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Missouri Surplus Lines study materials
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Missouri Surplus Lines practice questions

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Question 1Missouri Insurance Laws, Rules and Regulations

Missouri's surplus lines law is codified in which chapter of the Revised Statutes of Missouri?

  1. Chapter 379
  2. Chapter 376
  3. Chapter 375
  4. Chapter 384 Correct answer.

Explanation

The surplus lines statutes appear in chapter 384 of the Revised Statutes of Missouri, which addresses surplus lines broker licensing, placement requirements, recordkeeping, and the premium tax. The other chapters listed govern unrelated areas of insurance regulation.

Question 2Missouri Insurance Laws, Rules and Regulations

Before a producer places a Missouri risk with an insurer that is not authorized in Missouri, the producer must hold:

  1. a federal nonadmitted insurer authorization
  2. a Missouri insurance consultant license
  3. a Missouri surplus lines broker license Correct answer.
  4. a Missouri reinsurance intermediary license

Explanation

Placing coverage with an unauthorized insurer for a Missouri insured is a surplus lines transaction and requires a Missouri surplus lines broker license issued by the director. A producer license alone does not authorize exporting a risk to an unauthorized insurer.

Question 3Missouri Insurance Laws, Rules and Regulations

Surplus lines insurance is best described as:

  1. coverage purchased by an insured that has been canceled by two admitted insurers
  2. coverage from an unauthorized insurer for a risk the admitted market will not take Correct answer.
  3. coverage written by an authorized Missouri insurer at a rate higher than its filed rate
  4. coverage written by a Missouri insurer for property located in another state

Explanation

Surplus lines insurance is coverage procured from an insurer not authorized to transact business in Missouri, used when the risk cannot be placed with authorized insurers after a diligent effort. The defining elements are the insurer's unauthorized status and the unavailability of the admitted market.

Question 4Missouri Insurance Laws, Rules and Regulations

An unauthorized surplus lines insurer becomes insolvent and cannot pay a covered claim. What protection applies to the Missouri policyholder?

  1. The director pays the claim from a state insolvency fund
  2. The Missouri surplus lines guaranty fund reimburses the insured
  3. The Missouri insurance guaranty association pays the covered claim
  4. No guaranty fund protection is available for the claim Correct answer.

Explanation

State guaranty association protection extends only to policies issued by insurers authorized in Missouri. Because surplus lines insurers are unauthorized, their policyholders have no guaranty fund backstop and bear the credit risk of the insurer.

Question 5Missouri Insurance Laws, Rules and Regulations

Missouri imposes its surplus lines premium tax at what rate of gross premium?

  1. Two percent
  2. One-half of one percent
  3. Five percent
  4. Three percent Correct answer.

Explanation

Missouri taxes surplus lines premiums at three percent of the gross premium charged for the coverage. The broker computes the tax and remits it to the state with its required report.

Question 6Missouri Insurance Laws, Rules and Regulations

How long must a Missouri surplus lines broker retain the records of its surplus lines transactions?

  1. Five years Correct answer.
  2. Three years
  3. Two years
  4. Four years

Explanation

Missouri requires surplus lines records to be kept for at least five years and made available to the director on request. The records must show the diligent search, the premium charged, and the tax remitted.

Question 7Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker must satisfy the state's continuing education requirement, which is:

  1. 8 hours every year, including 1 hour of ethics
  2. 12 hours every two years, including 2 hours of ethics
  3. 20 hours every two years, including 5 hours of ethics
  4. 16 hours every two years, including 3 hours of ethics Correct answer.

Explanation

Missouri producers, including those holding surplus lines authority, complete 16 hours of continuing education every two years, at least 3 of which must be in ethics. Failure to complete the requirement jeopardizes the license and the surplus lines authority that depends on it.

Question 8Missouri Insurance Laws, Rules and Regulations

How often must a Missouri surplus lines broker report surplus lines premium and pay the premium tax to the director?

