(a) These sections shall apply to all transactions and circumstances taking place on or after the effective date of this subchapter.

(b) The Texas Department of Insurance's rules which are applicable to the licensing, regulation, and supervision of surplus lines agents and surplus lines insurers and transactions which were in effect prior to the effective date of these sections shall apply in the adjudication of acts and transactions occurring prior to the effective date of these sections.

Sec. 15.2. Definitions.

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

 (1) Admitted or authorized insurer--An insurer that is doing the business of insurance in this state as defined in the Texas Insurance Code, and is licensed under the provisions of the Texas Insurance Code.

 (2) Eligible surplus lines insurer--An unlicensed insurer allowed by the commissioner to do business in Texas as a surplus lines insurer.

 (3) Licensee--A person holding a surplus lines agent's license.

 (4) Person--An individual or entity as defined by the Texas Insurance Code Article 21.21, Sec.2(a).

 (5) Properly allocated and apportioned--The division or distribution of premium based upon the location of the various exposures afforded coverage under the insurance contract. This distribution of premium must be in accordance with the methods prescribed by the Comptroller of Public Accounts of Texas (the comptroller).

 (6) Stamping Office--The Surplus Lines Stamping Office of Texas created under the Texas Insurance Code, and operating under the plan of operation specified by Sec.15.101 of this title (relating to the Plan of Operation of the Surplus Lines Stamping Office of Texas).

 (7) Surplus lines agent or agency--An agent or agency holding a surplus lines license issued by this department pursuant to the Texas Insurance Code Article 1.14-2.

 (8) Surplus lines agent of record--The Texas licensed surplus lines agent placing a policy with an eligible surplus lines insurer or the Texas licensed surplus lines agent transacting business directly with an unlicensed out-of-state agent to obtain coverage with an eligible surplus lines insurer. The agent or agents in these situations are the agent of record for their portion of the premium for the policy placement.

 (9) Taxable surplus lines premium--For surplus lines taxation purposes, except for exempt or federally pre-empted premiums, surplus lines premium is taxable as provided in Texas Insurance Code Article 1.14-2, Sec.12.

 (10) Unauthorized insurer--An insurer that is conducting the business of insurance as defined in the Texas Insurance Code and is not licensed or an eligible surplus lines insurer under the Texas Insurance Code.

 (11) Client--Any person to whom a surplus lines agent sells or attempts to sell a surplus lines insurance policy or from whom an application for surplus lines insurance is accepted or to whom advice and counsel on a surplus lines insurance policy is given for the purpose of selling a surplus lines insurance policy. 

Sec. 15.3.  Licensing of Surplus Lines Agents.  

(a)  Persons performing any of the following surplus lines insurance activities are required to have a surplus lines license:

(1)  supervising unlicensed staff engaged in activities described in subsection (b) of this section, except that supervision of staff may be conducted through the supervision of the staff's unlicensed supervisors;

(2)  negotiating, soliciting, effecting, procuring, or binding surplus lines insurance contracts for clients or offering advice, counsel, opinions, or explanations of surplus lines insurance products to agents or clients beyond the scope of underwriting policies or contracts, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent or agency that then completes the surplus lines transaction; or

(3)  receiving any direct commission or variance in compensation based on the volume of surplus lines premiums taken and received from, or as a result of, another person selling, soliciting, binding, effecting, or procuring surplus lines insurance policies, contracts, or coverages, except for a general lines property and casualty agent making a referral of surplus lines business to a surplus lines agent or agency that then completes the surplus lines transaction.

(b)  The following activities in a surplus lines agency do not require a surplus lines license if the employee does not receive any direct commission from selling, soliciting, binding, effecting, or procuring insurance policies, contracts or coverages, and/or the employee's compensation is not varied by the volume of premiums taken and received:

(1)  full-time clerical and administrative services, including, but not limited to, the incidental taking of information from clients, receipt of premiums in the office of a licensed agent, or transmitting to clients, as directed by a licensed surplus lines agent, prepared marketing materials or other prepared information and materials, including without limitation, invoices and evidences of coverage;

(2)  contacting clients to obtain or confirm information necessary to process an application for surplus lines insurance so long as the contact does not involve any activities for which a license would be required under subsection (a)(2) of this section;

(3)  performing the task of underwriting any insurance policy, contract, or coverage, including without limitation, pricing of the policy or contract; or

(4)  contacting clients, insureds, agents, other persons, or insurers to gather and transmit information regarding claims and losses under the policy to the extent that the contact does not require a licensed adjuster as set forth under Insurance Code Chapter 4101.

