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Acceptable Declination for Surplus Lines Pt.2
Bulletin – Monday, August 22, 2011
No matter what your status is as an agent – independent or ‘captive’, if you place business with a surplus lines carrier, it is your responsibility to conduct the proper diligent search of the admitted marketplace. Along with the diligent search, you must keep a record of the declinations in your file and also provide the names of at least three carriers who declined the risk on the producing broker’s affidavit, also known as the 1609PR form.
There are many rules surrounding what is an acceptable declination; last week we discussed what to do if one or more of your declinations were from a computer rating program. This week we will discuss restrictions concerning affiliated carriers.
The law clearly states that a declination cannot be obtained from a carrier that is affiliated with the surplus lines company the policy was placed with. Nor can a declination be obtained from an admitted insurer which is an affiliate of an admitted insurer you alreadty obtained a declination from. (See 31 Pa. Code §124.5(1)(vi)(A) & (B).)
In our examples below, assume that the coverage has been placed with U.S. Underwriters Insurance Company and the list of three carriers represents the 3 declining carriers on the producer's affidavit.
Example 1:
None of the three declining carriers should be in the same affiliated group. In this example, two of the declining carriers are members of the *CNA Group.
* 1. Continental Casualty
* 2. American Casualty Co.
3. Atlantic States Insurance Co.
Example 2:
In addition to this, none of the declining carriers can be in the same affiliated group as the surplus lines carrier who has accepted the risk. In this example, U.S. Liability Ins. Co. is an affiliated company of U.S. Underwriters with the same management and marketing and they do not compete for business.
* 1. United States Liability Insurance Company
2. Continental Casualty Co.
3. Atlantic States Insurance Co.
Example 3:
However, you can list 2 companies of the same parent group, if they compete for business and they have separate marketing and underwriting management. Both National Casualty and Nationwide are members of the Nationwide Companies group but have completely separate management and operations.
* 1. National Casualty Insurance Company
2. Continental Casualty Co.
* 3. Nationwide Mutual Insurance Company
If you are having difficulty determining the status of an admitted with respect to establishing the insurance group, we recommend you look the company up on the A.M. Best website. .