  1. Annually Correct answer.
  2. Monthly
  3. Semi-annually
  4. Quarterly

Explanation

Surplus lines premium is reported and the tax remitted on an annual basis, together with the broker's annual statement to the director. Monthly and quarterly filings are not the general rule in Missouri.

Question 9Missouri Insurance Laws, Rules and Regulations

A broker wants to place coverage for a Missouri manufacturer with an unauthorized insurer. Before doing so, Missouri law requires the broker to:

  1. make and document a diligent effort to place the risk with authorized insurers Correct answer.
  2. obtain three signed waivers from the insured
  3. obtain the director's written approval of the placement
  4. notify every authorized insurer in Missouri of the risk

Explanation

A risk may be exported to an unauthorized insurer only after the broker makes a diligent effort to place it with authorized insurers and documents that effort. The documented search is what demonstrates that the admitted market would not accept the risk.

Question 10Missouri Insurance Laws, Rules and Regulations

Before placing surplus lines coverage, the broker must give the insured written notice that:

  1. the insurer has been approved in advance by the director for this risk
  2. the insurer is unauthorized, unsupervised by Missouri and outside guaranty protection Correct answer.
  3. the insurer is authorized in Missouri but has elected not to join the guaranty association
  4. the broker personally guarantees the insurer's ability to pay claims

Explanation

The required disclosure tells the insured that the insurer is not authorized in Missouri, that the placement is not supervised by the Missouri director, and that the guaranty association will not protect the policyholder if the insurer fails. The notice is meant to ensure the insured knowingly assumes the added credit risk.

Question 11Missouri Insurance Laws, Rules and Regulations

An Illinois-licensed surplus lines broker wants to place coverage for an insured whose home state is Missouri. Under the home-state approach reflected in Missouri law, the placement is proper only if the broker:

  1. holds a Missouri surplus lines broker license Correct answer.
  2. charges the Missouri premium tax rate to the insured
  3. uses a Missouri-authorized insurer for the first layer of coverage
  4. notifies the Missouri director within 30 days of binding

Explanation

Under the home-state framework, a surplus lines broker must be licensed in the insured's home state. Because this insured's home state is Missouri, the broker needs Missouri surplus lines authority before placing the risk.

Question 12Missouri Insurance Laws, Rules and Regulations

Which requirement must an unauthorized insurer satisfy before a Missouri surplus lines broker may use it?

  1. It must maintain a claims office in Missouri
  2. It must be a member of the Missouri guaranty association
  3. It must be approved by the director for each individual policy
  4. It must be authorized in its state of domicile to write that class of business Correct answer.

Explanation

An unauthorized insurer used for surplus lines must be authorized for the class of business in its domiciliary state and must meet the eligibility standards applied in Missouri. Eligibility is a status of the insurer, not an approval granted policy by policy.

Question 13Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines policy is written for a $10,000 premium. The policy is cancelled and $4,000 of unearned premium is returned to the insured. Missouri premium tax is computed on:

  1. $4,000
  2. $10,000
  3. $6,000 Correct answer.
  4. $0

Explanation

The tax is measured by the premium actually retained for the coverage provided, so returned premium reduces the taxable amount. The taxable premium here is $6,000, and the tax is calculated on that figure.

Question 14Missouri Insurance Laws, Rules and Regulations

An authorized insurer is willing to write a risk at its filed rate, but the broker places the coverage with an unauthorized insurer at a premium 15% lower. This placement is:

  1. acceptable if the broker discloses the placement in its annual statement
  2. acceptable if the insured signs a written waiver
  3. acceptable if the director is notified within 10 days
  4. prohibited, because an authorized insurer was willing to write the risk Correct answer.

Explanation

Surplus lines exists to fill gaps in the admitted market, not to obtain a lower price. Placing with an unauthorized insurer when an authorized insurer will write the risk defeats the diligent search requirement and is prohibited.

Question 15Missouri Insurance Laws, Rules and Regulations

The annual statement a Missouri surplus lines broker files with the director must include, at a minimum:

  1. copies of every surplus lines policy issued during the year
  2. a list of the broker's insureds and their loss histories
  3. the names of every authorized insurer that declined the risk
  4. the total surplus lines premium written, return premiums, and premium tax due Correct answer.

