the risk shall be submitted to companies which,
in the Surplus Line producer's or the insurance producer's professional judgment,
are the most likely to accept the risk.
b) Submission of insuring contracts to the Surplus Line Association
of Illinois constitutes a certification by the surplus line producer or by the
insurance producer who presented the risk to the surplus line producer for placement
as a surplus line risk that after diligent effort the required insurance could
not be procured from companies which are authorized to transact business in
this State and that such procurement was otherwise in accordance with the surplus
line law.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.60. Record of efforts to procure policies
or contracts
The surplus line producer must maintain with the copy of the insurance that
was placed a record of such diligent effort which must state the name of the
authorized companies and the individuals contacted at each company who declined
the risk. If the diligent effort was made by the insurance producer, the surplus
line producer must maintain a written record signed by the insurance producer
that the insurance producer made such diligent effort, and the insurance producer
must maintain a record that states the name of the authorized companies and
the individuals contacted at each company who declined the risk.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; section repealed,
new section adopted at 12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.70. Declinations of artificial coverage
not acceptable
a) Declinations by authorized companies for the following reasons do
not qualify insurance to be placed under the surplus line law:
1) Artificial division of one coverage into two or more proposed contracts;
2) Differential in premium or rate quoted between an authorized
company and an unauthorized company.
b) Declinations by authorized companies for the following reasons do
qualify insurance to be placed under the surplus line law:
1) Underwriting reason pertaining to the risk or the class;
2) Size of the risk;
3) Coverage is not available except in combination with other coverage
not required by the insured;
4) Required coverage is not acceptable in part to the authorized company
although part of the coverage is acceptable and the unauthorized company will
accept only the entire risk and not solely the rejected portion; and
5) Authorized companies will accept less than the amount of coverage
required and the entire amount and not just part thereof will be accepted by
unauthorized companies.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; section repealed,
new section adopted at 12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.80. Surplus Line Association of Illinois
a) All surplus line insurance placed on Illinois risks must be submitted
to the Surplus Line Association which will process and countersign the insurance
policies or contracts, keep records of the business written and report to the
surplus line producers and to the Director pursuant to Sections
445 and 445.1
of the Code. The Surplus Line Association shall report to the surplus line
producers and the Director by July 15 each year the business processed by each
surplus line producer during the six month period ending June 30, and by January
15 each year the business processed by each surplus line producer during the
six month period ending December 31 of the previous year.
b) The Surplus Line Association is authorized to charge a fee to cover
its cost of operations. The fee is payable by the surplus line producer based
on the same gross premiums which are subject to the surplus line tax. The fee
schedule is subject to the Director's approval. The Director's approval of
the fee schedule shall be determined from the annual audited financial report
submitted to the Director by the Surplus Line Association.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; section repealed,
new section adopted at 12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.90. Separate records and accounts
Each Surplus Line producer must keep separate accounts and records of the business
transacted under his Surplus Line license, and these separate accounts and records
shall be open at all times to the inspection of the Illinois Director of Insurance
or the members of his staff.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.100. License rejection or renewal refusal
Application for a surplus line producer license shall be rejected, or renewal
thereof refused, for failure:
a) To pay the tax required by Section 445 of the Illinois Insurance
Code and by Section 12 of the Fire Investigation Act (425 ILCS
25/12); or
b) to pay the annual license fee to the Director of Insurance pursuant
to Section 445(2)(b) of the Code; or
c) to maintain the surety bond required by Section
445; or
d) to pay the fee due to Surplus Line Association; or
e) to exert diligent effort to secure the business required by an insured
in duly authorized companies; or
f) to procure surplus line policies or contracts or coverage from companies
that have at least $15,000,000 in policyholders surplus and have the standards
of solvency or management necessary for the protection of policyholders; or
g) to process all surplus line business on Illinois risks through the
Surplus Line Association; or
h) to maintain records and accounts pursuant to Section 445 of the Code;
or
i) to maintain membership in the Surplus Line Association of Illinois;
or
j) to comply with the requirements of the Illinois Insurance Code or
50 Ill. Adm. Code.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988; amended at 20 Ill. Reg. 5846, effective
April 9, 1996.
