Meridian Re: A 31% Savings From a Carrier That Is Not on the List
Coastal Bend Warehouses needs $12,000,000 of wind-only property coverage on a Galveston County warehouse. The only eligible surplus lines insurer quoting the risk comes in at $1,400,000. A Bermuda carrier, Meridian Re, quotes $965,000, about 31% less, and carries an A- rating with a 40% reinsurance panel of highly rated carriers. Meridian is not authorized in any U.S. state, has never appeared on TDI's eligible surplus lines insurer list, and its application submitted to TDI four months ago remains pending. The retail agent has already told the insured "we're bound effective Friday," and the lender needs evidence of insurance by Monday. The insured's CFO emails: "The rating is fine and Texas can't stop us from buying insurance anywhere we want."
1. May the surplus lines broker place this risk with Meridian Re?
Read the worked answer
No. A Texas surplus lines agent may place nonadmitted coverage only with an eligible surplus lines insurer.
- Eligibility is a status conferred by TDI and reflected on the published eligible list. It is not conferred by a rating, by reinsurance behind the carrier, by the carrier's own assertion, or by the fact that a license application is pending. A pending application is the opposite of eligible.
- A high rating and a strong reinsurance panel address credit quality; they do not address the statutory condition for lawful placement.
- Placing with a non-eligible insurer exposes the broker to administrative penalties and license action, and the transaction does not become lawful because the insured wants it or because the coverage was already represented as bound.
Immediate action: do not bind; put in writing to the retail agent and the insured that Meridian cannot be used; unwind the "bound Friday" representation before the insured and the lender rely on it; and place with the eligible market or obtain an extension on the lender's deadline.
2. Does the 31% premium savings justify the placement?
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No. Two separate questions are being blended.
- Is surplus lines permissible at all? The trigger is that the coverage cannot be obtained from authorized insurers. Here that appears satisfied for a Galveston County wind-only risk, so a nonadmitted placement is appropriate in principle.
- Which nonadmitted insurer? Price does not enter the eligibility test. Once the placement is properly in the surplus lines market, the insurer must still be eligible; a cheaper ineligible carrier is not a legal option at any price.
Also note what the CFO's argument proves: he is comparing two surplus lines quotes on price. That is not the comparison the statute cares about. The required comparison is with the authorized market, and it must be documented before the file goes to the stamping office.
3. What must the broker tell the insured and document before the policy is delivered?
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The standard nonadmitted-placement disclosure, in writing and acknowledged:
- The insurer is not licensed by the State of Texas and is not subject to TDI supervision of rates and forms.
- The insurer is not a member of the Texas Property and Casualty Insurance Guaranty Association; if it becomes insolvent, there is no guaranty-fund backstop.
- The insurer must be an eligible surplus lines insurer; identify it and the eligibility basis (the TDI list entry at the date of placement).
- The coverage may contain terms, conditions, and exclusions not permitted in the admitted market.
File documentation: the eligible-list check with the date; the diligent-effort documentation for the authorized market; the signed acknowledgment; the binder; and the premium and tax detail for the stamping-office filing. Keep a copy of the CFO's email and the broker's written response - it shows the risk of price-driven placement was raised and refused.