Explanation

The annual statement is a tax and premium report, summarizing premiums written, premiums returned, and the tax owed for the reporting period. Supporting records such as the diligent search documentation are retained and produced on examination rather than filed with the statement.

Question 16Missouri Insurance Laws, Rules and Regulations

A broker learns that an unauthorized insurer it has been using has been placed in rehabilitation by its domiciliary state. Going forward, the broker may:

  1. continue to place business if the insured consents in writing
  2. continue to place business until the director issues an order
  3. not place new surplus lines business with that insurer Correct answer.
  4. place business but must pay the tax at double the normal rate

Explanation

A broker may use only insurers that satisfy the eligibility standards, and an insurer in rehabilitation no longer does. The broker must stop placing new business with it regardless of the insured's consent.

Question 17Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker's underlying insurance producer license is revoked. As a result, the broker's surplus lines authority:

  1. remains in effect for placements already bound
  2. remains in effect until the next renewal date
  3. may be continued by paying a reinstatement fee
  4. terminates along with the producer license Correct answer.

Explanation

Surplus lines authority is built on the underlying producer license, so it cannot survive revocation of that license. Once the producer license is gone, the broker has no authority to place or continue surplus lines business.

Question 18Missouri Insurance Laws, Rules and Regulations

When must the written disclosure about the unauthorized insurer be provided to the insured?

  1. Within 30 days after the policy is issued
  2. At the time of placement, before coverage is bound Correct answer.
  3. At the first renewal of the policy
  4. Only if the insured requests it in writing

Explanation

The notice must reach the insured at or before placement so that the insured understands the status of the insurer before being bound. Providing it later defeats the purpose of informed consent to the added risk.

Question 19Missouri Insurance Laws, Rules and Regulations

A Missouri-licensed surplus lines broker uses an out-of-state wholesale broker to access an eligible insurer for a Missouri risk. Who is responsible for remitting the Missouri premium tax?

  1. the out-of-state wholesale broker
  2. the unauthorized insurer
  3. the Missouri-licensed surplus lines broker who placed the business Correct answer.
  4. the insured, who must file a self-reporting return

Explanation

The Missouri surplus lines broker that places the coverage is accountable to the state for reporting the premium and paying the tax. The broker may use intermediaries, but that does not shift the obligation to them.

Question 20Missouri Insurance Laws, Rules and Regulations

Which statement correctly describes the director's role in an individual surplus lines placement?

  1. The director sets the premium rate for each placement
  2. The director does not approve individual placements; the broker determines that the risk qualifies Correct answer.
  3. The director must approve each placement before coverage is bound
  4. The director must countersign each surplus lines policy

Explanation

Surplus lines is a broker-driven market: the broker decides whether the risk qualifies and whether the insurer is eligible, and bears the burden of documenting that judgment. The director supervises the system through licensing, examinations, reporting, and enforcement rather than through case-by-case approvals.

Question 21Missouri Insurance Laws, Rules and Regulations

A risk retention group chartered in another state and registered in Missouri writes liability coverage for a Missouri business. Which is true?

  1. The producer must document a diligent search before the RRG may bind
  2. The coverage is unlawful surplus lines because the RRG is unlicensed
  3. The RRG is regulated under federal law and exempt from surplus lines rules Correct answer.
  4. The RRG's premium must be taxed at the surplus lines rate

Explanation

The federal Liability Risk Retention Act allows a risk retention group to operate in a state where it is not chartered once it registers there, and it exempts such groups from state surplus lines requirements. The producer therefore does not treat the RRG as an unauthorized insurer requiring export.

