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Alaska Surplus Lines study materials
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Alaska Surplus Lines practice questions

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Question 1Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Under Alaska law, a surplus lines broker is generally required to place coverage through an eligible surplus lines insurer only after making a diligent effort to procure the coverage from admitted insurers. What is this requirement commonly called?

  1. Guaranty fund assessment
  2. Diligent search requirement Correct answer.
  3. Certificate of authority mandate
  4. Reciprocal exchange rule

Explanation

Alaska requires a diligent effort to place coverage with authorized insurers before resorting to the surplus lines market. This protects the insured by ensuring the admitted market is genuinely unavailable. The term for this obligation is the diligent search (or diligent effort) requirement.

Question 2Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following best describes an 'eligible' surplus lines insurer in Alaska?

  1. An insurer that is automatically admitted after one year of operation
  2. An insurer that has been approved to write surplus lines business in the state Correct answer.
  3. Any foreign insurer that has never applied for admission
  4. Any insurer licensed to write life and health insurance in Alaska

Explanation

An eligible surplus lines insurer is one that satisfies Alaska's requirements and is authorized to write surplus lines business in the state even though it is not an admitted (authorized) insurer. Eligibility is a specific status distinct from admission. Not every unlicensed insurer qualifies.

Question 3Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker in Alaska must maintain records of each surplus lines transaction. Which of the following is the primary purpose of this recordkeeping requirement?

  1. To set the commission rate for the broker
  2. To allow the division to verify compliance and audit placements Correct answer.
  3. To provide marketing data to admitted insurers
  4. To determine the insurer's federal tax liability

Explanation

Surplus lines recordkeeping exists so the Division of Insurance can confirm that placements were lawful, that the diligent search was performed, and that taxes were paid. Records support regulatory oversight and audits. They are not maintained for marketing, commission-setting, or tax purposes of the insurer.

Question 4Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Who is responsible for paying the surplus lines premium tax on a surplus lines policy placed in Alaska?

  1. The eligible surplus lines insurer
  2. The surplus lines broker Correct answer.
  3. The insured directly to the state
  4. The admitted insurer that declined the risk

Explanation

Alaska places the obligation to collect and remit surplus lines premium tax on the surplus lines broker. The broker is the party accountable to the state for the tax on each placement. The insured and the insurer are not the remitting party under the statutory scheme.

Question 5Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following is a typical condition for a risk to be eligible for surplus lines placement in Alaska?

  1. The full amount of coverage cannot be procured from authorized insurers Correct answer.
  2. The premium exceeds a statutory minimum threshold
  3. The risk is located outside the United States
  4. The insured has previously filed a claim with an admitted insurer

Explanation

Surplus lines placement is permitted when the coverage, or the full amount of coverage needed, cannot be obtained from authorized insurers after a diligent effort. The unavailability of the admitted market is the core eligibility condition. Prior claims, foreign location, or a premium minimum are not the governing test.

Question 6Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker must disclose to the insured that the policy is placed with an insurer that is not admitted in Alaska. What is the primary reason for this disclosure?

  1. The insured loses the right to cancel the policy
  2. The insured must pay a higher commission to the broker
  3. The insured should understand the policy lacks guaranty fund protection Correct answer.
  4. The insured becomes personally liable for the insurer's taxes

Explanation

Surplus lines insurers are not members of the state guaranty association, so insureds do not receive guaranty fund protection for those policies. Disclosure informs the insured of this important difference from admitted coverage. It does not create commission, cancellation, or tax consequences for the insured.

Question 7Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

In Alaska, a surplus lines broker's license is issued by which authority?

  1. The guaranty association board
  2. The state Department of Revenue
  3. The Division of Insurance Correct answer.
  4. The federal Department of Labor

Explanation

Surplus lines broker licensing in Alaska is administered by the Division of Insurance, which regulates insurance producers and brokers. The Division issues, renews, and may revoke licenses. Revenue, federal labor, and guaranty association bodies do not license brokers.

Question 8Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

What must a surplus lines broker generally do when a surplus lines policy is cancelled before its expiration date?

