Surplus Lines (Lloyd’s of London)

For most of our United States client’s aviation and marine insurance needs, domestic admitted insurers (insurer formed under the laws of a given state and authorized to do business in the state) provide a feasible solution. However, admitted insurers do not meet some insurance needs.  New insurance coverage needs arising from emerging technologies, new business practices, or changing legal environments require a fast response that could be difficult for admitted insurers to provide. Likewise, unusual business activities and risks with unsatisfactory loss experience are generally not attractive to admitted insurers. Non-admitted insurers offer a creative response to insurance needs and supplement admitted insurance for risks not normally acceptable to admitted insurers.

Surplus lines insurance is a mechanism that allows United States consumers to buy insurance from non-admitted insurers when consumers are unable to purchase the coverage they need from admitted insurers.

Some of the conditions that must exist to export a risk.

“The risk is not procurable from admitted insurers, Premium rate shall not be lower than in the admitted market, Policy is not more favorable as to coverage or rate in the admitted market, Deductible amounts are similar to admitted insurers.”

Surplus lines transactions are subject to a premium tax levied by the state.

Lloyd’s of London is one of the most widely recognized alien (insurers domiciled outside the United States) non-admitted insurers in the world and one of the first surplus lines operating systems. Oftentimes, Lloyd’s of London is often mistaken for the name of a corporation, but it is actually a market. A licensed Lloyd’s broker is an insurance agent in London, England, who procures coverage on behalf of insureds at the Lloyd’s market. All business with Lloyd’s must be placed through a Lloyd’s broker.

Lloyd’s is structured into five markets: term life, marine, aviation, motor, and non-marine (property and casualty).

The only way a risk can be placed with a Lloyd’s of London syndicate is through a registered Lloyd’s broker who can negotiate insurance contracts with Lloyd’s underwriters.  Just as a Lloyd’s underwriter will work only with a Lloyd’s broker, a Lloyd’s broker will work only through a surplus lines agent. One reason for this rule is to prevent complicated accounting. Without this rule, an agent could, in one year, have more than 100 syndicates and London companies participating in risks placed through Lloyd’s of London or other London companies.

Regulatory requirements and procedures designed for insurers structured as corporations are not compatible with Lloyd’s unique structure. Therefore, Lloyd’s trading rights are generally determined by special statutory or regulatory requirements designed specifically for Lloyd’s.

As of 1995, Lloyd’s wrote coverage on a non-admitted basis in most all states within the U.S.; however, Illinois, Kentucky and the U.S. Virgin Islands were only written on an admitted basis. All of the London insurers and the ILU (Institute of London Underwriters) are alien non-admitted surplus lines insurers and are subject to a U.S. trust fund requirement.

These Lloyd’s provisions typically require maintenance of substantial U.S. trust funds. Lloyd’s maintains the Lloyd’s American Trust Fund (LATF), which is supplemented by two Joint American Trust Funds (JATF) (credit for reinsurance and surplus lines). Each JATF maintains a minimum of $100 million. In addition, other deposits are maintained in the U.S. and abroad.

Surplus Lines Agents

Every state within the United States prohibits retail agents from making placements with non-admitted insurers unless those placements are transacted by a surplus lines agent.

Surplus lines agents are licensed individuals who handle the placement of insurance coverages with non-admitted insurers. The exact term used to describe surplus lines agents varies by state and includes agents, brokers, producers, and intermediaries.

World Aerospace Insurance Services is a Surplus Lines Agent and Lloyd’s intermediary!