Question 22Missouri Insurance Laws, Rules and Regulations

A Missouri insured pays a $100,000 surplus lines premium for one policy covering its Missouri plant ($60,000 of the premium) and its Illinois plant ($40,000). Missouri premium tax applies to:

  1. nothing, because the policy covers more than one state
  2. $100,000, the full policy premium
  3. $60,000, the portion attributable to the Missouri risk Correct answer.
  4. $40,000, the portion attributable to the out-of-state risk

Explanation

The premium tax reaches only the premium attributable to risks located in Missouri. Where a policy covers property in more than one state, the premium is allocated and only the Missouri share is taxed.

Question 23Missouri Insurance Laws, Rules and Regulations

An insured fails to reimburse the broker for the surplus lines premium tax. The tax obligation to the state:

  1. is waived until the next reporting period
  2. remains the broker's responsibility and must be remitted Correct answer.
  3. shifts to the insured, who must file a return
  4. is extinguished because the premium was never collected

Explanation

The duty to remit the tax rests on the surplus lines broker, who may charge the tax to the insured but cannot shift the legal obligation. If the insured does not pay it, the broker must still remit the tax and pursue the insured for reimbursement.

Question 24Missouri Insurance Laws, Rules and Regulations

In a proceeding challenging a surplus lines placement, who must show that a diligent effort was made to obtain coverage from authorized insurers?

  1. The unauthorized insurer, by certifying its eligibility
  2. The director, by producing a market survey
  3. The insured, by signing an affidavit of unavailability
  4. The surplus lines broker, through its retained records Correct answer.

Explanation

The broker carries the burden of demonstrating that a diligent search was made and that the risk could not be placed in the admitted market. That is why contemporaneous documentation of declinations and inquiries must be retained and produced on examination.

Question 25Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker repeatedly places business with an insurer that does not meet eligibility standards. The director may:

  1. impose a fine but may not affect the license
  2. refer the matter solely to the attorney general for criminal prosecution
  3. suspend or revoke the license and impose a civil penalty Correct answer.
  4. only issue a warning letter for a first offense

Explanation

Violations of the surplus lines law expose the broker to administrative sanctions, including suspension or revocation of the license together with monetary penalties. The director's enforcement tools are not limited to a warning or a referral.

Question 26Missouri Insurance Laws, Rules and Regulations

In Missouri, surplus lines insurance is best described as coverage that is:

  1. issued by an authorized insurer outside its filed classification system
  2. provided only through the Missouri FAIR Plan for hard-to-place property
  3. placed with an eligible unauthorized insurer after a diligent effort shows it is not procurable from authorized insurers Correct answer.
  4. written by an authorized insurer at rates filed with the director

Explanation

Surplus lines insurance is coverage on Missouri risks that authorized insurers decline after a diligent search is made. The coverage is then placed with an eligible insurer that is not licensed in Missouri. It is not written by authorized insurers at filed rates, and it is not a FAIR Plan product.

Question 27Missouri Insurance Laws, Rules and Regulations

Before the director may issue a surplus lines broker license to an individual, the individual must:

  1. hold a valid Missouri insurance producer license Correct answer.
  2. post a $100,000 cash deposit with the state treasury
  3. hold a certified public accountant license
  4. have five years of experience as a claims adjuster

Explanation

Missouri builds the surplus lines broker license on top of the underlying insurance producer license. The applicant must already be licensed as a producer for the lines to be placed. Accounting credentials, a cash deposit, or claims experience are not substitutes for the producer license.

Question 28Missouri Insurance Laws, Rules and Regulations

Surplus lines broker licenses in Missouri are issued and regulated by the:

  1. director of the Missouri department of insurance Correct answer.
  2. Missouri attorney general
  3. National Association of Insurance Commissioners
  4. federal Insurance Office

Explanation

The Missouri director of insurance administers the surplus lines law, including licensing, examinations, and enforcement. The NAIC is an association of regulators and does not issue state licenses. The attorney general and federal agencies do not license Missouri surplus lines brokers.