  1. Return the unearned premium and adjust the related tax accordingly Correct answer.
  2. Retain the entire premium regardless of cancellation
  3. Transfer the policy to an admitted insurer
  4. Remit the full annual tax without adjustment

Explanation

When a surplus lines policy is cancelled mid-term, the broker returns the unearned premium to the insured and accounts for the corresponding reduction in premium tax. Premium tax is calculated on the premium actually earned. The broker cannot keep unearned premium or ignore the tax effect of cancellation.

Question 9Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An Alaska surplus lines broker places a policy with an eligible surplus lines insurer. Which party is the broker acting on behalf of in the transaction?

  1. The insured seeking coverage Correct answer.
  2. The admitted market collectively
  3. The state Division of Insurance
  4. The eligible surplus lines insurer exclusively

Explanation

A surplus lines broker represents the insured in obtaining coverage that the admitted market cannot provide. The broker's duty runs to the client in the placement process. The broker is not the exclusive agent of the insurer, the state, or the admitted market.

Question 10Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker finds that two admitted insurers declined a commercial property risk, but a third admitted insurer offers coverage with a higher deductible than the client wants. Before placing with a surplus lines insurer, the broker should generally do what?

  1. Place the risk immediately without further documentation
  2. Refuse to place the risk entirely
  3. Report the client to the Division of Insurance
  4. Document whether the admitted offer reasonably meets the client's needs and complete the diligent search Correct answer.

Explanation

The diligent search requires the broker to evaluate whether available admitted coverage reasonably meets the insured's needs. If the admitted offer is materially different from what the client requires, the broker documents the search and may proceed to surplus lines. Immediate placement without documentation or refusal to act would not satisfy the broker's duty.

Question 11Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following is the most accurate statement about the Alaska surplus lines premium tax rate structure?

  1. The tax is a percentage of the gross premium charged for the surplus lines policy Correct answer.
  2. The tax is a flat dollar amount per policy regardless of premium
  3. The tax is imposed only on admitted insurers, not surplus lines
  4. The tax applies only to policies exceeding one million dollars

Explanation

Alaska's surplus lines premium tax is calculated as a percentage of the gross premium written for the surplus lines policy. It is not a flat per-policy charge and does not depend on a premium threshold. Surplus lines placements are precisely the transactions subject to this tax.

Question 12Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An insured asks a broker to place coverage with a specific non-admitted insurer that is not on Alaska's eligible list. How should the broker respond?

  1. Place the coverage and note the exception on the policy
  2. Place the coverage with the requested insurer anyway
  3. Refer the insured to the federal government
  4. Explain that placement must be with an eligible surplus lines insurer Correct answer.

Explanation

Surplus lines placements in Alaska must be made with insurers that meet the state's eligibility requirements. A broker may not place coverage with a non-eligible, non-admitted insurer simply because the client requests it. The broker should explain the eligibility requirement and seek an eligible market.

Question 13Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker maintains records of declinations from admitted insurers. Which of the following best explains why declination documentation is important?

  1. It proves the insured is a high-risk applicant
  2. It evidences that the diligent search was performed before surplus lines placement Correct answer.
  3. It is required to calculate the broker's commission
  4. It transfers liability to the declining insurers

Explanation

Declination records are the primary evidence that the broker made a diligent effort in the admitted market before placing coverage in the surplus lines market. They support regulatory review and demonstrate compliance. They do not prove anything about the applicant's risk class, set commissions, or shift liability to declining insurers.

Question 14Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following best describes the Alaska guaranty association's relationship to surplus lines insurers?

  1. Surplus lines insurers are covered only for property claims
  2. Surplus lines insurers are full members with identical coverage
  3. Surplus lines insurers are covered only after five years of eligibility
  4. Surplus lines insurers are generally not members, so their policies are not covered Correct answer.

Explanation

The state guaranty association protects policyholders of insolvent admitted insurers; surplus lines insurers are generally not members, so surplus lines policies lack guaranty fund protection. This is why disclosure to the insured is required. There is no partial or delayed coverage for surplus lines policies under the guaranty system.

Question 15Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker licensed in another state wishes to place surplus lines coverage for an Alaska risk. What is generally required?

  1. The broker may place the risk under the other state's license
  2. The broker may place the risk if the insurer is eligible in any state
  3. The broker must hold an Alaska surplus lines broker license Correct answer.
  4. The broker may place the risk if the insured signs a waiver

Explanation

Placing surplus lines coverage for an Alaska risk requires an Alaska surplus lines broker license; an out-of-state license does not authorize Alaska placements. A client waiver cannot substitute for licensure. Eligibility in another state does not satisfy Alaska's requirements.

