Alaska Surplus Lines cheat sheet

Surplus lines insurance in Alaska is placed under AS 21.34 (Surplus Lines Insurance) and supporting regulations in 3 AAC 31; the director of the Division of Insurance administers the chapter.

A 'surplus lines broker' is a person licensed under AS 21.34 who places coverage with an eligible unauthorized (nonadmitted) insurer when admitted insurers cannot provide the coverage.

Surplus lines placements must involve a 'home state' broker licensed in the insured's home state; for Alaska insureds the Alaska-licensed surplus lines broker is the home state broker responsible for the transaction and tax filing.

Coverage may be placed with a nonadmitted insurer only if the insurer is on the director's eligible surplus lines insurer list (or qualifies as an unauthorized insurer permitted under AS 21.34 for specific transactions).

Alaska requires that the full amount of premium tax on surplus lines be collected from the insured and remitted by the surplus lines broker; the broker may not absorb the tax out of commission.

Records of each surplus lines transaction, including the diligent search documentation, must be maintained and open to examination by the division; retention is typically at least the period specified by regulation (commonly several years after the policy expires).

Surplus lines brokers must file periodic reports of surplus lines business written in Alaska (commonly quarterly/annual) and remit premium tax with those reports.

Violations of AS 21.34 or 3 AAC 31 can result in license suspension or revocation, fines, and personal liability of the broker for unpaid tax.

A diligent search requires the broker to attempt to obtain coverage from authorized (admitted) insurers that are actually writing the type of risk in Alaska before placing with a nonadmitted insurer.

Declinations should be documented in writing (or by recorded oral declination) from admitted insurers, showing insurer name, date, and reason for declination.

The number of declinations required is not a fixed count; the standard is a good-faith search of the admitted market for the specific class of business and coverage sought.

If any admitted insurer is willing to write the risk on the terms sought, the surplus lines placement is generally not permitted (with limited exceptions for unique/excess placements allowed by regulation).

Diligent search documentation must be retained with the policy file and made available to the Division of Insurance upon request.

Exemptions from diligent search may exist for certain classes (for example, some export-list or exempt-commercial lines) as defined by statute or regulation; the broker must confirm the exemption applies.

A declination must relate to the coverage and limits requested; a declination for different terms does not automatically satisfy the diligent search requirement.

An 'eligible surplus lines insurer' is a nonadmitted insurer that the Alaska director has determined meets financial and other standards and has placed on the eligible list.

Eligible insurers generally must maintain a minimum capital and surplus (commonly the greater of a statutory dollar amount or a percentage of liabilities) and be authorized to write the class in their domicile.

Unauthorized insurers not on the eligible list may only be used in limited circumstances permitted by AS 21.34, often with additional disclosure and broker due diligence.

Alaska requires nonadmitted insurers to maintain a trust fund or equivalent security for the benefit of U.S. policyholders in the amount prescribed by regulation (frequently at least $5.4 million or as updated).

The eligible insurer list is published/maintained by the Division of Insurance; brokers must verify eligibility at the time of placement and at renewal.

An insurer's loss of eligibility does not automatically void an existing policy, but the broker must not place new or renewal business with an ineligible insurer.

Financial statements and trust fund documentation for alien insurers must be current and on file with the division.

Alaska surplus lines premium tax rate is set by statute (commonly 2.7% of gross premium, subject to statutory changes); the broker must confirm the current rate before remitting.

Premium tax is calculated on the gross premium charged, including policy fees where applicable, and must be collected from the insured at placement.

The surplus lines broker is personally liable for remitting premium tax even if the insured fails to pay the tax separately.

Reports and tax remittances are filed with the Division of Insurance on the schedule set by regulation (commonly quarterly with an annual reconciliation).

Late payment of premium tax can trigger penalties and interest as provided by statute or regulation.

Each placement must be evidenced by a written surplus lines policy or certificate that identifies the nonadmitted insurer and discloses that the insurer is not admitted in Alaska.

The broker must maintain a complete transaction record: application, diligent search evidence, policy, premium and tax calculations, and proof of remittance.

A surplus lines broker license in Alaska requires a current resident or nonresident producer license and passage of the applicable Alaska surplus lines examination (or qualifying reciprocal license).

Applicants must file an application with the Division of Insurance, pay the required fee, and meet any prelicensing education requirements.

Alaska requires surplus lines brokers to maintain a surety bond in the amount set by statute/regulation (commonly $20,000 or as updated) for the protection of insureds and the state.

Nonresident surplus lines brokers may qualify under reciprocity if their home state license is in good standing and their home state grants reciprocal privileges to Alaska licensees.

Appointment by an insurer is not required for surplus lines brokers in the same way as admitted-market producers, because the broker places with nonadmitted insurers; however, the broker must be licensed and in good standing.

Licenses must be renewed on the cycle set by the division, with continuing education requirements satisfied before renewal.

The division may deny, suspend, or revoke a surplus lines license for violations including failure to remit tax, failure to document diligent search, or misrepresentation.

The surplus lines policy or a required notice must disclose that the insurer is not admitted in Alaska and is not subject to the same solvency regulation as admitted insurers.

The notice must state that the policy is not covered by the Alaska Insurance Guaranty Association (or that coverage is limited) and that claims may not be protected if the insurer becomes insolvent.

The broker must disclose the commission and any fees charged in connection with the placement, as required by regulation and fiduciary duty.

Alaska unfair trade practice statutes (AS 21.36) prohibit misrepresentation, false advertising, and unfair claim settlement practices; these apply to surplus lines transactions.

The broker must not misrepresent that a nonadmitted insurer is admitted or that a policy provides coverage it does not provide.

Written disclosures must be provided at or before placement and acknowledged by the insured where required by regulation.

Records of disclosures and acknowledgments must be retained with the transaction file.

Alaska's Insurance Guaranty Association (AS 21.80) generally does not cover surplus lines (nonadmitted) insurers; policyholders must be advised of this gap.

Because guaranty fund protection is absent, the broker must evaluate the financial strength and claims-paying ability of the nonadmitted insurer before placement.

Claims against nonadmitted insurers are handled directly by the insurer or its claims administrator; the Alaska Division of Insurance does not have the same regulatory authority over nonadmitted insurer claims as over admitted insurers.

If a nonadmitted insurer becomes insolvent, the broker should assist the insured with notice to the insurer's domiciliary regulator and any available guaranty mechanism in the insurer's domicile.

The broker must not represent that guaranty fund protection exists when it does not; doing so is an unfair trade practice.

Documentation of the insurer's claims contacts and complaint procedures should be provided to the insured at placement.

A surplus lines broker acts as a fiduciary with respect to premium and tax funds collected from insureds; funds must be held in a segregated trust account and not commingled with the broker's operating funds.

The broker must remit premium to the insurer and tax to the state in a timely manner, regardless of whether the insured has paid the broker.

The broker must disclose all commissions, fees, and compensation arrangements to the insured and must not accept undisclosed compensation from insurers.

The broker must place coverage only with eligible insurers and must not place business with an insurer for the purpose of obtaining higher commission or other improper benefit.

Confidential insured information must be protected and used only for the purposes of the placement.

The broker must avoid conflicts of interest and must not act as both broker and undisclosed principal in the transaction.

Records supporting ethical compliance (disclosures, trust account reconciliations, tax remittances) must be retained and available for examination.