(c)  This section shall not be construed to prohibit distribution of agency profits to unlicensed persons, including shareholders, partners, and employees.

(d)  Before any surplus lines agent's license shall be issued, the following must be submitted by an applicant seeking a surplus lines license:

(1)  an appropriate, fully completed written application; and

(2)  the fee specified by §19.801 and §19.802 of this title (relating to General Provisions Regarding Licensing Fees and License Renewal and Amounts of Fees).

(e)  Texas resident applicants and nonresident applicants who do not hold a surplus lines license in their state of residence or whose state of residence does not license Texas residents on a reciprocal basis as determined by the department, shall meet all licensing requirements as set forth in the Insurance Code Chapter 981. Nonresident applicants under this section shall also comply with the Insurance Code §4056.051.

(g)  Each surplus lines license issued to an agent shall be valid for a term expiring two years after the date of issuance or as otherwise established by the commissioner under the Insurance Code §4003.001. The license may be renewed by submitting a renewal application and a non-refundable license fee as specified by §19.801 and §19.802 of this title.

Sec 15.4.  Notice to Department for Commencement and Cessation of Employment of Individual Surplus Lines Agents. 

(a)  Within 30 days of employment, each licensed surplus lines agency, both resident and nonresident, shall notify the department of the name and Texas surplus lines agent license number of each individual agent employed by the agency.

(b)  Within 30 days after an individual surplus lines agent ceases to be employed by a licensed surplus lines agency for any reason, the licensed surplus lines agency, whether resident or nonresident, shall notify the department that the individual is no longer employed by that agency.

Sec 15.5.  Sanctions. 

(a)  The commissioner may impose any sanction or remedy set forth in the Insurance Code Chapter 82 and §981.006, or any other applicable laws or statutes, if the commissioner determines, after notice and an opportunity for hearing, that the applicant or license holder individually or through any officer, director, or shareholder:

(1)  has committed any action which would form the basis for sanctioning a general property and casualty agent or a managing general agent, as applicable to the surplus lines agent's other license(s), under the Insurance Code;

(2)  failed to allow the department and the comptroller to examine the surplus lines agent's accounts and records or failed to maintain surplus lines insurance business accounts and records as required by the Insurance Code and this subchapter;

(3)  failed to make and file all reports when due as required by the Insurance Code and this subchapter;

(4)  failed to properly collect and pay required taxes and stamping fees on surplus lines gross premium or failed to submit tax reports as required by law or regulation;

(5)  failed to otherwise maintain the qualifications for a surplus lines license; or

(6)  is in violation of, or has failed to comply with the Insurance Code, this subchapter, or any other applicable laws or regulations of this state.

(b)  The agent's surplus lines license shall be cancelled in the event the agent fails to maintain or renew the agent's license as a general property and casualty agent or managing general agent, as appropriate to the license status of the agent.

(c)  No surplus lines agent whose license has been revoked shall be licensed until all fines, penalties and delinquent taxes owed by the agent have been paid.  The suspension of a surplus lines agent's license shall continue in effect until all fines, penalties, restitution, delinquent taxes, and delinquent stamping office fees owed by the agent have been paid. 

Sec. 15.6. Conduct of Agent's Business.

(a) A surplus lines agent doing business as an individual surplus lines agent may be licensed only in his or her name. No individual may hold more than one surplus lines agent's license. A surplus lines agent doing business under an assumed name must comply with Sec.19.902 of this title (relating to One Agent, One License).

