Update: Lloyd's Kentucky Surplus Lines Eligibility
Lloyd’s is now eligible to write surplus lines business in Kentucky as of 15 July 2014. This means Lloyd’s is now eligible to write surplus lines business in all US jurisdictions.
This article intends to outline a number of key compliance considerations for placing surplus lines and licenced Kentucky business respectively.
The new surplus lines authority does not affect Lloyd’s licensed status in Kentucky and underwriters may continue to write business on a licensed basis in accordance with all existing licensed business regulatory requirements.
Considerations for Export to the Surplus Lines Market
As with all US surplus lines business, Lloyd’s syndicates writing surplus lines insurance in Kentucky must appear on the IID List (and are therefore subject to Lloyd’s US Surplus Lines Trust Fund and reporting requirements). The Lloyd’s annual surplus lines eligibility filing with the NAIC will ensure that Lloyd’s continues to be an eligible surplus lines insurer.
There are a number of compliance considerations that underwriters must take into account when writing surplus lines business in Kentucky:
- Diligent Search – A diligent search must be conducted before business can be exported to the surplus lines market. The Kentucky diligent search statute requires that the full amount of insurance must not be procurable from among the insurers licensed to transact and actually writing that kind and class of insurance in Kentucky. Only the amount of insurance in excess of the amount procurable from licensed insurers may be exported to the surplus lines market.
– An underwriter's decision to participate as either a licensed or a surplus lines insurer should be based on their willingness to use policy forms that comply with Kentucky regulatory requirements. In order to ensure that producers meet the due diligence requirement, Lloyd's underwriters must be approached as a licensed insurer in the first instance.
- Kentucky does not have an export list.
- Home State – Risks will be considered Kentucky surplus lines business if the policy is home stated in Kentucky. The Kentucky definition of home state follows the federal definition found in the Nonadmitted and Reinsurance Reform Act.
- Surplus Lines Broker Required – For all US surplus lines transactions, including those home stated in Kentucky, there must be a licensed surplus lines broker in the placement chain.
- Tax – The surplus lines broker will be responsible for collecting and remitting the surplus lines tax, the Kentucky policy surcharge and any applicable local government premium taxes.
- Disclosure Notice – All Kentucky surplus lines policies must be stamped with the Kentucky disclosure notice language.
All existing regulatory requirements for licensed business continue to apply. As a reminder some of the key requirements for licensed business are as follows:
- Report to Lloyd’s Kentucky – The details of every Kentucky licensed insurance transaction must be reported to Lloyd’s Kentucky for record keeping and financial reporting purposes.
- Policy Forms – Policy wordings for licensed business must be filed and approved by the Kentucky Department of Insurance via Lloyd’s Kentucky prior to use. In order to ensure compliance with this requirement, underwriters should contact Lloyd’s Kentucky prior to making a placement to confirm that the policy form has been approved.
- Tax – For licensed business, the local intermediary must collect and remit the appropriate tax to Lloyd’s Kentucky, Inc. who will then submit the tax on behalf of underwriters.
- Licensed & Appointed Agent – Licensed business must be placed through an agent that is licensed in Kentucky and has been appointed by Lloyd’s.