SURPLUS LINES FAQ - Delaware Insurance Commissioner
SURPLUS LINES FAQ - Delaware Insurance Commissioner
SURPLUS LINES FAQ - Delaware Insurance Commissioner
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Office of the<br />
<strong>Insurance</strong> <strong>Commissioner</strong><br />
<strong>Delaware</strong> Department of <strong>Insurance</strong><br />
<strong>SURPLUS</strong> <strong>LINES</strong> <strong>FAQ</strong><br />
Unless otherwise noted, all statutory references are to Title 18, <strong>Delaware</strong> <strong>Insurance</strong> Code<br />
GENERAL QUESTIONS ABOUT <strong>SURPLUS</strong> <strong>LINES</strong> (SL) AND PREMIUM TAX FILINGS<br />
1. What is Surplus Lines?<br />
2. What is the difference between admitted companies and nonadmitted companies?<br />
3. What special requirements are placed on surplus lines brokers?<br />
4. Is there a handbook that explains all the special requirements placed on SL brokers?<br />
5. Does <strong>Delaware</strong> require “due diligence”?<br />
6. How many declinations are required?<br />
7. What form is used to show that a diligent search has been made?<br />
8. Does <strong>Delaware</strong> have an Export List?<br />
9. Who is responsible for getting declinations?<br />
10. What is surplus lines premium tax? How does it differ from other premium tax?<br />
11. What is the tax rate?<br />
12. What is the definition of premium?<br />
13. Are SL brokers permitted to charge fees? Is there a limit to the fee amount?<br />
14. Can a surplus lines broker add a tax filing fee to the premium?<br />
15. Are fees included in taxable premium?<br />
16. Are there any types of insurance policies that are tax exempt?<br />
17. Is there a special type of tax exempt report that must be filed if we have a tax exempt account?<br />
18. I have a publication that says that wet marine and transportation is exempt from the Surplus Lines<br />
Law. Does that mean that I don’t have to pay premium tax on wet marine premiums?<br />
19. Who is required to file surplus lines premium tax returns?<br />
841 Silver Lake Blvd., Dover, DE 19904-2465 � www.delawareinsurance.gov<br />
(302) 674-7300 Dover � (302) 739-5280 fax � (302) 577-5280 Wilmington
20. What premium tax filings are required?<br />
21. I see on the website that you have a quarterly and annual tax report summary. Which one does the<br />
state prefer?<br />
22. Are premium tax returns required if a surplus lines broker does not write any business?<br />
23. I see that <strong>Delaware</strong> requires both the individual and the agency to be licensed for surplus lines, but<br />
only the individual files tax returns. What does the agency have to file?<br />
24. Where do I send my premium tax returns?<br />
25. When are premium tax returns due?<br />
26. Is a postmark date acceptable?<br />
27. If I am submitting a zero report or have a refund request, and will not be attaching a check, do I still<br />
send my tax return to the lockbox address?<br />
28. What should be attached to the premium tax report?<br />
29. The tax form is asking for a SL Broker ID# and Agency ID#. What should I enter in these fields?<br />
30. I am filling out a courier delivery slip and it requires a phone number. What number should I use?<br />
31. Can the quarterly SL-1917 or the annual SL-1916 be completed online?<br />
32. What penalties could be assessed in association with premium tax returns?<br />
33. Can I request an extension of time for filing my tax return or payment of tax?<br />
34. How do I request a refund if I have an overpayment?<br />
35. How do I amend my premium tax return?<br />
36. In Part 2 of the annual tax return we provide information about the State Support of Fire Companies,<br />
but the form says this is not a tax. Can you please tell me why we provide this information to you?<br />
37. If we have a credit due in one quarter on return premiums, should we carry it over to the next<br />
quarter? For example, in the 2nd quarter we had a credit due to us, but in the 3rd quarter we owe tax.<br />
Should we apply the credit to the 3rd quarter amount and pay the difference, or should we pay the<br />
entire 3rd quarter amount and wait for the refund to come later?<br />
38. We are normally a wholesaler and receive our business through a retail broker. We now have a case<br />
in which we are both the Retailer and the SL Broker. What forms are required and what do we have<br />
to file with the Department when we place this business?<br />
39. Does <strong>Delaware</strong> have a “White List”?<br />
40. I am looking at the <strong>Delaware</strong> listing of Eligible Surplus Lines Insurers, but the company I’m looking<br />
for is not on the list. What are my options?
