Named PerilP&C producer exam prep

Conceptin Insurers and regulation

Drill6 items

Admitted vs non-admitted insurers

An admitted insurer holds a certificate of authority from the state where the policy is sold; a non-admitted insurer holds none there, and its policies reach that state only through a surplus lines broker. Domestic, foreign and alien answer a different question, where the insurer was chartered, and it is a separate test from the license. The wider picture of insurer types and state oversight is on insurers and regulation.

Admitted and non-admitted, row by row

Admitted (authorized) vs non-admitted (surplus lines) insurers, seen from one state
PointAdmittedNon-admitted
Certificate of authority in this stateYes, issued by the state insurance departmentNo
Also calledAuthorizedUnauthorized; surplus lines when placed through the proper channel
Who places the businessAn agent appointed by the insurerA licensed surplus lines broker
When it is usedAny risk the insurer is willing to writeUsually after admitted insurers have declined the risk
State guaranty fund if the insurer failsYes, within the fund's limitsNo

Declination counts, filings and disclosures are state law and vary; the general part of the exam tests the pattern in this table.

Two questions hiding in one label

Domestic
Chartered (incorporated) in the state you are reading about.
Foreign
Chartered in another U.S. state.
Alien
Chartered outside the United States, for example in Bermuda or the United Kingdom.
Admitted
Licensed in this state through a certificate of authority. A domestic, a foreign or an alien insurer can each be admitted.
Non-admitted
No certificate of authority in this state, whatever the charter.
Surplus lines
The lawful route for a non-admitted insurer's coverage: a surplus lines broker places the risk, usually once the admitted market has passed on it.

Run both questions on four insurers

Charter label and license label are independent (illustrative insurers, viewed from Oregon)
InsurerChartered inLicensed in Oregon?Labels in Oregon
Insurer AOregonYesDomestic, admitted
Insurer BDelawareNoForeign, non-admitted
Insurer CBermudaYesAlien, admitted
Insurer DBermudaNoAlien, non-admitted

How a hard-to-place risk reaches a non-admitted insurer

  1. Shop the admitted market

    The producer submits the risk to admitted insurers first. A fireworks warehouse or a coastal building with a loss history may come back with nothing but declinations.

  2. Document the search

    Surplus lines laws usually require a diligent search of the admitted market before a non-admitted placement. How many declinations and what paperwork depend on the state.

  3. Place through a surplus lines broker

    Only a producer licensed for surplus lines can place the coverage with the non-admitted insurer. An appointment with admitted companies does not carry that authority.

  4. Know what the insured gives up

    The policy sits outside the state guaranty fund, so the insured relies on the non-admitted insurer's own finances. Freedom from the admitted market's rules is the trade for that exposure.

Charter, license or channel

0 of 6 answered · 0 right

Decide first whether the question is about where the insurer was chartered or whether it is licensed here, then answer with the matching set of labels.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

  1. Item 01

    An insurer incorporated in Texas and licensed to do business in Ohio is considered, in Ohio, a(n):

    1. AIt is licensed in Ohio, so it is admitted there, not non-admitted.
    2. BCorrect: an insurer incorporated in another U.S. state is a foreign insurer.
    3. CAlien means incorporated in another country, not another state.
    4. DDomestic applies only in Texas, its state of incorporation.
  2. Item 02

    Before placing a risk with a non-admitted insurer, a surplus lines broker usually must:

    1. AThe broker needs a surplus lines license, not an appointment from the non-admitted insurer.
    2. BCorrect: surplus lines laws generally require a diligent search showing admitted insurers declined the risk.
    3. CPlacement is regulated by the insured's home state; the risk need not be outside it.
    4. DSurplus lines rates and forms are not approved by the state.
  3. Item 03

    A surplus lines insurer that writes a policy in a state becomes insolvent. Is the state guaranty association available to the insured?

    1. AThere is no $10,000 carve-out; non-admitted insurers are outside the guaranty system.
    2. BCorrect: guaranty associations protect policyholders of admitted insurers, and surplus lines insurers are not members.
    3. C'Every insurer' overreaches; only admitted insurers belong to the guaranty association.
    4. DA licensed broker does not bring a non-admitted insurer into the guaranty association.
  4. Item 04

    Which statement about an admitted insurer is CORRECT?

    1. ABeing based in another country makes an insurer alien, which is separate from admitted status.
    2. BAdmitted insurers are subject to the state's rate and form rules.
    3. CAdmitted insurers' policyholders do have guaranty-fund protection.
    4. DCorrect: an admitted insurer holds a certificate of authority from the state.
  5. Item 05

    Who is generally responsible for paying the state premium tax on a surplus lines policy?

    1. AGuaranty associations pay claims of insolvent insurers; they do not collect premium taxes.
    2. BThe non-admitted insurer is not licensed in the state, so the tax duty falls on the broker.
    3. CCorrect: the surplus lines broker collects the premium tax and remits it to the insured's home state.
    4. DAn agent of an admitted insurer does not handle surplus lines placements.
  6. Item 06

    State guaranty associations get the money to pay claims of insolvent insurers mainly from:

    1. ACorrect: guaranty associations are funded mainly by assessments on the admitted insurers in the state.
    2. BGuaranty associations receive no federal funding.
    3. CAgents' fines do not fund guaranty associations.
    4. DSurplus lines taxes go to the state treasury, not the guaranty fund.

Behind the admitted label

Is a non-admitted insurer operating illegally?

No. Non-admitted only means it has no certificate of authority in this state. The surplus lines system is the lawful channel for its policies, and who may solicit or bind business in that channel is part of the insurance transaction.

Why would a business buy from a non-admitted insurer?

Because the admitted market would not write the risk, or would not write it on a usable form. Unusual, very large or loss-heavy exposures are the ones that end up in surplus lines.

Who regulates insurers in the first place?

The states. The McCarran-Ferguson Act (1945) left insurance regulation to them, and the NAIC drafts model laws without regulatory power of its own. More on insurer types and state regulation.

Insurer types, any time

Charters, certificates of authority and surplus lines placements to work through, every answer explained, on iPhone and also on iPad.