(b) An insurance agency doing business as a partnership, corporation, or limited liability company may have the issuance of its surplus lines license evidenced by a single certificate license, provided that such agency has the qualifications and has been issued a license pursuant to the Texas Insurance Code for either a general property and casualty agent or a managing general agent. The surplus lines agent's license shall be issued to a partnership, corporation, or limited liability company in the name of the agency as indicated on the underlying license issued under the Texas Insurance Code. No partnership, corporation, or limited liability company may receive more than one surplus lines agent's license. A partnership, corporation or limited liability company doing business under an assumed name must comply with Sec.19.902 of this title.

(c) Every act done in placing or servicing a surplus lines insurance contract under an assumed name shall also clearly disclose the true name of the surplus lines agent or agency acting under such assumed name or the true name of the individual licensed surplus lines agent representing the surplus lines agency, partnership, corporation, or limited liability company acting under such assumed name.

(d) No surplus lines agent or agency shall shift, transfer, delegate, or assign his or her responsibility to a person or persons not licensed as a surplus lines agent.

(e) A surplus lines agent may exercise underwriting authority on behalf of an eligible surplus lines insurer if the surplus lines agent possesses a current written agreement from each such eligible surplus lines insurer granting such authority. The written agreement must set forth the identity of the insurer and the scope of the underwriting authority granted, and must reserve the duty of final underwriting review by the insurer. The underwriting agreement must be available for review by the department. The underwriting authority granted to a surplus lines agent by the insurer may include the rating and acceptance of risks, binding of coverage, issuance of formal evidence of coverage, and cancellation of coverage.

(f) A surplus lines agency may exercise claims authority on behalf of an eligible surplus lines insurer if the surplus lines agent possesses a current written agreement from each such eligible surplus lines insurer granting such authority. All claims adjustments shall be performed by a Texas licensed adjuster. The written agreement must be available for review by the department. Claims authority delegated to the surplus lines agent by the insurer may include, but is not limited to, the investigation, adjustment, supervision, and payment of claims including payment from the surplus lines agents' funds, provided the agent is promptly reimbursed by the insurer for such payments. Partial payments to claimants by the surplus lines agent made pursuant to the written agreement do not relieve the surplus lines insurer of any continuing obligations to the insured. Payment of claims may also be made by the surplus lines agent directly from funds of the eligible surplus lines insurer provided the surplus lines agent possesses a current written agreement wherein the insurer authorizes such direct payments. This written agreement must be available for review by the department.

Sec. 15.7. Eligibility Requirements for Surplus Lines Insurance. 

(a) The stamping office shall evaluate surplus lines insurance policies, contracts, or other evidences of coverage for eligibility and compliance with filing requirements. The stamping office may request additional information from the surplus lines agent responsible for the filing if the information filed is not sufficient to make an evaluation in accordance with this section. 

(b) The stamping office shall provide a written report to the department of any surplus lines insurance policy or contract appearing to be ineligible under the Texas Insurance Code after evaluation under this section. The stamping office shall attempt to have the surplus lines agent correct any administrative or technical errors prior to a written report to the department. If voluntary compliance cannot be obtained, the stamping office shall promptly provide a written report to the department. In any event, the stamping office shall provide a written report to the department of any policy issued by an ineligible insurer or any major and improper conduct by a surplus lines agent, whether or not such violation is later corrected. 

(c) Notice by the department of intention to institute disciplinary action may be provided to the holder of the license upon receipt of the report and determination that the coverage may not be eligible for surplus lines. 

Sec. 15.8. Eligibility Requirements of Surplus Lines Insurers.

(a) Surplus lines insurers seeking eligibility shall provide to the department and to the stamping office, information relating to the insurer's eligibility to write surplus lines insurance. Such information shall include:

            (1) National Association of Insurance Commissioners (NAIC) Annual Statement (association edition, yellow cover), Quarterly Statements, SEC 10K Reports, and audited financial statements of United States domiciled companies and audited financial statements expressed in U.S. dollars for companies domiciled outside the United States;

            (2) documents evidencing authorization from the insurer's domicillary jurisdiction to write the same kind and class of business that it proposes to write in Texas;

            (3) documents evidencing the existence and amount of United States trust funds of alien insurers;