Question 16Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following best characterizes the standard for determining whether an insurer is eligible to write surplus lines in Alaska?

  1. The insurer must meet capital, solvency, and other standards set by the state Correct answer.
  2. The insurer must be admitted in at least one other state
  3. The insurer must write only surplus lines business
  4. The insurer must have a local Alaska office

Explanation

Eligibility for surplus lines insurers in Alaska is based on meeting the state's standards, which include financial and solvency-related criteria. Being admitted elsewhere, maintaining a local office, or writing only surplus lines business are not the governing requirements. The state evaluates eligibility directly.

Question 17Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker collects premium from an insured and must remit premium tax to the state. If the broker fails to remit the tax, who bears responsibility to the state?

  1. The eligible insurer, which received the net premium
  2. The insured, who ultimately paid the premium
  3. The broker, as the party obligated to collect and remit Correct answer.
  4. The admitted insurers that declined the risk

Explanation

The surplus lines broker is the party the state holds responsible for collecting and remitting surplus lines premium tax. Failure to remit exposes the broker to regulatory consequences. The insured, the eligible insurer, and declining admitted insurers are not the remitting party.

Question 18Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following practices would most likely be considered a violation of Alaska surplus lines rules?

  1. Disclosing to the insured that guaranty fund protection is unavailable
  2. Maintaining transaction records for regulatory review
  3. Documenting declinations from several admitted insurers
  4. Placing a risk with a non-eligible insurer to obtain a lower premium Correct answer.

Explanation

Surplus lines coverage must be placed with an eligible insurer; choosing a non-eligible insurer for a lower premium violates that requirement. Documenting declinations, making required disclosures, and keeping records are all compliant practices. Cost savings do not justify an ineligible placement.

Question 19Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker is uncertain whether a particular coverage is available from admitted insurers. What is the most appropriate first step?

  1. Wait until an admitted insurer volunteers a quote
  2. Ask the insured to sign a statement that coverage is unavailable
  3. Place the coverage in the surplus lines market immediately
  4. Conduct and document a diligent search of the admitted market Correct answer.

Explanation

The broker must first conduct and document a diligent search of the admitted market before using surplus lines. Immediate placement without a search, relying on an insured's statement, or passively waiting does not satisfy the requirement. Documentation of the search is essential.

Question 20Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following statements about the Alaska surplus lines broker's duty to the insured is most accurate?

  1. The broker has no disclosure duties to the insured
  2. The broker may prioritize the insurer's interests over the insured's
  3. The broker must act in the insured's interest in obtaining coverage and making required disclosures Correct answer.
  4. The broker's only duty is to the surplus lines insurer

Explanation

The surplus lines broker owes duties to the insured, including acting in the client's interest in obtaining coverage and making required disclosures such as the lack of guaranty fund protection. The broker's role is not limited to serving the insurer, and disclosure duties clearly exist. The insurer's interests may not be prioritized over the client's.

Question 21Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An eligible surplus lines insurer becomes insolvent and an Alaska insured files a claim. Which outcome is most consistent with Alaska's regulatory framework?

  1. The insured generally has no guaranty fund recovery for the surplus lines policy Correct answer.
  2. The Division of Insurance pays the claim from state funds
  3. The guaranty association pays the claim in full
  4. The broker must pay the claim personally

Explanation

Because surplus lines insurers generally are not members of the guaranty association, insureds ordinarily have no guaranty fund recovery when a surplus lines insurer becomes insolvent. The guaranty association does not pay these claims, the state does not fund them, and the broker is not personally liable for the insurer's insolvency.

Question 22Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker places a surplus lines policy effective January 1 with an annual premium. The policy is cancelled effective July 1, and the broker had already remitted tax on the full annual premium. What is the correct treatment of the tax?

  1. The broker must cancel the insurer's eligibility
  2. The broker should claim or apply a credit for the tax on the unearned premium Correct answer.
  3. The broker must remit additional tax on the return premium
  4. The broker may keep the tax on unearned premium as a fee

Explanation

Premium tax is owed only on premium actually earned, so when a policy is cancelled and unearned premium is returned, the broker should claim or apply a credit for tax previously remitted on that unearned portion. No additional tax is due on a return premium, the broker cannot retain tax as a fee, and cancellation has no effect on insurer eligibility.

