Surplus Lines Insurance Principles and Practices
What surplus lines is
Surplus lines (non-admitted) insurance is written by an insurer not licensed in Missouri. It is the residual market for risks the admitted market cannot or will not take: capacity, unusual hazards, new products, very high limits, rapid rate or form changes. The non-admitted insurer is not directly regulated by Missouri - the licensed surplus lines broker is the regulated party, which is why broker diligence carries so much weight.
Preconditions to placement
First, a documented diligent effort to place the full amount with authorized insurers. Missouri's test is the adequacy and documentation of the search, not a magic number of declinations: record which markets were approached, the coverage requested, and why each declined. Never use surplus lines merely to obtain a lower premium or a broader form available from an admitted insurer. Second, the insurer must meet eligibility standards - authorized in its domicile, adequate capital and surplus, and compliance with Missouri law including service of process. Third, the insured must receive written disclosure that the insurer is not admitted and is not protected by a guaranty fund.
Money and reporting
Premium tax is the substitute for the premium tax the non-admitted insurer does not pay; Missouri's rate is commonly cited at 2%, so confirm the current statutory rate and filing deadlines with DCI. For multistate risks, the NRRA home-state rule means one state - the insured's home state - taxes the whole policy. Retain placement records at least five years.
Worked example
A $10M umbrella: three admitted markets cap at $5M and one declines outright. Document each declination, place the excess layer with an eligible non-admitted carrier, disclose the guaranty fund exclusion, and remit the surplus lines tax.
Rule of thumb: no documented declinations, no surplus lines placement.