            (4) a certified actuarial opinion regarding the adequacy of the insurer's loss             reserves;

            (5) biographical affidavits of owners, officers, directors and management;

            (6) a three-year business plan discussing the insurer's plan of operation in Texas;

            (7) NAIC's Insurance Regulatory Information System (IRIS) ratio reports, accompanied by management's explanation of the insurer's IRIS ratios outside the allowed ranges and a description of any related corrective action;

            (8) for foreign companies only, a copy of its latest Examination Report from the insurer's state of domicile;

            (9) for alien companies listed with the NAIC's International Insurance Department (IID), a copy of its annual IID filing; and

            (10) a list of currently used and proposed to be used Texas surplus lines agents.

(b) Except as specified in paragraphs (1) and (2) of this subsection, foreign surplus lines insurers shall submit annually to the department and the stamping office the material identified in subsection (a) of this section by March 31.

             (1) Audited financial statements and SEC 10K Reports shall be annually submitted to the department by June 1.

             (2) Quarterly financial reports shall be submitted to the department within 45 days of the end of each calendar quarter.

(c) Alien surplus lines insurers shall submit annually to the department and the stamping office the material identified in subsection (a) of this section by June 1, except the IID filing and the actuarial opinion shall be annually submitted to the department by August 1.

(d) In addition, surplus lines insurers or their representatives shall provide other information relevant to the determination of eligibility that is requested by the department or the stamping office. The surplus lines insurer, agent, or representative shall be permitted at least 10 days to respond, after receipt, to a request for additional information or documentation. Failure by the surplus lines insurer or agent to submit the information requested in a timely manner shall be grounds for a denial or termination of eligibility to write surplus lines insurance in this state. Nothing herein shall interfere with the department's rights to require additional information or documentation or to examine or inspect records. Other relevant information includes, but is not limited to, the following:

            (1) activities of management and agents;

            (2) history and competency of reinsurers;

            (3) pattern of claims services;

            (4) domestic trust agreements; and

            (5) powers of attorney.

(e) Information received under this section is subject to Government Code Sec.Sec.552.001-552.132.

(f) The stamping office shall report to the department whether insurers have submitted evidence that appears to be satisfactory evidence for eligibility under this section and the Texas Insurance Code.

(g) Upon receiving reports under subsection (f) of this section, the department shall determine if satisfactory evidence of eligibility has been presented and shall notify the surplus lines insurer of the department's determination.

(h) Each surplus lines insurer shall continuously maintain its eligibility.

(i) The department, stamping office, and commissioner have no duty or responsibility under the Insurance Code, this section or Sec.15.101 of this title (relating to Plan of Operation of the Surplus Lines Stamping Office of Texas) to determine the actual financial condition or claims practices of any surplus lines insurer.

(j) A list of surplus lines insurers that have provided satisfactory evidence of eligibility shall be maintained by the department as public information. This list shall contain sufficient information to inform the public of the limitations of the department's authority with regard to surplus lines insurers and the relevant differences between surplus lines insurers and admitted insurers.

Sec. 15.9. Duty of Reasonable Effort by Surplus Lines Agents to Ascertain Financial Condition and Other Practices of Eligible Surplus Lines Insurers.

(a) Before placing insurance with an eligible surplus lines insurer, a surplus lines agent shall make a reasonable inquiry into the financial condition and operating history of the insurer.

(b) During the course of placing coverage with an eligible surplus lines insurer, each surplus lines agent shall be under a continuous duty to stay informed of the insurer's solvency and the soundness of its financial strength, and of the insurer's ability to process claims and pay losses expeditiously.

(c) A surplus lines agent shall immediately inform the department and the stamping office whenever the agent has grounds to reasonably doubt the capacity, competence, stability, claim practices, or business practices of an eligible surplus lines insurer.

(d) A surplus lines agent shall immediately inform the department and the stamping office whenever the agent has reasonable grounds to believe that an unauthorized insurer is illegally transacting the business of insurance in this state.

(e) A surplus lines agent shall place surplus lines insurance on Texas risks only with an eligible insurer that meets the requirements of the Texas Insurance Code and the department's rules.