Question 23Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker is reviewing whether a risk qualifies for surplus lines. The admitted market offers a policy that excludes a coverage the client specifically needs, while the surplus lines market can provide it. How should the broker evaluate the diligent search?

  1. The admitted offer may be treated as not meeting the need, supporting surplus lines placement if documented Correct answer.
  2. The broker must obtain written permission from the admitted insurer
  3. The admitted offer always bars surplus lines placement regardless of coverage terms
  4. The broker must force the client to accept the admitted policy

Explanation

The diligent search focuses on whether admitted coverage reasonably meets the insured's needs; an admitted offer that excludes required coverage may be treated as not meeting the need, and documented surplus lines placement can follow. An admitted offer does not automatically bar surplus lines placement, the client cannot be forced to accept inadequate coverage, and admitted insurer permission is not required.

Question 24Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker maintains surplus lines records but keeps them only for a short period and discards them before a scheduled regulatory audit. What is the most significant compliance concern?

  1. The broker may be unable to demonstrate that the diligent search and tax obligations were satisfied Correct answer.
  2. The broker has shifted tax liability to the insured
  3. The broker has violated federal securities law
  4. The broker must immediately surrender the license

Explanation

Records are the evidence that the broker performed the diligent search and met tax obligations; discarding them prematurely undermines the ability to demonstrate compliance during an audit. The concern is regulatory recordkeeping, not federal securities law, automatic license surrender, or shifting tax liability to the insured.

Question 25Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An insured wants surplus lines coverage but insists the broker use an insurer that is eligible in a neighboring state but not in Alaska. The broker explains the Alaska eligibility requirement. Which principle best justifies the broker's position?

  1. Eligibility in any state satisfies Alaska requirements
  2. Eligibility is determined under Alaska law for Alaska placements Correct answer.
  3. The insured's preference overrides eligibility rules
  4. The broker may use any non-admitted insurer if the premium is large

Explanation

For an Alaska placement, eligibility is determined under Alaska law; eligibility in another state does not carry over. The insured's preference cannot override the eligibility requirement, and premium size does not create an exception. The broker's position is grounded in state-specific eligibility rules.

Question 26Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Under Alaska law, surplus lines coverage may be placed only after the broker has made a diligent effort to obtain the coverage from admitted insurers. What does this diligent effort requirement primarily establish?

  1. A certification that the surplus lines insurer will later become admitted
  2. A guarantee that the surplus lines premium will be lower than admitted rates
  3. A documented search of the admitted market before using a non-admitted insurer Correct answer.
  4. A requirement that the insured sign a waiver of all policy exclusions

Explanation

Alaska requires a diligent effort, meaning the broker must document that admitted insurers declined or could not provide the coverage before placing it in the surplus lines market. The requirement is about the search process, not price, waivers, or future admission status.

Question 27Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which document typically evidences that admitted insurers declined a risk so the broker may proceed in the surplus lines market?

  1. A certificate of authority issued by the director
  2. A power of attorney signed by the insured
  3. A declination or documentation record retained by the broker Correct answer.
  4. A surety bond filed with the state treasury

Explanation

The broker's file must show the admitted market was approached and declined, commonly through declination records. Certificates of authority, surety bonds, and powers of attorney serve unrelated purposes.

Question 28Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Alaska law imposes on surplus lines brokers a fiduciary duty with respect to funds received in connection with surplus lines transactions. Which conduct best satisfies that duty?

  1. Using collected premium to cover agency expenses until the insurer requests remittance
  2. Remitting premium to the insurer only after the policy period has ended
  3. Depositing premiums into the general operating account and paying claims from it as needed
  4. Holding premiums in a manner that keeps them separate from the broker's own operating funds Correct answer.

Explanation

Premium collected in a surplus lines transaction is held in trust for the insured and insurer, so it must be handled so it is not commingled with the broker's own money. Commingling, spending, or indefinite delay breaches that fiduciary obligation.

Question 29Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following is a required element of the disclosure a surplus lines broker must give an insured at the time of placement?