§ 2801.110. Service of process
a) Service of process relating to any surplus line insurance which the
Surplus Line Association receives from the Director shall be delivered to the
surplus line producer for delivery to the unauthorized company. The surplus
line producer shall promptly forward any such process by the fastest, most reliable
means to the unauthorized company or its designated representative for service
of process.
b) Any unauthorized company which elects to do so may file a written
request with the Surplus Line Association that service of process be forwarded
directly to the company in which case the Surplus Line Association shall forward
a copy of such process directly to the company and a copy to the surplus line
producer.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.120. Required surplus line policy notice2
Each policy or contract for insurance issued in conformity with
Section 445
shall have stamped or imprinted on the first page thereof in not less than 12-pt.
bold face type the following legend:
Notice to Policyholder
This contract is issued, pursuant to Section 445 of the Illinois Insurance Code,
by a company not authorized and licensed to transact business in Illinois and
as such is not covered by the Illinois Insurance Guaranty Fund.
Source.-Filed July 11, 1958; codified at 7 Ill.Reg. 897; amended at
12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.130. Taxes
a) The surplus line producer shall pay to the Director as a surplus
line tax a sum equal to 3%3 (rate is now 3.5%) of the gross premiums less returned premiums upon
all surplus line insurance. The payment is due on or before February 1 of each
year for the business processed through the Surplus Line Association during
the six month period ending December 31 of the previous year and on August 1
of each year for the six month period ending June 30. The Surplus Line Association
will report to each surplus line producer and to the Director the business processed
during each six month period.
b) The surplus line producer shall pay to the Director as a Fire Marshal
Tax a sum equal to 1% of the gross premiums less returned premiums on all surplus
line insurance subject to the tax required by Chapter 127¸, par. 16 of the Illinois
Revised Statutes. The payment is due in the month of March for the business
processed through the Surplus Line Association for the preceding calendar
year.
The Surplus Line Association prior to March 1 will report to each surplus line
producer and to the Director the business subject to this Fire Marshal Tax processed
during each calendar year.
c) The surplus line tax and the Fire Marshal tax, where applicable,
shall be due and payable on all surplus line business processed by the surplus
line producer through the Surplus Line Association.
Source.-Adopted at 12 Ill.Reg. 11754, effective July 1, 1988.
§ 2801.140. Classes not subject to surplus
law
Sections 445 and
445.5 inclusive of the Illinois Insurance Code (Ill. Rev.
Stat. 1987, ch. 73, pars. 1057-1057.5) do not apply to insurance of property
and operations of railroads or aircraft engaged in interstate or foreign commerce,
insurance of vessels, crafts or hulls, cargoes, marine builders risks, marine
protection and indemnity, or other risks including strikes and war risks insured
under ocean or wet marine forms of policies. Surplus line producers should
not submit the above types of insurance to the Surplus Line Association for
processing.
Source.-Adopted at 12 Ill. Reg. 11754, effective July 1, 1988.
§ 2801. ILLUSTRATION A. Written warning to
insureds
TO: __________________
__________________
__________________
RE: (Name of Unauthorized Company)
(Type of Coverage)
In accordance with Section 445 of the Illinois Insurance Code, I hereby provide
you with a written WARNING that the above-captioned unauthorized company with
which I propose to place the captioned coverage does not, or I am unable to
verify that it does (check as applicable):
___________ Have a policyholder surplus of $15,000,000 or more;
___________ Meet minimal standards of solvency and management which
are adequate for your protection.
Sincerely,
Source.-Adopted at 12 Ill. Reg. 11754, effective July 1, 1988; amended
at 20 Ill. Reg. 5846, effective April 9, 1996.
Footnotes
- Now known as the
International Insurers Department (IID). This regulation has not been updated to reflect the
name change.
- There is a separate notice required for domestic surplus line insurers,
as defined in Section 445a of the Illinois Insurance Code. See
Section
445(10.5) of the Surplus Line Laws and the SLA Procedures Manual for the
wording of the required notice. This regulation has not been updated
to reflect the domestic surplus line insurer policyholder notice.
- The tax rate is now 3.5%. This regulation has not been updated to
reflect the change.
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