Question 29Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker may place a risk with an unauthorized insurer only if the insurer:

  1. has filed its rates with the director
  2. is an eligible surplus lines insurer Correct answer.
  3. has a Missouri certificate of authority
  4. is a member of the Missouri guaranty association

Explanation

Missouri law limits surplus lines placements to insurers that meet the statutory eligibility standards. A Missouri certificate of authority would make the insurer authorized and therefore not a surplus lines insurer. Guaranty association membership and rate filing are features of admitted insurers.

Question 30Missouri Insurance Laws, Rules and Regulations

For purposes of Missouri surplus lines law, an unauthorized insurer is an insurer that:

  1. has had its charter revoked in its state of domicile
  2. does not hold a license or certificate of authority to transact insurance in Missouri Correct answer.
  3. is licensed only to write life and health insurance
  4. has never written insurance in any state

Explanation

An unauthorized insurer is one that lacks Missouri authority to transact insurance in the state. The insurer may be perfectly legitimate and authorized in its home state. A revoked charter or a limited line of business does not define unauthorized status.

Question 31Missouri Insurance Laws, Rules and Regulations

The written disclosure Missouri requires for a surplus lines placement must be:

  1. signed by the insured Correct answer.
  2. notarized by the broker
  3. approved by the director before it is used
  4. filed with the NAIC within 10 days

Explanation

Missouri requires the surplus lines disclosure to be in writing and signed by the insured, acknowledging the unauthorized status of the insurer and related consequences. The form does not require prior approval by the director, notarization, or filing with the NAIC.

Question 32Missouri Insurance Laws, Rules and Regulations

The Missouri surplus lines premium tax is remitted to the director by:

  1. the unauthorized insurer
  2. the surplus lines broker Correct answer.
  3. the insured directly
  4. the Missouri guaranty association

Explanation

The surplus lines broker is responsible for collecting and remitting the premium tax to the director. The insured and the unauthorized insurer do not remit the tax directly to Missouri. The guaranty association has no role in premium tax collection.

Question 33Missouri Insurance Laws, Rules and Regulations

If an unauthorized insurer that wrote a Missouri surplus lines policy becomes insolvent, the insured generally:

  1. is covered by the state uninsured motorist fund
  2. may recover from a surplus lines broker guaranty fund
  3. has no guaranty association protection for the claim Correct answer.
  4. may recover from the Missouri insurance guaranty association

Explanation

Surplus lines policies are not covered by the Missouri insurance guaranty association. The insured bears the insolvency risk of the unauthorized insurer. There is no separate surplus lines broker guaranty fund, and the uninsured motorist fund does not apply.

Question 34Missouri Insurance Laws, Rules and Regulations

To qualify as an eligible surplus lines insurer in Missouri, an unauthorized insurer organized in another U.S. state generally must have capital and surplus of at least:

  1. $50 million
  2. $1 million
  3. $5 million
  4. $15 million Correct answer.

Explanation

Missouri's eligibility standard follows the NAIC model and requires a substantial minimum capital and surplus, generally $15 million. This threshold helps ensure the insurer can meet its obligations even though it is not admitted in Missouri. Amounts below $15 million do not meet the standard, and $50 million is not the general minimum.

Question 35Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker may use an alien insurer as an eligible surplus lines insurer if the alien insurer:

  1. writes only ocean marine coverage
  2. is owned by a Missouri resident
  3. has a Missouri branch office
  4. is listed on the NAIC International Insurers Department list Correct answer.

Explanation

Alien insurers must appear on the NAIC International Insurers Department quarterly listing to be eligible for surplus lines placement in Missouri. A Missouri office, local ownership, or a single line of business does not establish eligibility.

Question 36Missouri Insurance Laws, Rules and Regulations

Before placing a commercial property risk with an unauthorized insurer, a Missouri surplus lines broker must make a diligent effort, which requires the broker to:

  1. contact every authorized insurer writing any line in Missouri
  2. search the authorized market for the coverage sought and document the declinations Correct answer.
  3. obtain written rejections from at least ten authorized insurers
  4. wait 30 days after advertising the risk

Explanation

A diligent effort means a genuine search of the authorized market for the particular coverage needed, with the results documented. It does not require contacting every insurer in the state or a fixed number of declinations. There is also no statutory waiting period after advertising the risk.