Sec. 15.10. Surplus Lines Stamping Fee.

For each surplus lines policy, contract, or other detailed evidence of coverage issued on Texas risks, including additions or deletions thereto or cancellations thereof, each surplus lines agent shall submit a stamping fee as approved by the department. The fees shall be due and payable as provided in Sec.15.23 of this title (relating to Policy Form Filings and Stamping Office Fees).

Sec. 15.11. Uniformity of Reporting Forms.

Applications, reports, and memorandums required under the Texas Insurance Code and by this subchapter relating to surplus lines insurance shall be submitted on the forms promulgated and maintained by the department. These forms may be obtained from the department. A person may reproduce the forms obtained from the department by photocopying, electronic scanning or other electronic means. The reproductions may be used in filings so long as the reproduction is an unaltered duplicate of the original form.

Sec. 15.12. Surplus Lines Insurance Requests for Information, Examination, and Complaints.

In addition to those documents required to be filed under Sec.15.8 of this title (relating to Eligibility Requirements of Surplus Lines Insurers) and Sec.15.23 of this title (relating to Policy Forms Filing and Stamping Office Fees), a surplus lines agent may be requested by the stamping office to submit additional information necessary to evaluate the eligibility of surplus lines policies, contracts or other detailed evidence of coverage. The stamping office shall issue a written report under Sec.15.7(b) of this title (relating to Eligibility Requirements for Surplus Lines Insurance) if the requested additional information is not timely submitted by the surplus lines agent. The stamping office and the surplus lines agent may mutually agree for a representative of the stamping office to review the requested documentation at the agent's place of business. Nothing in this section shall serve to limit the department's ability to require the surplus lines agent to submit information or reports as required by the Texas Insurance Code and this subchapter.

Sec. 15.13. Correct Execution Required for Filing.

No report required to be filed under the Texas Insurance Code or these sections relating to surplus lines insurance shall be deemed filed with the department or the stamping office unless the documents submitted are correctly completed and signed on forms complying with Sec.15.11 of this title (relating to Uniformity of Reporting Forms). A correct surplus lines policy filing submitted to the stamping office by facsimile telecopy or other electronic means shall be deemed filed on the date it is received by the stamping office if the specific electronic means has been pre-approved by the department in writing and otherwise complies with all applicable laws. However, in such circumstances, the surplus lines agent responsible for the filing must maintain the subject contract file, as specified in Sec.15.16 of this title (relating to Contract File), at the agent's place of business in accordance with Sec.15.14 of this title (relating to Recordkeeping), and must promptly submit such contract file to the stamping office upon request. Upon mutual agreement, a representative of the stamping office may view the requested contract file at the agent's place of business. Nothing in this section shall serve to limit the department's ability to require the surplus lines agent to submit information or reports as required by the Texas Insurance Code and this subchapter.

Sec. 15.14. Recordkeeping.

(a) In order to provide for basic uniformity in recordkeeping requirements, and to make possible a complete and accurate examination of the surplus lines agent's records by the department, the following insurance and accounting records must be established and maintained by each surplus lines agent:

            (1) a policy register;

            (2) a contract file;

            (3) general books of account; and

            (4) such other insurance and accounting records as are necessary to properly and promptly service policyholders in this state and provide required information to the department.

(b) The surplus lines agent's records and accounts required to be kept by the Texas Insurance Code and these sections relating to surplus lines insurance are subject to examination by the department and the comptroller at all times without notice and shall be kept available and open to the department for five years following expiration or termination of the insurance contract.

Sec. 15.15. Policy Number.

(a) All surplus lines agents shall, immediately upon the procurement of insurance from an eligible surplus lines insurer, record the chronological policy number and the name of the insured. The surplus lines agent shall inscribe all records and files maintained by the surplus lines agent that are pertinent to a specific risk with the same policy number.

(b) For agents having authority to issue policies on behalf of an eligible surplus lines insurer, strict chronological sequence is required in the assignment of policy numbers, and in the instance of voided or unused policy numbers, an explanation is required to be recorded in the policy number register.

