SURPLUS LINES FAQ - Delaware Insurance Commissioner

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8. Does Delaware have an Export List? No, Delaware does not have an “Export List”. All surplus lines policies for all lines of business are subject to the provisions in Chapter 19, and all surplus lines brokers must abide by those provisions. The Department’s requirement of three declinations applies to all surplus lines business. Although §1906 empowers the Commissioner to declare any class or classes of insurance coverage eligible for export, the Commissioner has not done so as of this date. 9. Who is responsible for getting declinations? The person who represents the insured. This can be either the retail agent or the surplus lines broker. This person that makes the diligent effort to procure the coverage in the admitted market and get the declinations should complete and sign the SL-1904 form and forward it (if applicable) to the surplus lines broker. The form should be kept with the records of the SL broker. 10. What is surplus lines premium tax? How does it differ from other premium tax? Delaware law assesses a tax on each dollar of insurance premium written on risks located in the State, including premium written with non-admitted companies. According to Del. C., § 1917, surplus lines brokers are required to remit a tax on business transacted by them with unauthorized companies at the same rate as applies to premiums for like kinds of insurance written by authorized insurers under Title 18. What makes the tax on SL premium unique is that the tax is paid directly by the insured, rather than the insurer, as would be the case with admitted business. The surplus lines broker collects the tax as part of the premium and remits the tax to the Department on behalf of the insured. It is the SL broker’s responsibility to remit that premium tax to the Department in an accurate and timely manner. 11. What is the tax rate? The tax rate is 2%, the same tax rate that applies to authorized business. (1¾ % per §702 and ¼ % per §707) 12. What is the definition of premium? Premium is defined as: “...the consideration for insurance by whatever name called. Any "assessment," or any "membership," "policy," "survey," "inspection," "service" or similar fee or other charge in consideration for an insurance contract is deemed part of the premium.”(18 Del. C., § 2703) 13. Are SL brokers permitted to charge fees? Is there a limit to the fee amount? Yes, surplus lines brokers may add fees (as described in § 2703) to the premium amount charged by the insurer. No, there is no statutory limit to the amount a SL broker can charge as a fee. Fee amounts are not regulated by the Insurance Department at this time.
14. Can a surplus lines broker add a tax filing fee to the premium? No, a surplus lines broker may not charge a fee for performing a State required procedure such as filing taxes, which is a requirement of their licensed status. 15. Are fees included in taxable premium? Yes, tax must be paid on all premiums, and fees are considered part of the premiums. 16. Are there any types of insurance policies that are tax exempt? Yes, certain insurance premiums are considered to be exempt from the 2% surplus lines premium tax; however the premium volume must still be reported to the Department. Coverage for the operations of public political subdivisions (government entities such as counties, municipalities, school districts, etc.) is exempt from the premium tax. It is important to note that not all policies procured for public political subdivisions are tax exempt. For example, property coverage on a building that is owned by a university or liability coverage for a community-sponsored festival is not tax-exempt, but D&O or employment practices liability coverage would be tax-exempt. If you are unsure as to whether a policy qualifies for tax-exempt status, contact the Insurance Department for guidance. 17. Is there a special type of tax exempt report that must be filed if we have a tax exempt account? Yes, the premium volume and policy details must still be reported to the Department. The specific instructions for filing tax exempt reports (SL-1905) can be found on Page 13 of the Surplus Lines Brokers’ Procedures Manual. 18. I have a publication that says that wet marine and transportation is exempt from the Surplus Lines Law. Does that mean that I don’t have to pay premium tax on wet marine premiums? No, that is not exactly what is meant. Chapter 19, the Surplus Lines Law, sets forth the conditions under which business may be written with a company that is not authorized in Delaware. 18 Del. C., § 1902 states that the Surplus Lines Law does not apply to certain types of coverage – including wet marine. If the Surplus Lines Law does not apply, the conditions for export to a nonadmitted company do not apply, and the business can not be exported to surplus lines. The business must be placed with an admitted company. Tax on admitted business is paid by the insurer. 19. Who is required to file surplus lines premium tax returns? ALL individual surplus lines brokers licensed to transact SL business in the state of Delaware. Although business entities (agencies, brokerages, firms, etc.) must also be licensed for surplus lines, they should not submit tax returns. It is the Delaware Insurance Department’s position that only people can transact business, not business entities. Therefore, Delaware holds the individual licensee responsible for paying the tax on the business they transact. The Department holds the agency responsible for the conduct of the individual licensee(s) affiliated with that agency, but does not consider that the agency is transacting the business.
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SURPLUS LINES FAQ - Delaware Insurance Commissioner

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