Placement, Premium Tax, and Reporting Obligations
Placement Mechanics
Placement with a surplus lines insurer requires a written binder or policy identifying the insured, the risk, the coverage, the limits, and the insurer. The broker must confirm the insurer's eligibility and retain the diligent search documentation. Alaska requires that the surplus lines broker maintain records of each transaction for the period specified by regulation (commonly five years) and make them available to the Division on request.
Premium Tax
Alaska imposes a surplus lines premium tax on the gross premium written on Alaska risks. The tax is collected by the broker from the insured (or as part of the premium) and remitted to the Division on the schedule set by regulation. The rate is set by statute and is separate from the premium tax paid by authorized insurers. Late payment triggers interest and penalties; non-payment can jeopardize the broker's license.
Reporting
Brokers must file periodic reports (typically annual, with monthly or quarterly detail as the Division requires) listing each surplus lines placement, the insurer, the premium, and the tax due. The report must reconcile to the broker's records.
Traps
- Confusing the surplus lines tax with the standard premium tax paid by admitted carriers.
- Forgetting that the tax is on gross premium, including policy fees where applicable.
- Assuming the insurer remits the tax - in Alaska, the broker is responsible.
- Missing the reporting deadline and triggering penalties.
Worked Example
A broker places a $50,000 premium policy with an eligible surplus lines insurer. The broker must collect and remit the surplus lines tax on the full $50,000, report the placement, and retain the file. The insurer does not handle Alaska tax.