Sec. 15.16. Contract File.

Each surplus lines agent shall maintain a contract file which shall contain a complete and true record of each individual surplus lines contract, including a copy of the daily report or other evidence of insurance, and showing the following items as may be applicable:

            (1) amount of insurance and perils insured against;

            (2) brief general description of the property insured and the location of the property;

            (3) gross premium paid;

            (4) return premium paid, if any;

            (5) rate(s) of premium charged;

            (6) effective date(s) of the contract, and the terms thereof;

            (7) name and mailing address of the insured;

            (8) name and home office address of the insurer, underwriting syndicate or other risk bearing entity;

            (9) amount collected from the insured;

            (10) record of losses or claims filed and payments made;

            (11) a true and correct copy of the insurance policy, contract and other detailed evidences of coverage, as issued to the insured; and

            (12) all correspondence relating to the specific insurance coverage of that contract file.

Sec. 15.17. Agency Accounting Records.

(a) Each surplus lines agent shall maintain general accounting records, which shall include a general ledger, a general journal, and cash records, and such items necessary to reflect the financial solvency of the agent.

(b) The surplus lines agent's general accounting records shall show a month-end summary of operations and fiscal or calendar year-to-date summary of operations, and shall be maintained in accordance with generally accepted accounting principles.

Sec. 15.18. Financed Transactions.

(a) Financed transactions include all insurance policies that provide for installment or deferred payments of the premium, and include installment payments, conditional contracts, and premium financed insurance policies.

(b) Premium tax is due on premium, interest, finance charges, and all other consideration charged to the insured for the insurance policy unless the finance charges are billed and stated separately to the insured by written documents.

Sec. 15.19. Allocation of Premium.

(a) Unless otherwise properly allocated and reported pursuant to the regulations or instructions of the comptroller, all premiums associated with a surplus lines insurance policy are considered Texas premium for reporting and taxation purposes.

(b) The method of allocation between Texas and non-Texas exposures must be maintained conspicuously in the records of the surplus lines agent of record, and the records are subject to inspection by the comptroller, the stamping office, and the department.

(c) For exposures located in another state or states, the surplus lines agent of record, and the related agency if applicable, shall be liable for the premium tax on any unallocated or unreported premium. Premiums that are properly allocated that are specifically exempt from taxation under the regulations of another state or states are not taxable in Texas.

(d) If a surplus lines insurance policy covers risks or exposures that are properly allocated to federal waters, international waters or locations under the jurisdiction of a foreign government, then the premium associated with such policies or portions of such policies shall not be taxable in Texas.

(e) All premium taxes shall be computed pursuant to the regulations or instructions of the comptroller.

Sec. 15.20. Reporting of Premium Allocation.

(a) A surplus lines agent of record shall file with the comptroller its allocation of premium, the tax due, and other information requested in the proper form and using the instructions distributed by the comptroller for these purposes.

(b) Unless 100% of the premium meets the requirements of paragraphs (1) - (3) of this subsection, a surplus lines agent of record shall file with the stamping office its allocation of premium in the manner prescribed by the department and the stamping office;

            (1) is properly allocated or apportioned to another state or states as premium subject to taxation by those states, and if required so reported to the other state or states;

            (2) is preempted from taxation by federal law and is on exposures located entirely outside Texas; or

            (3) is exempt from taxation under Texas law.

Sec. 15.21. Minimum Content of Contracts.

(a) Every new or renewal insurance contract, policy, certificate, cover note, or other confirmation of insurance procured and delivered as a surplus lines coverage pursuant to the Texas Insurance Code shall contain, as a minimum, the information required by the Texas Insurance Code Article 1.14-2, Sec.7.

(b) In addition to the requirements of subsection (a) of this section, the following items are required:

            (1) a statement designating the name and address of the person to whom the Commissioner of Insurance shall mail service of process in accordance with the Texas Insurance Code, and

            (2) a stamping fee.

Sec.15.22. Furnishing Evidence of Insurance.

