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ODI Ohio Surplus Lines Statement INS4024
Documents for Surplus Lines & Risk Retention Group Reporting
3905.30 Resident and nonresident surplus lines broker’s license.
3905.33 Unauthorized insurers; applicability and construction of federal provisions; due diligence.
3905.331 Exempt commercial purchasers; qualifications; qualified risk managers.
3905.36 Taxing firms dealing with unauthorized foreign insurers; waiver of penalty and interest charges; surplus lines brokers.
Federal Issues
Business Insurance – Excess & Surplus Lines news from Business Insurance
Excess & Surplus Lines Law in the United States – Annually updated manual available for purchase
Frequently Asked Questions
Taxability of Fees
The State of Ohio advised us that company fees are viewed just like premium and are taxable. Broker fees, program manager and underwriting manager fees are not taxable.
Exempt Commercial Purchaser Regulations
Section 3905.331 of the Ohio Revised Code addresses this issue.
Corporate Surplus Lines Licenses in Ohio
The ODI Surplus Lines Licensing page covers this.
If commissions are paid to an individual, the individual must be surplus lines licensed and must file and pay taxes.
If commissions are paid to a business entity, the business entity must be surplus lines licensed and is responsible for all filings and taxes.
Questions and Answers – click on question to see answer below
Does Ohio licensing statutes require an MGA/Broker employee who may be involved in assisting in the placement of an E&S insurance policy to hold a Surplus Lines license or is a license required only for the retail agent/person dealing directly with the applicant/insured?
Ohio Surplus Lines License statutes do NOT require an employee to also carry a surplus lines license. They must be property and casualty licensed. They also do NOT require the retail agent ot carry a surplus lines license since they are NOT acting in the capacity of a surplus lines broker. Ohio does require the agency to also carry a corporate surplus lines license besides the licensed surplus lines individual.
Are MGA fees and policy fees taxable for surplus lines?
Broker fees are NOT taxable. Only carrier fees. This was clarified in the last update to the agent licensing statutes
Does Ohio allow surplus lines insurance be written on a primary basis for: Garage Liability (GL & Auto), Garage keepers, Dealers Physical Damage (Dealer Open Lot & Collision), and Commercial Property (Building & Contents)?
There are NOT any prohibitions to writing ANY of those coverages in the surplus lines market. The only thing that can NOT be written surplus lines is primary auto liability. This is NOT a regulation in the surplus lines statutes but has to do with all primary auto liability being required to be written with licensed (admitted) carriers since NO SURPLUS LINES CARRIERS are on the list of carriers that comply with meeting the Ohio Financial Responsibility regulations.
Are political subdivisions exempt from surplus tax?
Yes. This section does not apply to: (7) A political subdivision or any combination or consortium of two or more political subdivisions. (D) As used in this section: (1) “Political subdivision” means any county; municipal corporation; township; township police district; township fire district; joint fire district; joint ambulance district; joint emergency medical services district; fire and ambulance district; joint recreation district; township waste disposal district; township road district; community college district; technical college district; detention facility district; a district organized under section 2151.65 of the Revised Code; a combined district organized under sections 2151.65 and 2152.41 of the Revised Code; a joint-county alcohol, drug addiction, and mental health service district; a drainage improvement district created under section 6131.52 of the Revised Code; a union cemetery district; a county school financing district; a city, local, exempted village, cooperative education, or joint vocational school district; or a regional student education district created under section 3313.83 of the Revised Code, any public division, district, commission, authority, department, board, officer, or institution of any one or more of those political subdivisions, that is entirely or substantially supported by public tax moneys. (2) “Municipal corporation” means all municipal corporations, including those that have adopted a charter under Article XVIII, Ohio Constitution. |
We have a large insured that may be “exempt” from surplus lines tax (employ a risk manager, large insured etc…). We just want to be sure regulation 3905.331 means they can be exempt from OH surplus lines TAX.
Here is the section of code with notes in bold:
Section 3905.331 | Exempt commercial purchasers; qualifications; qualified risk managers.
Effective: June 17, 2011
Latest Legislation:
House Bill 122 – 129th General Assembly
PDF:
(A) A person purchasing commercial insurance qualifies as an exempt commercial purchaser if, at the time of placement, the exempt commercial purchaser satisfies all of the following requirements:
(1) The person employs or retains a qualified risk manager to negotiate insurance coverage.
(2) The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars in the immediately preceding twelve months.
(3) The person satisfies at least one of the following criteria:
(a) The person possesses a net worth in excess of twenty million dollars, as adjusted pursuant to division (B) of this section.
(b) The person generates annual revenues in excess of fifty million dollars, as adjusted pursuant to division (B) of this section.
(c) The person employs more than five hundred full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than one thousand employees in the aggregate.
(d) The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars, as adjusted pursuant to division (B) of this section.
(e) The person is a municipal corporation with a population in excess of fifty thousand persons.
(B) Effective on January 1, 2015, and every five years thereafter, the superintendent of insurance shall adjust the dollar amounts in division (A) of this section to reflect the percentage change for that five-year period in the consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor.