  1. That the insured may cancel at any time without any notice requirement
  2. That the insurer is not admitted and is not covered by the state guaranty association Correct answer.
  3. That the policy will automatically convert to an admitted policy at renewal
  4. That the surplus lines insurer has been rated by the state as financially superior

Explanation

The required disclosure informs the insured that the insurer is not admitted in Alaska and that the protections of the state guaranty association do not apply. The other statements are not part of the mandated disclosure and are not generally true.

Question 30Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An Alaska surplus lines broker is preparing to submit the premium tax on surplus lines policies written during the year. Who is responsible for collecting and remitting that tax?

  1. The admitted insurers that declined the risk
  2. The insured, who must file a separate annual return
  3. The surplus lines broker who placed the policies Correct answer.
  4. The non-admitted insurer, through a local registered agent

Explanation

The surplus lines broker is the party responsible for collecting and remitting the surplus lines premium tax on policies the broker places. The insured, the non-admitted insurer, and declining admitted insurers do not carry that remittance duty.

Question 31Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker is assembling the file for a commercial risk. Which item best supports the broker's compliance with Alaska placement rules?

  1. An oral statement by the broker that the admitted market was checked
  2. Written evidence that admitted insurers were solicited and declined or did not offer the coverage Correct answer.
  3. A letter from the insured stating that admitted coverage is too expensive
  4. A copy of the insured's prior policy from an admitted carrier

Explanation

Compliance depends on documented proof that the admitted market was actually solicited and unavailable. A prior policy, the insured's cost opinion, or an undocumented oral statement does not establish diligent effort.

Question 32Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which statement accurately describes the eligibility list Alaska maintains for surplus lines insurers?

  1. It is a directory of brokers licensed to place surplus lines
  2. It ranks insurers by the premium volume they write nationwide
  3. It identifies non-admitted insurers that meet state standards and may be used for surplus lines placements Correct answer.
  4. It lists every admitted insurer authorized to write in Alaska

Explanation

The eligible surplus lines insurer list identifies non-admitted insurers that satisfy Alaska's standards and are therefore permissible for surplus lines placements. It is not a list of admitted insurers, a premium ranking, or a broker directory.

Question 33Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker learns that a policy was procured through an insurer that did not meet Alaska eligibility standards at the time of placement. What is the most likely consequence for the broker?

  1. The policy becomes automatically admitted and fully guaranty-fund protected
  2. The insurer must be added to the eligible list retroactive to inception
  3. The placement may be treated as a violation subject to regulatory action against the broker Correct answer.
  4. The broker incurs no consequence if the insured paid the premium

Explanation

Placing coverage with an insurer that is not eligible under Alaska standards is a violation that can expose the broker to regulatory action. It does not convert the policy to admitted status, retroactively validate the insurer, or become harmless because premium was paid.

Question 34Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An Alaska surplus lines broker is required to keep records of surplus lines transactions. Which practice best complies with that recordkeeping obligation?

  1. Storing records only until the premium tax for the year is paid
  2. Retaining complete transaction records for the period required by Alaska regulation and making them available on request Correct answer.
  3. Retaining records at the insurer's home office rather than with the broker
  4. Keeping only the final policy and discarding all declinations and correspondence

Explanation

Alaska requires surplus lines brokers to maintain complete records of transactions for the prescribed retention period and to produce them for examination. Discarding supporting documents, cutting retention short, or shifting custody away from the broker undermines that duty.

Question 35Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A surplus lines broker in Alaska wishes to advertise the availability of surplus lines coverage. Which approach is most consistent with Alaska rules?

  1. Advertising the broker as a fully admitted insurer authorized in Alaska
  2. Promising that surplus lines rates will always be lower than admitted rates
  3. Advertising in a manner that does not misrepresent the broker's license or the insurer's status Correct answer.
  4. Describing the non-admitted insurer as backed by the state guaranty association

Explanation

Surplus lines advertising must be truthful and must not misrepresent licensing or insurer status. Claiming admitted status, guaranty association backing, or guaranteed lower rates would be misleading.

Question 36Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which of the following best describes how Alaska treats the placement of a surplus lines policy when the broker has not confirmed the insurer's eligibility?