(a) A surplus lines agent must promptly provide the insured or his agent with written evidence of insurance containing complete terms, conditions, and exclusions pertaining to the coverage so as to protect all parties against misunderstanding. If temporary confirmation of insurance coverage is required by the insured or is given by the surplus lines agent, such temporary confirmation shall be replaced as promptly as possible with a policy or certificate stating the complete terms, conditions, and exclusions of the insurance.

(b) If, after delivery to the insured or his agent of any document evidencing insurance coverage, there is any change as to the identity of the insurers or the portion of the direct risk assumed by the insurer as stated in the previously mentioned original documents, or any other material change as to the insurance coverage, the surplus lines agent shall promptly mail to the insured or his agent a substitute certificate, cover note, confirmation, or endorsement for the original. The document(s) must accurately show the current status of the coverage and the insurers responsible thereunder.

Sec. 15.23. Policy Forms Filings and Stamping Office Fees.

(a) Unless the procedure for electronic filing is elected by the surplus lines agent in accordance with subsection (b) of this section, a true and correct copy of each executed surplus lines policy, contract, or other detailed evidence of coverage, including additions or deletions thereto or cancellation thereof, shall be filed by the procuring surplus lines agent with the stamping office within 60 days of issuance or the effective date, whichever is later. If other detailed evidence of coverage is initially filed, a copy of the policy shall be promptly filed with the stamping office when available.

(b) To the extent permitted under the Texas Insurance Code and other applicable laws, the surplus lines agent may elect to file the information required under subsection (a) of this section by electronic transmission, if the electronic method has been pre-approved by the department. The stamping office shall provide surplus lines agents with a written procedure for optional electronic filing of policies, contracts and other detailed evidence of coverage.

(c) For purposes of reporting to the stamping office the term "true and correct copy of a surplus lines insurance policy," as used in the Texas Insurance Code Article 1.14-2, Sec.6 and this section, shall include:

            (1) a declarations page;

            (2) a listing of all participating insurers on the policy;

            (3) all coverage parts and schedules;

            (4) extended coverage exclusions;

            (5) all premium-bearing documents; and

            (6) any other parts as may be required by the stamping office to review and record the policy.

(d) The stamping office shall compile information from these filings on an individual surplus lines agent or agency basis within 10 days after the end of each month. Such individual reports shall be provided to the surplus lines agent or agency with a notice of the total stamping fees due. The agent or agency shall pay such fees to the stamping office by the end of the month in which the notice of stamping fees due is received.

(e) Filing of such policies, contracts, or other detailed evidence of coverage under subsection (a) or (b) of this section is made in lieu of filing an affidavit of diligent effort or other evidence of diligent effort by the surplus lines agent to place the coverage with an admitted carrier.

Sec. 15.24. Exemption from Minimum Capital and Surplus Requirement.

(a) The commissioner may exempt an eligible surplus lines insurer from the minimum capital and surplus requirements provided by the Texas Insurance Code Article 1.14-2, Sec.8(b), if it is determined, after opportunity for a public hearing, that the exemption is warranted. An applicant for this exemption shall be required to prove that it has met the requirements of the Texas Insurance Code and this section. In determining whether such an exemption is warranted, the commissioner shall consider the information presented relating to each of the following:

            (1) Completed biographical affidavits on all officers and directors of the insurer. The insurer's history of response to regulatory directives; the insurer's history of processing and paying valid claims; the management's experience in the business of insurance; the record, if any, of disciplinary actions taken against the insurer by regulatory bodies; and the criminal records, if any, of the ownership or management of the insurer.

            (2) The parent's most recent financial statements consisting of:

                        (A) National Association of Insurance Commissioners (NAIC) annual statement, if the parent is an insurer required to file such statement;

                        (B) certified financial statement, if the parent is an alien insurer;

                        (C) an audit prepared by a certified public accountant on the parent, if not an insurer, and the amount of financial support to the insurer that would be provided by the parent in the event of impairment; or

                        (D) the insurer's latest NAIC's quarterly report, if filed.

            (3) The profit and loss history of the insurer.

            (4) The types of investments by the insurer.

            (5) The insurer's gross and net premium writings to surplus to policyholders ratio.