41. I need to submit a filing on a policy that was placed with a carrier that is not on <strong>Delaware</strong>'s Eligible<br />
Surplus Line Insurers List – it is actually on the list of “Ineligible” Insurers. How should I handle<br />
this?<br />
42. Does <strong>Delaware</strong> allow “Courtesy Filings”?<br />
43. Is direct procurement by an insured permissible in <strong>Delaware</strong>?<br />
44. Is direct procurement allowed when a Surplus Lines Wholesaler or Retailer are involved in<br />
placement of the policy but not licensed in your State?<br />
45. Does a wholesale broker need to be licensed for surplus lines in <strong>Delaware</strong> and make State filings?<br />
46. If a surplus lines broker contacts a wholesale SL broker to obtain coverage, does the wholesale SL<br />
broker need to be licensed in DE? Who is responsible for making the filings with the State?<br />
QUESTIONS ABOUT FORMS<br />
47. Who should file the SL-1905?<br />
48. I am trying to complete the SL-1905 electronic form but the drop downs don’t work. Should I just<br />
print the form and enter it manually?<br />
49. I cannot insert a signature on the SL-1905. Should I print it and send a signed copy?<br />
50. Should I attach the SLB-A1 or the SLB-C1 to the quarterly tax reports?<br />
51. If there is a premium bearing endorsement, should I use the SL-1905 form to show the changes to<br />
the original policy?<br />
52. We are trying to fill out the SL-1905 Form and are having trouble with the NAIC Code and<br />
description of coverage since our policies are blanket policies. What are we supposed to put in this<br />
field? Since premium is not charged on Master Policies, how do we fill this form in correctly?<br />
53. What are NAIC codes as shown on the SL-1905 – what do they mean?<br />
QUESTIONS ABOUT POLICY STAMPINGS<br />
54. Is there wording that must be stamped on the policy? What is the wording?<br />
55. Does <strong>Delaware</strong> have a stamping office or stamping fee?<br />
56. May we stamp the policy/dec page/endorsement in our own office, or do you require us to send<br />
filings in to be stamped?<br />
57. What gets stamped?
58. Do you require us to provide an original stamped copy of policies to the insured?<br />
59. Is the stamp a rubber stamp or a paper insert? If rubber, do you provide this to us or do we need to<br />
order one ourselves? If paper, can we print the stamp?<br />
60. Are there any font size or color requirements?<br />
61. Does the binder/dec page require a signature? If so, whose signature is required?<br />
1. What is Surplus Lines?<br />
Surplus Lines is defined as specialized property or liability coverage provided by a nonadmitted<br />
insurer in cases where the coverage is not available in the regular market through an admitted<br />
insurer. This insurance is only written through specially trained and licensed surplus lines<br />
brokers.<br />
2. What is the difference between admitted companies and nonadmitted companies?<br />
Admitted or authorized companies hold a Certificate of Authority issued by the <strong>Commissioner</strong><br />
showing that they are duly authorized to transact insurance business in this state. By becoming<br />
authorized in <strong>Delaware</strong>, these companies place themselves under the jurisdiction of the <strong>Delaware</strong><br />
<strong>Insurance</strong> <strong>Commissioner</strong>, and are regulated by the <strong>Delaware</strong> <strong>Insurance</strong> Department. Most<br />
insurance coverage is placed through admitted insurers.<br />
Nonadmitted or unauthorized companies do not have a certificate of authority, but are deemed<br />
eligible to provide certain types of coverage if approved by the Department. Surplus Lines<br />
companies are not under the jurisdiction of the <strong>Delaware</strong> <strong>Insurance</strong> <strong>Commissioner</strong>, and though<br />
the Department monitors these companies, it is to a much lesser extent than the regulation of<br />
admitted companies. The regulation of surplus lines is largely accomplished by placing a<br />
number of requirements on the surplus lines brokers rather than the companies.<br />
3. What special requirements are placed on surplus lines brokers?<br />
� Licensing: The Department requires that both individuals and business entities (agencies,<br />
brokerages, firms, etc.) be specially licensed for surplus lines. A SL broker must be an insurance<br />
producer, licensed for general lines of authority, who also obtains a SL license that allows him or<br />
her to sell, solicit or negotiate contracts of insurance with eligible nonadmitted surplus lines<br />
insurers.<br />
� Diligent Effort: Before placing any coverage with a nonadmitted insurer, the individual that<br />
represents the insured – usually the Producer but can be the SLB – must first seek the desired<br />
coverage from among admitted insurers who are writing comparable coverage in <strong>Delaware</strong>.<br />
� Inquiry into Financial condition of Insurer: Although the SLB is required to place business only<br />
with insurers on the Eligible SL Insurers list, the <strong>Commissioner</strong> is not required to determine the<br />
actual financial condition or claims practices of any unauthorized insurer on the list. Every SLB<br />
should make a thorough inquiry into the financial condition and operating history of the SL<br />
insurer before placing business with the company.