  1. The insured bears sole responsibility for checking the insurer's eligibility
  2. The broker may place the risk and confirm eligibility at the next annual renewal
  3. The broker must verify eligibility before placement because coverage with an ineligible insurer is improper Correct answer.
  4. Eligibility is presumed whenever the insurer is authorized in another state

Explanation

The broker must confirm that the insurer is on Alaska's eligible list before placing the risk; authorization elsewhere does not substitute. Responsibility does not shift to the insured, and eligibility cannot be deferred to renewal.

Question 37Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

An Alaska surplus lines broker receives a claim inquiry from an insured whose surplus lines insurer has stopped responding. What is the broker's most appropriate role?

  1. Inform the insured that the broker has no involvement once the policy is issued
  2. Assist the insured in communicating with the insurer while making clear the broker does not guarantee the insurer's obligations Correct answer.
  3. Pay the claim from the broker's own funds to protect the insured
  4. Advise the insured that the state guaranty association will handle the claim

Explanation

The broker may assist with communication but does not become the guarantor of the insurer's obligations, and surplus lines claims are not handled by the guaranty association. Paying from personal funds or abandoning the insured after issuance is not the proper role.

Question 38Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Which circumstance most clearly justifies a surplus lines placement under Alaska's diligent effort standard?

  1. The broker has not yet contacted any admitted insurer
  2. The surplus lines premium is expected to be lower
  3. The insured prefers the name of a non-admitted insurer
  4. Admitted insurers decline the risk or offer coverage that does not meet the insured's needs Correct answer.

Explanation

Surplus lines placement is justified when admitted insurers decline or cannot provide coverage meeting the risk's needs. Mere preference, anticipated savings, or an incomplete search does not satisfy the diligent effort standard.

Question 39Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

Alaska rules address the conduct of surplus lines brokers with respect to the insured's interests. Which behavior is most consistent with those rules?

  1. Placing the risk with the insurer paying the highest commission
  2. Placing the risk with an affiliate owned by the broker regardless of suitability
  3. Placing the risk with an eligible insurer that best serves the insured's stated coverage needs Correct answer.
  4. Placing the risk without disclosing the insurer's non-admitted status

Explanation

A surplus lines broker must act in the insured's interest by selecting eligible coverage suited to the risk and making required disclosures. Self-dealing, commission-driven placement, or withholding the non-admitted disclosure conflicts with that duty.

Question 40Alaska Insurance Statutes and Regulations Pertaining to Surplus Lines

A broker places an Alaska surplus lines policy and later discovers the insured misrepresented material information on the application. How does this most likely affect the broker's compliance obligations?

  1. The broker must still maintain accurate records and report the placement truthfully regardless of the insured's conduct Correct answer.
  2. The broker is relieved of all recordkeeping duties because of the misrepresentation
  3. The broker should backdate the policy to correct the misstatement
  4. The broker may alter the application records to match the actual risk

Explanation

The broker's duty to keep accurate records and report placements truthfully is independent of the insured's misrepresentation. Altering records or backdating a policy to conceal a problem is itself a violation.

Question 41Surplus Lines Eligibility, Diligent Search, and Declination Requirements

Under Alaska law, before a broker may place a risk with a surplus lines insurer, the broker must generally do which of the following?

  1. Obtain written approval from the director for each individual policy
  2. Publish notice of the placement in a local newspaper
  3. Conduct a diligent search of the admitted market and document declinations Correct answer.
  4. Post a surety bond equal to the policy premium

Explanation

Alaska requires a surplus lines broker to perform a diligent search of authorized insurers and retain evidence that the coverage was declined before placing the risk in the surplus lines market. This documentation supports the determination that the risk is not procurable from admitted carriers.

Question 42Surplus Lines Eligibility, Diligent Search, and Declination Requirements

A surplus lines broker is unable to obtain coverage from any authorized insurer for a commercial risk. What is the minimum number of admitted insurers that Alaska generally expects the broker to have approached as part of a diligent search?

  1. Ten
  2. One
  3. Five
  4. Three Correct answer.

Explanation

Alaska's diligent search standard generally calls for the broker to solicit at least three authorized insurers that write the type of coverage sought, documenting each declination. This establishes that the admitted market has been reasonably tested.

Question 43Surplus Lines Eligibility, Diligent Search, and Declination Requirements

Which of the following best describes what a broker must document when an authorized insurer declines a risk during a diligent search?