            (6) The insurer's NAIC annual statement form for the preceding year, or certified financial statement if insurer is an alien insurer.

            (7) All of its ceded reinsurance is with insurers licensed in any state or the insurer provides evidence of acceptable trust funds or letters of credit pursuant to insurance laws of this state if the ceded reinsurance is with alien reinsurers, or other evidence of adequate reinsurance satisfactory to the commissioner. True and correct copies of executed reinsurance agreements are required.

            (8) The volume and types of complaints received by regulatory agencies and evidence of at least one year of experience in the business of insurance. The insurer must demonstrate that its business history reflects no adverse effect on consumers or authorized insurers.

            (9) The NAIC Insurance Regulatory Information System (IRIS) report on the insurer, if any.

            (10) The specific line or lines of the insurance to be written may be considered if in the public interest.

            (11) Information on the kind and class of insurance business to be written by the insurer in Texas as well as documentation of the insurer's license, or other authority, from its domicillary state or country to conduct the same kind and class of business that is proposed to be written in this state. An exemption granted under this section does not authorize a surplus lines insurer to write kinds or classes of business otherwise prohibited by law.

(b) In an analysis of the NAIC annual statement form or certified financial statement, the following may be considered as qualifying assets:

            (A) lawful money of the United States;

            (B) bonds of this state;

            (C) bonds or other evidences of indebtedness of the United States of America or any of its agencies when such obligations are guaranteed as to principal and interest by the United States of America;

            (D) notes secured by first mortgages upon unencumbered real estate, the title to which is valid and the payment of which notes is insured, in whole or in part, by the United States of America or any of its agencies; provided that such investments in such notes shall not exceed one half of the minimum capital stock and minimum surplus of the investing company; and

            (E) bonds or other interest-bearing evidences of indebtedness of any counties, cities, or other municipalities.

(c) The commissioner may require that the insurer, on a per-risk basis, retain no limit of liability greater than 10% of its capital and surplus.

(d) An application for this exemption is subject to the requirements of the Texas Insurance Code Article 1.14-2, Sec.8(c) and this section in conjunction with the Texas Insurance Code Article 1.14-2, Sec.8(d).

(e) An application for this exemption shall be denied unless the insurer proves that it is unable to acquire sufficient funds to meet the minimum capital and surplus requirements.

(f) A surplus lines insurer shall be exempt from the minimum capital and surplus requirements of Texas Insurance Code Article 1.14-2, Sec.8(b) so long as the insurer demonstrates to the satisfaction of the commissioner that it writes less than $50,000 of direct insurance premium in this state provided:

            (1) the direct Texas premium represents less than the amount of premium written by the insurer in its domicillary jurisdiction;

            (2) the direct Texas premium represents less than 10% of the insurer's total direct written premium in the United States;

            (3) the direct Texas premium represents less than 5% of the insurer's total capital and surplus;

            (4) the insurer's premium to surplus ratio, net of reinsurance ceded is less than 2 to 1; and

            (5) the insurer meets the requirements of this section.

(g) The department shall annually review an insurer's exemption to determine if any changes require an opportunity for hearing to consider whether an exemption should be continued.

Sec. 15.25. Purchase of Insurance by Purchasing Groups through Surplus Lines Agents.

(a) A purchasing group is any group that:

            (1) has as one of its purposes the purchase of liability insurance on a group basis;

            (2) purchases such insurance only for its group members and only to cover their similar or related liability exposure;

            (3) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, service, premise, or operation; and

            (4) is domiciled in any state.

(b) Whenever a purchasing group purchases insurance through a surplus lines agent, either the purchasing group or surplus lines agent, as appropriate, shall submit all registration forms, fees, or taxes required by the Texas Insurance Code Article 21.54, directly to the Comptroller of Public Accounts of Texas or the department, as applicable.

(c) A surplus lines agent shall stamp or write the words "Purchasing Group" conspicuously on every policy, contract, or other detailed evidence of coverage issued to a purchasing group or its members through the surplus lines agent. All copies of such documents shall be marked in the same way. However, copies of such documents need not be filed with the stamping office or the department unless requested by the department in a specific case.