� Disclosure to Insured: Whenever a SL transaction takes place, the SLB must stamp (or print) the<br />
insurance contract with the wording specified in §1909. The stamp must also bear the name of<br />
the SL broker who procured the coverage.<br />
� Collect and Remit Taxes: Each SLB acts in a fiduciary capacity when handling the premium<br />
payments the policyholders entrust to him or her. That premium includes the 2% tax on<br />
insurance premiums.<br />
� Make Filings to the Department and Maintain Records: The <strong>Insurance</strong> <strong>Commissioner</strong> regulates<br />
the SL market through the requirements placed on SL brokers. It is vitally important that SL<br />
brokers and their staff submit the required information to the Department both accurately and<br />
efficiently. Every SL broker must maintain in their office a full and complete record of each<br />
surplus line policy procured by him or her, and §1915 details the types of information that must<br />
be kept in those records. According to 6 Del. C., §12A-112, records may be kept in electronic<br />
format. The records must be open to examination by the <strong>Commissioner</strong> at any time for 5 years<br />
after issuance of the policies to which they relate.<br />
4. Is there a handbook that explains all the special requirements placed on SL brokers?<br />
Yes. In 2006 the Department prepared and published the SL Brokers’ Procedures Manual. The<br />
Manual was developed to assist resident and non-resident <strong>Delaware</strong> Surplus Lines licensees and<br />
compliance personnel with understanding the procedures that must be followed for compliance<br />
with the <strong>Delaware</strong> Surplus Lines <strong>Insurance</strong> Law. The Manual is in PDF format and can be<br />
searched electronically. It is available on the Department’s website.<br />
5. Does <strong>Delaware</strong> require “due diligence”?<br />
Yes. Surplus lines insurance may be procured by SL brokers from non-admitted insurers only<br />
“…after diligent effort has been made to do so, from among the insurers authorized to transact<br />
and actually writing that kind and class of insurance in this State…” §1904 (2). Only after<br />
representatives of admitted companies have declined to accept the risk can the surplus lines<br />
broker place the business with a nonadmitted company.<br />
6. How many declinations are required?<br />
Three. Coverage must be sought in the admitted market before it can be exported to surplus<br />
lines. Three declinations are required as evidence that a “diligent effort” was made prior to<br />
placing the coverage with an unauthorized insurer. The declinations must come from insurers<br />
that are authorized to transact and actually writing that kind and class of insurance in this State<br />
but are not corporate affiliates of the SL insurer.<br />
7. What form is used to show that a diligent search has been made?<br />
The Surplus Lines Statement of Diligent Effort -- Form SL-1904. It requires that either the<br />
Producer or the SL broker declare that this search has, in fact, been completed, and substantiates<br />
the declinations. This form must be completed as instructed and then retained by the SLB for<br />
each new surplus lines policy, when a policy renews, or when there is any material change to an<br />
existing policy.
8. Does <strong>Delaware</strong> have an Export List?<br />
No, <strong>Delaware</strong> does not have an “Export List”. All surplus lines policies for all lines of business<br />
are subject to the provisions in Chapter 19, and all surplus lines brokers must abide by those<br />
provisions. The Department’s requirement of three declinations applies to all surplus lines<br />
business. Although §1906 empowers the <strong>Commissioner</strong> to declare any class or classes of<br />
insurance coverage eligible for export, the <strong>Commissioner</strong> has not done so as of this date.<br />
9. Who is responsible for getting declinations?<br />
The person who represents the insured. This can be either the retail agent or the surplus lines<br />
broker. This person that makes the diligent effort to procure the coverage in the admitted market<br />
and get the declinations should complete and sign the SL-1904 form and forward it (if<br />
applicable) to the surplus lines broker. The form should be kept with the records of the SL<br />
broker.<br />
10. What is surplus lines premium tax? How does it differ from other premium tax?<br />
<strong>Delaware</strong> law assesses a tax on each dollar of insurance premium written on risks located in the<br />
State, including premium written with non-admitted companies. According to Del. C., § 1917,<br />
surplus lines brokers are required to remit a tax on business transacted by them with<br />
unauthorized companies at the same rate as applies to premiums for like kinds of insurance<br />
written by authorized insurers under Title 18.<br />
What makes the tax on SL premium unique is that the tax is paid directly by the insured, rather<br />
than the insurer, as would be the case with admitted business. The surplus lines broker collects<br />
the tax as part of the premium and remits the tax to the Department on behalf of the insured. It is<br />
the SL broker’s responsibility to remit that premium tax to the Department in an accurate and<br />
timely manner.<br />
11. What is the tax rate?<br />
The tax rate is 2%, the same tax rate that applies to authorized business. (1¾ % per §702 and ¼<br />
% per §707)<br />
12. What is the definition of premium?<br />
Premium is defined as: “...the consideration for insurance by whatever name called. Any<br />
"assessment," or any "membership," "policy," "survey," "inspection," "service" or similar fee or<br />
other charge in consideration for an insurance contract is deemed part of the premium.”(18 Del.<br />
C., § 2703)<br />
13. Are SL brokers permitted to charge fees? Is there a limit to the fee amount?<br />
Yes, surplus lines brokers may add fees (as described in § 2703) to the premium amount charged<br />
by the insurer. No, there is no statutory limit to the amount a SL broker can charge as a fee. Fee<br />
amounts are not regulated by the <strong>Insurance</strong> Department at this time.