Question 37Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker contacts several authorized insurers that decline a risk. The broker should:

  1. orally report the declinations to the director before binding
  2. keep a written record of the insurers contacted and the results Correct answer.
  3. ask the insured to contact the insurers again
  4. destroy the declination notes once the policy is issued

Explanation

The broker must be able to demonstrate that a diligent effort was made, so a written record of the insurers contacted and their responses should be kept. The director does not require oral pre-binding reports, and the supporting records must not be destroyed. The insured is not responsible for re-contacting the insurers.

Question 38Missouri Insurance Laws, Rules and Regulations

Under Missouri's adoption of the Nonadmitted and Reinsurance Reform Act, an insured qualifies as an exempt commercial purchaser if the insured, among other requirements, has:

  1. a net worth exceeding $20 million Correct answer.
  2. fewer than 100 employees
  3. annual revenues of at least $1 million
  4. a Missouri business license for at least five years

Explanation

The NRRA definition of an exempt commercial purchaser includes a net worth over $20 million as one qualifying path. Other paths include more than 500 employees, a nonprofit budget over $50 million, or a municipality with over 50,000 residents. For an exempt commercial purchaser, the diligent search requirement can be waived with the required disclosure.

Question 39Missouri Insurance Laws, Rules and Regulations

The Missouri surplus lines premium tax rate is:

  1. 5% of gross premiums
  2. 2% of gross premiums
  3. 3% of gross premiums Correct answer.
  4. 1% of gross premiums

Explanation

Missouri imposes a 3% premium tax on surplus lines gross premiums. The tax is collected and remitted by the surplus lines broker. The other percentages are not the Missouri statutory rate.

Question 40Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker may place a surplus lines policy only for lines of insurance that are:

  1. limited to personal lines
  2. pre-approved by the NAIC
  3. within the broker's underlying producer license authority Correct answer.
  4. written by at least three authorized insurers

Explanation

The surplus lines broker license operates through the underlying producer license, so the broker may place only the lines authorized on that producer license. The license is not limited to personal lines, and NAIC pre-approval is not required. The number of authorized insurers that decline a risk does not define the lines the broker may write.

Question 41Missouri Insurance Laws, Rules and Regulations

If a business entity applies for a Missouri surplus lines broker license, the entity must:

  1. designate an individual licensed as a surplus lines broker to be responsible for compliance Correct answer.
  2. have at least 10 shareholders
  3. be incorporated in Missouri
  4. post a $500,000 surety bond

Explanation

A business entity license requires a designated individual who holds the surplus lines broker license and is responsible for the entity's compliance. Missouri does not require a minimum number of shareholders, in-state incorporation, or a $500,000 surety bond for the license.

Question 42Missouri Insurance Laws, Rules and Regulations

The director may examine a Missouri surplus lines broker's records:

  1. at any reasonable time under the director's supervisory authority Correct answer.
  2. only when the broker's license is up for renewal
  3. only with a court order
  4. only after a formal complaint by an insured

Explanation

The director has supervisory examination authority over licensed surplus lines brokers and may inspect records at reasonable times. A formal complaint, a renewal cycle, or a court order is not a prerequisite. This authority supports enforcement of the surplus lines law.

Question 43Missouri Insurance Laws, Rules and Regulations

A Missouri insured suffers a covered loss under a surplus lines policy issued by an unauthorized insurer. In general, the insured:

  1. may enforce the policy in Missouri courts Correct answer.
  2. cannot enforce the policy because the insurer is unauthorized
  3. must refile the claim with the guaranty association
  4. must first pay a penalty to the director

Explanation

Although the insurer is not authorized in Missouri, the insured may enforce the surplus lines contract in court. The unauthorized status restricts the insurer's ability to do business and to use Missouri courts, but it does not eliminate the insured's contract rights. There is no penalty precondition, and the guaranty association is not available.

