Surplus Lines Law and Regulation - Insurance Code Chapter 981
Eligibility is the gate
Chapter 981 governs who may place surplus lines business, who may accept it, and how the transaction is reported. The central concept is eligibility: a surplus lines policy may be placed only with an insurer that appears on TDI's list of eligible surplus lines insurers. Alien insurers must additionally appear on the NAIC International Insurers Department Quarterly Listing of Alien Insurers. Eligible insurers must meet statutory capital and surplus thresholds, maintain service of process in Texas, and report as required. TDI may suspend or remove an insurer from the list; once delisted, the insurer is no longer eligible for new placements.
Who may act. Only a producer holding a Texas surplus lines license (layered on a property and casualty license) may procure surplus lines insurance. The surplus lines agent owes duties to the insured and to the state, not just to the retail producer.
The core prohibition. Surplus lines insurers may not be used to write coverage that is available from authorized insurers, and an authorized insurer cannot be used to "launder" a risk into the non-admitted market. The surplus lines market is a residual, last-resort market; Chapter 981 and 28 TAC Chapter 15 implement the diligent effort requirement that enforces this.
Disclosure and consequences. The insured must be told in writing that the insurer is not licensed by Texas and that the policy is not protected by the guaranty association. Independently procured insurance - where the insured goes directly to a non-admitted insurer - remains subject to Texas reporting and premium tax.
Traps: confusing "eligible" with "authorized" (they are opposites); assuming a large, highly rated insurer is automatically eligible; assuming surplus lines insurers must file rates or forms (they do not); assuming a broker may bind before confirming eligibility.
Rule of thumb: verify eligibility on the TDI list (and the NAIC IID list for aliens) as of the bind date, and keep the verification in the file.