14. Can a surplus lines broker add a tax filing fee to the premium?<br />
No, a surplus lines broker may not charge a fee for performing a State required procedure such as<br />
filing taxes, which is a requirement of their licensed status.<br />
15. Are fees included in taxable premium?<br />
Yes, tax must be paid on all premiums, and fees are considered part of the premiums.<br />
16. Are there any types of insurance policies that are tax exempt?<br />
Yes, certain insurance premiums are considered to be exempt from the 2% surplus lines premium<br />
tax; however the premium volume must still be reported to the Department. Coverage for the<br />
operations of public political subdivisions (government entities such as counties, municipalities,<br />
school districts, etc.) is exempt from the premium tax. It is important to note that not all policies<br />
procured for public political subdivisions are tax exempt. For example, property coverage on a<br />
building that is owned by a university or liability coverage for a community-sponsored festival is<br />
not tax-exempt, but D&O or employment practices liability coverage would be tax-exempt. If<br />
you are unsure as to whether a policy qualifies for tax-exempt status, contact the <strong>Insurance</strong><br />
Department for guidance.<br />
17. Is there a special type of tax exempt report that must be filed if we have a tax exempt account?<br />
Yes, the premium volume and policy details must still be reported to the Department. The<br />
specific instructions for filing tax exempt reports (SL-1905) can be found on Page 13 of the<br />
Surplus Lines Brokers’ Procedures Manual.<br />
18. I have a publication that says that wet marine and transportation is exempt from the Surplus Lines<br />
Law. Does that mean that I don’t have to pay premium tax on wet marine premiums?<br />
No, that is not exactly what is meant. Chapter 19, the Surplus Lines Law, sets forth the<br />
conditions under which business may be written with a company that is not authorized in<br />
<strong>Delaware</strong>. 18 Del. C., § 1902 states that the Surplus Lines Law does not apply to certain types of<br />
coverage – including wet marine. If the Surplus Lines Law does not apply, the conditions for<br />
export to a nonadmitted company do not apply, and the business can not be exported to surplus<br />
lines. The business must be placed with an admitted company. Tax on admitted business is paid<br />
by the insurer.<br />
19. Who is required to file surplus lines premium tax returns?<br />
ALL individual surplus lines brokers licensed to transact SL business in the state of <strong>Delaware</strong>.<br />
Although business entities (agencies, brokerages, firms, etc.) must also be licensed for surplus<br />
lines, they should not submit tax returns. It is the <strong>Delaware</strong> <strong>Insurance</strong> Department’s position that<br />
only people can transact business, not business entities. Therefore, <strong>Delaware</strong> holds the<br />
individual licensee responsible for paying the tax on the business they transact. The Department<br />
holds the agency responsible for the conduct of the individual licensee(s) affiliated with that<br />
agency, but does not consider that the agency is transacting the business.
20. What premium tax filings are required?<br />
There are three types of filings that are required from individual surplus lines brokers:<br />
� SL-1905 – the Notice of <strong>Insurance</strong> Transaction. This is an electronic form that must be<br />
submitted via email whenever business is written. It gives the Department information about the<br />
procuring SL broker, the insured, the policy, the insurer, the coverage, and the tax and fees. This<br />
form is due within 30 days of the effective date of the policy. No tax is paid when this form is<br />
submitted.<br />
� SL-1917 – Quarterly Premium Tax Report. This is a paper filing that must be signed and<br />
notarized. It summarizes the SL premium written during the preceding quarter and calculates the<br />
premium tax. Tax should be paid with this report.<br />
� SL-1916 – Annual Premium Tax Report. This is a paper filing that must be signed and<br />
notarized. It summarizes all premiums written during the calendar year and calculates any<br />
premium tax due or any overpayment. Part 2 of the form reports a breakdown of<br />
property/casualty premiums by location of risks in the City of Wilmington, New Castle County,<br />
Kent County, and Sussex County. The premium amounts stated on these reports are used to<br />
calculate the amount of State support for volunteer fire departments.<br />
IMPORTANT: DO NOT submit the old SLB-M Monthly Report. If an old monthly report is<br />
submitted it will be returned. Old forms SLB-M, SLB-A and SLB-C have been replaced and are no<br />
longer accepted.<br />
21. I see on the website that you have a quarterly and annual tax report summary. Which one does the<br />
state prefer?<br />
Both forms are required and must be filed as instructed.<br />
22. Are premium tax returns required if a surplus lines broker does not write any business?<br />
Quarterly SL-1917 forms are not required if the individual surplus lines broker did not write any<br />
business during the calendar quarter. Annual SL-1916 forms are always required from all<br />
individual surplus lines brokers regardless of business written.<br />
23. I see that <strong>Delaware</strong> requires both the individual and the agency to be licensed for surplus lines, but<br />