Question 44Missouri Insurance Laws, Rules and Regulations

If the director finds that an eligible surplus lines insurer is in an unsafe financial condition, the director may:

  1. order the insurer's Missouri policies cancelled automatically
  2. assess the insurer's deficit against the guaranty association
  3. prohibit Missouri surplus lines brokers from placing business with the insurer Correct answer.
  4. require the broker to refund all past commissions

Explanation

The director supervises which unauthorized insurers may be used and may prohibit placements with an insurer that no longer meets eligibility or safety standards. The director does not automatically cancel all Missouri policies, assess deficits against the guaranty association, or order commission refunds.

Question 45Missouri Insurance Laws, Rules and Regulations

A producer licensed in another state who wants a Missouri surplus lines broker license must:

  1. meet Missouri's nonresident producer licensing requirements and apply for the surplus lines license Correct answer.
  2. become a Missouri resident
  3. maintain a Missouri business office
  4. have written Missouri surplus lines business for five years

Explanation

Missouri licenses nonresident producers through reciprocity and allows them to obtain a surplus lines broker license without establishing residency. A Missouri office or prior Missouri surplus lines volume is not required. The producer must satisfy the nonresident licensing requirements and apply.

Question 46Missouri Insurance Laws, Rules and Regulations

Missouri's surplus lines premium tax is computed on:

  1. the gross premiums charged for the surplus lines coverage Correct answer.
  2. the insurer's nationwide premium for the year
  3. the insured's net worth
  4. the broker's commission income from the placement

Explanation

The premium tax is a percentage of the gross premiums charged for the surplus lines coverage. The broker's commission is not the tax base. The insurer's nationwide premium and the insured's net worth are irrelevant to the calculation.

Question 47Missouri Insurance Laws, Rules and Regulations

An unauthorized insurer that transacts insurance business in Missouri without a certificate of authority is:

  1. automatically covered by the Missouri guaranty association
  2. subject to enforcement action, including injunctions and penalties Correct answer.
  3. required only to register with the NAIC
  4. immune from Missouri jurisdiction because it is unauthorized

Explanation

Transacting insurance without Missouri authority exposes an insurer to enforcement by the director, including injunctions and penalties. Lack of authorization does not create immunity from Missouri jurisdiction. NAIC registration is not a substitute for state authority, and the guaranty association does not cover unauthorized insurers.

Question 48Missouri Insurance Laws, Rules and Regulations

Before placing a risk, who is responsible for confirming that an unauthorized insurer meets Missouri's eligibility standards?

  1. the authorized insurers that declined the risk
  2. the director, who must pre-approve each insurer
  3. the surplus lines broker Correct answer.
  4. the insured

Explanation

The surplus lines broker must verify that the insurer is eligible before using it for a Missouri placement. The director does not pre-approve each insurer or placement. The insured and the declining authorized insurers have no such duty.

Question 49Missouri Insurance Laws, Rules and Regulations

Missouri law requires surplus lines rates and forms to be:

  1. determined by the insurer and broker without prior rate approval Correct answer.
  2. reviewed by the NAIC before binding
  3. filed with and approved by the director before use
  4. identical to the rates of authorized insurers

Explanation

Surplus lines are exempt from the prior rate and form filing and approval process that applies to authorized insurers. The insurer and broker set the terms, subject to the diligent effort, disclosure, and eligibility rules. The rates need not match admitted insurers' rates, and the NAIC does not review individual placements.

Question 50Missouri Insurance Laws, Rules and Regulations

A Missouri surplus lines broker's license authorizes the licensee to:

  1. act as the insurer's agent to solicit business for an unauthorized insurer
  2. write only personal lines coverage
  3. place surplus lines coverage on Missouri risks with eligible unauthorized insurers Correct answer.
  4. issue policies on behalf of authorized insurers

Explanation

The surplus lines broker license authorizes the licensee to place coverage on Missouri risks with eligible unauthorized insurers. The broker acts as an intermediary for the insured, not as the unauthorized insurer's agent. The license does not authorize issuing policies for authorized insurers or limit the broker to personal lines.