  1. The insurer's annual premium volume
  2. Only the name of the insurer's receptionist
  3. The insurer's declination, including the date and the reason if given Correct answer.
  4. The broker's personal opinion of the insurer

Explanation

Diligent search records should show which authorized insurers were contacted, when, and the response, including any stated reason for declination. These records demonstrate that the admitted market was tested before surplus lines placement.

Question 44Surplus Lines Eligibility, Diligent Search, and Declination Requirements

An Alaska surplus lines broker places a risk with a nonadmitted insurer after receiving declinations from three authorized insurers. How long must the broker generally retain the diligent search records?

  1. Records need not be retained if the insured consents
  2. For at least five years after the policy expires Correct answer.
  3. For at least one year after the policy expires
  4. Until the policy is delivered

Explanation

Alaska requires surplus lines brokers to keep records of the diligent search and related transactions for at least five years after the policy expiration. Retaining these records allows regulators to verify compliance.

Question 45Surplus Lines Eligibility, Diligent Search, and Declination Requirements

A broker contacts three authorized insurers, all of which decline a risk, but the broker fails to record the declinations. What is the primary compliance problem?

  1. The broker must return the commission to the insured
  2. The placement is automatically void
  3. The broker cannot demonstrate that a diligent search was performed Correct answer.
  4. The insurer must issue a new policy

Explanation

The diligent search obligation includes documenting the declinations; without records the broker cannot show the admitted market was tested. The placement may be treated as improperly made even if declinations actually occurred.

Question 46Surplus Lines Eligibility, Diligent Search, and Declination Requirements

Which of the following risks is generally eligible for surplus lines placement in Alaska?

  1. A risk for which the insured has not sought any admitted coverage
  2. A risk that is expressly prohibited from surplus lines placement by statute
  3. A risk that an authorized insurer has agreed to write at standard rates
  4. A risk that authorized insurers have declined because of unusual hazards Correct answer.

Explanation

Surplus lines placement is available when the risk cannot be procured from authorized insurers, such as when unusual hazards cause declinations. The broker must still document the diligent search.

Question 47Surplus Lines Eligibility, Diligent Search, and Declination Requirements

An Alaska broker wants to place a homeowners risk with a surplus lines insurer because the premium would be lower. Authorized insurers have offered to write the risk. What should the broker do?

  1. Place the risk with the surplus lines insurer because price favors the insured
  2. Place the risk with an authorized insurer because the admitted market is available Correct answer.
  3. Place the risk with both insurers and let the insured choose
  4. Decline to place the risk entirely

Explanation

Surplus lines is a market of last resort; when authorized insurers are willing to write the coverage, the risk must be placed in the admitted market. Lower premium alone does not justify surplus lines placement.

Question 48Surplus Lines Eligibility, Diligent Search, and Declination Requirements

Which of the following is a required element of the diligent search that an Alaska surplus lines broker must perform?

  1. Soliciting authorized insurers that write the type of coverage involved Correct answer.
  2. Verifying the insured's prior claims history
  3. Contacting only surplus lines insurers
  4. Obtaining a credit report on the insured

Explanation

The diligent search must target authorized insurers that actually write the class of coverage sought, so that a declination is meaningful. Contacting only nonadmitted carriers does not satisfy the requirement.

Question 49Surplus Lines Eligibility, Diligent Search, and Declination Requirements

A broker has documentation showing that authorized insurers declined a risk, but one of the declinations is dated after the surplus lines policy was bound. What issue does this raise?

  1. The broker must refund the entire premium
  2. None, because declinations may be obtained at any time
  3. The diligent search must precede the surplus lines placement Correct answer.
  4. The policy must be canceled immediately

Explanation

The diligent search and resulting declinations must be obtained before the risk is placed with a surplus lines insurer. A declination dated after binding does not establish eligibility at the time of placement.

Question 50Surplus Lines Eligibility, Diligent Search, and Declination Requirements

Which statement about the Alaska surplus lines broker's use of a standard declination form is most accurate?

  1. A written declination from each authorized insurer is generally the best evidence of the diligent search Correct answer.
  2. Declinations must be notarized by the insurer
  3. Declinations are unnecessary if the broker is experienced
  4. Oral declinations are always sufficient without any record

Explanation

Written declinations, or a documented record of each insurer's response, provide the strongest evidence that the admitted market was tested. Alaska regulators expect the broker to be able to produce this evidence.