only the individual files tax returns. What does the agency have to file?<br />
Agencies must hold a business entity license but do not make any filings with the tax section of<br />
the <strong>Insurance</strong> Department. Business entities cannot transact business, only individuals can.<br />
24. Where do I send my premium tax returns?<br />
The <strong>Delaware</strong> Department of <strong>Insurance</strong> has closed the lockbox operation that has been in<br />
operation for the past several years. All SL brokers are encouraged to use the OPTins program<br />
to electronically file premium tax returns online
Tax returns, attachments, and checks (if applicable) that cannot be filed through the OPTins<br />
program should be sent to the following address:<br />
25. When are premium tax returns due?<br />
<strong>Delaware</strong> <strong>Insurance</strong> Department<br />
Attn: PREMIUM TAX SECTION<br />
841 Silver Lake Blvd.<br />
Dover, DE 19904-2465<br />
The Surplus Lines Broker Annual Premium Tax and Fees Report (SL-1916) and the Annual<br />
Business Entity Report (SL-1706) must be received on or before March 1 each year.<br />
Quarterly tax reports (SL-1917) must be received on or before each April 30, July 30, October<br />
30 and January 30.<br />
26. Is a postmark date acceptable?<br />
No. Premium tax returns and payments must be received on or before the due dates. If the<br />
payment and tax return are received separately, the Department will use the later date as the<br />
received by date.<br />
27. If I am submitting a zero report or have a refund request, and will not be attaching a check, do I still<br />
send my tax return to the lockbox address?<br />
Please see question #24.<br />
28. What should be attached to the premium tax report?<br />
The only attachment should be a check for payment if applicable. DO NOT attach copies of SL-<br />
1905 or policy documents of any kind. All the information needed by the Department is on the<br />
forms themselves.<br />
29. The tax form is asking for a SL Broker ID# and Agency ID#. What should I enter in these fields?<br />
The SL Broker ID# is the individual's <strong>Delaware</strong> surplus lines license number. It is 7 digits,<br />
often beginning with zero. DO NOT use their SSN or NPN -- only their <strong>Delaware</strong> SL license<br />
number.<br />
The same is true for the Agency ID#. It should be the agency's 7 digit <strong>Delaware</strong> SL business<br />
entity license number. DO NOT use the Federal EIN or home state license number.<br />
30. I am filling out a courier delivery slip and it requires a phone number. What number should I use?<br />
You may use the Department’s main number: 302-674-7300.
31. Can the quarterly SL-1917 or the annual SL-1916 be completed online?<br />
Yes! The <strong>Delaware</strong> <strong>Insurance</strong> Department has partnered with the National Association of<br />
<strong>Insurance</strong> <strong>Commissioner</strong>s (NAIC) in the use of the OPTins (Online Premium Tax for <strong>Insurance</strong>)<br />
tax filing program. OPTins provides immediate, secure transmission and receipt of premium tax<br />
reports and payments. Although the use of OPTins is optional at this time, the Department<br />
strongly encourages all companies and SL brokers to use OPTins to electronically submit their<br />
<strong>Delaware</strong> premium tax forms and payments.<br />
32. What penalties could be assessed in association with premium tax returns?<br />
The <strong>Commissioner</strong> is empowered to assess penalties for various reasons, but the most common<br />
penalty associated with premium tax filings is the Late or Incomplete Filing Penalty. If any<br />
broker fails to file tax reports or fails to remit the tax prior to the 1st day of April after the tax is<br />
due, the broker is liable for a fine of $25 for each day of delinquency commencing with the 1st<br />
day of April. This is a minimum penalty. Further penalties and disciplinary action may be<br />
taken, up to and including suspension of the surplus lines broker’s license.<br />
33. Can I request an extension of time for filing my tax return or payment of tax?<br />
Yes. The Tax Section is permitted to grant an extension for up to 15 calendar days if the request<br />
is deemed reasonable. Requests for longer extensions must be reviewed by the <strong>Commissioner</strong>.<br />
All requests are reviewed on an individual basis. Requests must be received in writing<br />
(electronic PDF format is acceptable) at least 30 days before the tax due date.<br />
Send requests to: <strong>Delaware</strong> <strong>Insurance</strong> Department<br />
Premium Tax Section<br />
841 Silver Lake Blvd.<br />
Dover, De 19904-2465<br />
Or email request to: Ann Fletcher, Tax Coordinator at ann.fletcher@state.de.us.<br />
34. How do I request a refund if I have an overpayment?<br />
The Department will automatically request refunds based on the amount listed on the Annual<br />
Tax Report (SL-1916) after careful review of the tax return. It is not necessary to send a separate<br />
request for refund.<br />
35. How do I amend my premium tax return?<br />
Use a blank copy of the tax return for the calendar year or quarterly filing you are amending.<br />
Forms for prior years can be found by clicking the link labeled Prior Year Forms on the Surplus<br />
Lines Page. Complete the return as if filing for the first time, including signatures. Attach a<br />
cover letter explaining the reason for the amendment. Follow the same filing instructions as the<br />
original return.
36. In Part 2 of the annual tax return we provide information about the State Support of Fire Companies,<br />
but the form says this is not a tax. Can you please tell me why we provide this information to you?<br />
This section of the form is used to report what is generally referred to as “Fire Tax” because the<br />
premium amounts stated on these reports are used to calculate the amount of State support for<br />
volunteer fire departments. Fire Tax is not actually a “tax”, but rather a “break-down by lines<br />
and location” report.<br />
On the premium tax report, a company must report ALL insurance business written in <strong>Delaware</strong><br />
by the broker during the previous calendar year. But the Fire Tax Report assembles separate<br />
data only on property/casualty lines of business and breaks down the premiums based on the<br />
location of risks: City of Wilmington, New Castle County, Kent County, and Sussex County,<br />
respectively.<br />
Based on the reported Fire Tax figures, a specified percentage of the funds collected through<br />
premium taxes is then disbursed to volunteer fire departments throughout the State, and to the<br />
City of Wilmington in accordance with 18 Del. C., §705(b).<br />
IMPORTANT: The information requested in Part 2 of the annual tax report is required by law.<br />
If Part 2 of the form is not completed, the tax return will be considered incomplete will not be<br />
accepted. The tax report will be returned to the broker for completion and the broker will be<br />
subject to the Late or Incomplete Filing Penalty.<br />
37. If we have a credit due in one quarter on return premiums, should we carry it over to the next<br />
quarter? For example, in the 2nd quarter we had a credit due to us, but in the 3rd quarter we owe tax.<br />
Should we apply the credit to the 3rd quarter amount and pay the difference, or should we pay the entire<br />
3rd quarter amount and wait for the refund to come later?<br />
You may apply the credit to the third quarter amount and pay the difference, but you must make<br />
a note of it on the third quarter SL-1917 form showing that it is a credit from the second quarter.<br />
Please note that you may not carry a credit from year to year. When you file the annual SL-<br />
1916 form you will report all the premiums written during the year, as well as all the return<br />
premiums, and if there is a credit at year-end the Department will issue a refund check.<br />
38. We are normally a wholesaler and receive our business through a retail broker. We now have a case<br />
in which we are the Retailer and the SL Broker. What forms are required and what do we have to file<br />
with the Department when we place this business?<br />
First, you need to complete the SL-1904 listing the declinations that show that a diligent effort<br />
was made to place the risk in the admitted market. This form gets placed in your files. Do not<br />
send it to the Department.<br />
After the coverage is placed, submit the SL-1905 Notice of <strong>Insurance</strong> Transaction Form as an<br />
email attachment in Excel format. This form must be submitted within 30 days after the policy<br />
effective date. Do not send the SL-1905 in paper or PDF format and do not attach anything to it.<br />
You will pay the tax on the policy when you submit the next quarterly SL-1917.
If you do not have a policy number when you submit the SL-1905 – and you used a binder<br />
number – you will need to submit a SL-1908 Binder Number Replacement Form when you get<br />
the policy number. It must be printed and mailed to the Department.<br />
39. Does <strong>Delaware</strong> have a “White List”?<br />
The Department maintains the Eligible Surplus Lines Insurers listing – also referred to as the<br />
Bulletin # 5 listing – on its website. Each SL broker must restrict surplus lines business placed<br />
by him or her to the insurers on the listing.<br />
The status of eligibility, if granted by the <strong>Commissioner</strong>, only indicates that the insurer appears<br />
to be sound financially and to have satisfactory claims practices, and that the <strong>Commissioner</strong> has<br />
no credible evidence to the contrary. Placing a company on the list of eligible SL insurers does<br />
not require the <strong>Commissioner</strong> to determine the actual financial condition or claims practices of<br />
the unauthorized insurer.<br />
40. I am looking at the <strong>Delaware</strong> listing of Eligible Surplus Lines Insurers, but the company I’m<br />
looking for is not on the list. What are my options?<br />
Your only option is to place the risk with another carrier. <strong>Delaware</strong> law, §1907 (a), specifically<br />
states, “A broker shall not knowingly place surplus line insurance with an insurer that is unsound<br />
financially or that is ineligible under this section” [emphasis added]. The Department publishes<br />
a list of insurers deemed eligible to place surplus lines coverage, and all SL brokers are permitted<br />
to place business with listed eligible insurers only.<br />
41. I need to submit a filing on a policy that was placed with a carrier that is not on <strong>Delaware</strong>'s Eligible<br />
Surplus Line Insurers List – it is actually on the list of “Ineligible” Insurers. How should I handle this?<br />
The companies on the “Ineligible” Insurers list are <strong>Delaware</strong> domestic companies, meaning that<br />
they are incorporated in the state of <strong>Delaware</strong>. When a company is domiciled in DE, it is<br />
admitted in DE. <strong>Delaware</strong> domestic SL insurers cannot write business covering <strong>Delaware</strong> risks<br />
on a surplus lines basis.<br />
Surplus Lines Brokers should not be placing business with insurers that are not on the listing of<br />
Eligible Insurers that is published by the Department, but if it happens there are a couple of ways<br />
of handling the situation.<br />
If it is a multi-state surplus lines policy, the DE portion of the coverage must be placed with a<br />
different surplus lines company.<br />
If the entire risk is DE business, there are two possibilities and options:<br />
1. It may actually be admitted business – subject to rate & form filing requirements, etc. just<br />
like any other standard coverage<br />
2. If it is definitely surplus lines, it must be written with another surplus lines company.
Check with the underwriter. If it is admitted business, then you don't need to report it or collect<br />
and pay taxes on it -- the company is responsible for that. If it is surplus lines, see if the<br />
<strong>Delaware</strong> risk can be written on another carrier's paper -- usually an affiliate. That's what is most<br />
often done.<br />
Once you get a determination, make the appropriate filing. NOTE: The SL broker may be<br />
subject to penalties for failure to comply with <strong>Delaware</strong> Surplus Lines Law, which states that<br />
surplus lines coverage can only be placed with approved eligible SL insurers.<br />
42. Does <strong>Delaware</strong> allow “Courtesy Filings”?<br />
No. The Department defines a courtesy filing as the submission of forms or taxes from a<br />
<strong>Delaware</strong> licensed surplus lines broker as a “courtesy” to an agent/producer/broker who has<br />
placed insurance with an unauthorized, eligible surplus lines insurer, but is not licensed as a<br />
surplus lines broker in this State.<br />
Because <strong>Delaware</strong> licenses both resident and non-resident surplus lines brokers, courtesy filings<br />
are not allowed. If a non-resident surplus lines broker intends to place business on <strong>Delaware</strong><br />
risks he or she should obtain a <strong>Delaware</strong> surplus lines license before doing so.<br />
43. Is direct procurement by an insured permissible in <strong>Delaware</strong>?<br />
<strong>Delaware</strong> law is silent regarding self- or independent- procurement of insurance covering risks<br />
located or to be performed in the state of <strong>Delaware</strong> from unauthorized insurance companies.<br />
However, it is the <strong>Delaware</strong> <strong>Insurance</strong> Department’s policy to treat self-procured insurance in the<br />
same manner as surplus lines insurance as set forth in Title 18 Chapter 19. There is a premium<br />
tax of 2% imposed on the “proportion of the premium which is properly allocable to the risks or<br />
exposures located in this State.” (§ 1917)<br />
44. Is direct procurement allowed when a Surplus Lines Wholesaler or Retailer are involved in<br />
placement of the policy but not licensed in your State?<br />
No. First, let’s clarify the definition of direct procurement. In <strong>Delaware</strong>, if a consumer contacts<br />
a surplus lines insurer directly to procure coverage on their own behalf, without any involvement<br />
from an insurance licensee, then it is considered direct procurement (also called self- or<br />
independent- procurement).<br />
If there is a surplus lines broker involved in any capacity, the placement is not considered direct<br />
procurement. In that case, the surplus lines broker -- even if it is a wholesaler -- must be licensed<br />
for SL with the Department.<br />
45. Does a wholesale broker need to be licensed for surplus lines in <strong>Delaware</strong> and make State filings?<br />
If the wholesale broker is contacted by a retail producer or broker (not licensed for SL), and the<br />
wholesale broker procures the coverage directly, then the wholesale broker must be licensed in<br />
<strong>Delaware</strong> and make all filings to the State.
46. If a surplus lines broker contacts a wholesale SL broker to obtain coverage, does the wholesale SL<br />
broker need to be licensed in DE? Who is responsible for making the filings with the State?<br />
It depends on contract terms. Most of the time it is the broker who actually transacts business<br />
with the insurance company that is responsible for making the filings with the state. And<br />
<strong>Delaware</strong> law requires any insurance producer who transacts business with a nonadmitted<br />
company to be specially licensed for surplus lines.<br />
However, if a wholesale broker is under contract with a nonadmitted insurer, and if the contract<br />
includes underwriting and claims handling authority in addition to binding authority, then the<br />
Department considers that wholesale broker to be acting as the insurer, not the SL broker, in the<br />
transaction. In that case the wholesale broker would not need to be licensed and the “original”<br />
SL broker must be licensed in <strong>Delaware</strong> and is responsible for the filings as if they had contacted<br />
the company directly. This is especially true if the wholesale broker is registered in <strong>Delaware</strong> as<br />
an MGA.<br />
47. Who should file the SL-1905?<br />
This form is used by the broker who procures the coverage from the non-admitted insurer<br />
whenever there are surplus lines business transactions to report. It can be used to report as many<br />
policies as needed on this one electronic form. It is in Excel format and should be sent as an<br />
Excel file attached to an email. Do not send this as a paper filing or an email attachment in PDF<br />
format<br />
48. I am trying to complete the SL-1905 electronic form but the drop downs don’t work. Should I just<br />
print the form and enter it manually?<br />
DO NOT print the SL-1905 form unless you plan to keep a copy in your files. It must be sent as<br />
an Excel file.<br />
I suspect the problem is the Macro Security setting in Excel. The remedy is quite simple and you<br />
are not the first person to have this problem.<br />
Here's what you need to do:<br />
Open Excel. On the main toolbar select Tools. Select Options. From the Options screen select the<br />
Security tab. On the Security screen click the Macro Security button (lower right). Set the macro<br />
security setting to medium -- where you can choose to enable or disable macros. Click apply and<br />
OK and close out.<br />
Now when you open the SL-1905 you will get a pop up screen and be asked if you want to<br />
enable or disable macros. Click the button to ENABLE MACROS. Everything should now work<br />
properly.<br />
49. I cannot insert a signature on the SL-1905. Should I print it and send a signed copy?<br />
You do not have to send it with a signature.
The check boxes serve as electronic signatures. The only time you need to print and manually<br />
sign this form is if you keep a paper copy in your file or if you give it to the insured as proof of<br />
insurance. But all that needs to be submitted to the Department is the Excel file with the boxes<br />
checked.<br />
50. Should I attach the SLB-A1 or the SLB-C1 to the quarterly tax reports?<br />
Do not use the SLB-A1 or the SLB-C1 at all. These forms are no longer in use. Nothing (except<br />
payment if applicable) should be attached to the tax reports.<br />
51. If there is a premium bearing endorsement, should I use the SL-1905 form to show the changes to<br />
the original policy?<br />
Yes, another SL-1905 is needed. It will give all the information needed to associate the<br />
endorsement with the original policy.<br />
52. We are trying to fill out the SL-1905 Form and are having trouble with the NAIC Code and<br />
description of coverage since our policies are blanket policies. What are we supposed to put in this field?<br />
Since premium is not charged on Master Policies, how do we fill this form in correctly?<br />
Report the policy within 30 days of the effective date with zero premiums. Please make a note<br />
that it is a master policy. Then submit additional SL-1905 forms showing premium bearing<br />
changes to the master policy as they occur. You may use “Other” for the NAIC code and<br />
manually enter a brief description in the Description of Coverage field.<br />
53. What are NAIC codes as shown on the SL-1905 – what do they mean?<br />
These are the codes used in insurance company financial statements to identify lines of business.<br />
The codes are used in compliance with NAIC (National Assn. of <strong>Insurance</strong> <strong>Commissioner</strong>s)<br />
standards. The data from this field on the SL-1905 helps the Department when it calculates the<br />
amount of funding the volunteer fire departments will receive.<br />
54. Is there wording that must be stamped on the policy? What is the wording?<br />
Yes, <strong>Delaware</strong> law (§1909) is very specific regarding this requirement:<br />
“Every insurance contract procured and delivered as surplus lines coverage pursuant to this law<br />
shall have stamped upon it, initialed by or bearing the name of the surplus line broker who<br />
procured it, the following:<br />
‘This insurance contract is issued pursuant to the <strong>Delaware</strong> <strong>Insurance</strong> Laws by an insurer neither<br />
licensed by nor under the jurisdiction of the <strong>Delaware</strong> <strong>Insurance</strong> Department.’”<br />
55. Does <strong>Delaware</strong> have a stamping office or a stamping fee?<br />
No, <strong>Delaware</strong> does not have a Stamping Office and does not charge a stamping fee at this time.
56. May we stamp the policy/dec page/endorsement in our own office, or do you require us to send<br />
filings in to be stamped?<br />
Yes, you may stamp the policy in your office. In fact, it is the surplus lines broker’s<br />
responsibility to be sure the policy is stamped. <strong>Delaware</strong> does not have a stamping office, so you<br />
should not send policy documents to the Department.<br />
57. What gets stamped?<br />
The Department advises that the declarations page of the policy and any endorsements should be<br />
stamped. If a binder is used before the policy is delivered, the binder should be stamped.<br />
58. Do you require us to provide an original stamped copy of policies to the insured?<br />
Yes, this provision is for the benefit of the insured. It ensures that the consumer is aware that the<br />
company providing the coverage is not licensed in <strong>Delaware</strong> and the <strong>Insurance</strong> <strong>Commissioner</strong><br />
does not have regulatory authority over that company.<br />
59. Is the stamp a rubber stamp or a paper insert? If rubber, do you provide this to us or do we need to<br />
order one ourselves? If paper, can we print the stamp?<br />
It does not need to be a rubber stamp, but it should be imprinted on the page itself – not a paper<br />
insert. If you choose to use a rubber stamp, you will need to order it yourself. The Department<br />
does not provide the stamp. The wording can be computer printed on the binder/dec<br />
page/endorsement.<br />
60. Are there any font size or color requirements?<br />
There are no color requirements. The font size shall not be smaller than 8 points to be<br />
compatible with policy readability requirements as set forth in Regulations 605 and 701.<br />
61. Does the binder/dec page require a signature? If so, whose signature is required?<br />
Not specifically a signature, it could be initialed. The name of the surplus lines broker who<br />
procured the coverage is required and must be printed.