(C) A qualified risk manager employed or retained to negotiate insurance by an exempt commercial purchaser under this section shall satisfy all of the following requirements:
(1) The person is an employee of, or third-party consultant retained by, the commercial policyholder.
(2) The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis and the purchase of insurance.
(3) The person satisfies one of the following:
(a) The person has obtained a bachelor’s degree or a higher degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management, and either has three years of experience in risk financing, claims administration, loss prevention and insurance analysis, or purchasing commercial lines of insurance or has one of the following designations:
(i) A designation as a chartered property and casualty underwriter issued by the American institute for CPCU and the insurance institute of America;
(ii) A designation as an associate in risk management issued by the American institute for CPCU and the insurance institute of America;
(iii) A designation as certified risk manager issued by the national alliance for insurance education and research;
(iv) A designation as a RIMS fellow issued by the global risk management institute;
(v) Any other designation, certification, or license determined by the superintendent to demonstrate minimum competency in risk management.
(b) The person has at least seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and has any one of the designations specified in division (B)(3)(a) of this section.
(c) The person has at least ten years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance.
(d) The person has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the superintendent to demonstrate minimum competence in risk management.
This section of code refers back to the following section of code:
Section 3905.33 | Unauthorized insurers; applicability and construction of federal provisions; due diligence.
Effective:
March 20, 2019
Latest Legislation:
Senate Bill 273 – 132nd General Assembly
PDF:
(A) No person licensed under section 3905.30 of the Revised Code shall solicit, procure an application for, bind, issue, renew, or deliver a policy with any insurer that is not eligible to write insurance on an unauthorized basis in this state.
Pursuant to the “Nonadmitted and Reinsurance Reform Act of 2010,” 15 U.S.C. 8201 et seq., 124 Stat. 1589, or any successor or replacement law, where this state is the home state of the insured, an insurer shall be considered eligible to write insurance on an unauthorized basis in this state if any of the following are true:
(1) The insurer meets the requirements and criteria in sections 5A(2) and 5C(2)(a) of the nonadmitted insurance model act adopted by the national association of insurance commissioners, or alternative nationwide uniform eligibility requirements adopted by this state through participation in a compact or other nationwide system pursuant to 15 U.S.C. 8201 et seq., 124 Stat. 1589.
(2) For unauthorized insurance placed with, or procured from an unauthorized insurer domiciled outside the United States, the insurer is listed on the quarterly listing of alien insurers maintained by the international insurers department of the national association of insurance commissioners.
(3) The insurer has been designated as a domestic surplus lines insurer pursuant to section 3905.332 of the Revised Code.
(B)(1) No surplus lines broker shall solicit, procure, place, or renew any insurance with an unauthorized insurer unless an agent or the surplus lines broker has complied with the due diligence requirements of this section and is unable to procure the requested insurance from an authorized insurer.
Due diligence requires an agent to contact at least five of the authorized insurers the agent represents, or as many insurers as the agent represents, that customarily write the kind of insurance required by the insured. Due diligence is presumed if declinations are received from each authorized insurer contacted. If any authorized insurer fails to respond within ten days after the initial contact, the agent may assume the insurer has declined to accept the risk.
(2) Due diligence shall only be performed by an agent licensed in this state that holds an active property and casualty insurance agent license.
(3) An insurance agent or surplus lines broker is exempt from the due diligence requirements of this section if the agent or surplus lines broker is procuring insurance from a risk purchasing group or risk retention group as provided in Chapter 3960. of the Revised Code.
(4) An insurance agent or surplus lines broker is exempt from the due diligence requirements of this section if the agent or surplus lines broker is seeking to procure or place unauthorized insurance for a person that qualifies as an exempt commercial purchaser under section 3905.331 of the Revised Code and both of the following are true:
(a) The surplus lines broker procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that the insurance may or may not be available from the authorized market that may provide greater protection with more regulatory oversight.
(b) After receipt of the disclosure required under division (B)(4)(a) of this section, the exempt commercial purchaser has requested in writing that the insurance agent or broker procure or place the insurance from an unauthorized insurer.
(C) Except when exempt from due diligence requirements under division (B) of this section, an insurance agent who procures or places insurance through a surplus lines broker shall obtain a signed statement from the insured acknowledging that the insurance policy is to be placed with a company or insurer not authorized to do business in this state and acknowledging that, in the event of the insolvency of the insurer, the insured is not entitled to any benefits or proceeds from the Ohio insurance guaranty association. The statement must be on a form prescribed by the superintendent and need not be notarized. The agent shall submit the original signed statement to the surplus lines broker within thirty days after the effective date of the policy. If no other agent is involved, the surplus lines broker shall obtain the statement from the insured.
The surplus lines broker shall maintain the original signed statement or a copy of the statement, and the originating agent shall keep a copy of the statement, for at least five years after the effective date of the policy to which the statement pertains. A copy of the signed statement shall be given to the insured at the time the insurance is bound or a policy is delivered.
(D) For the purpose of carrying out the “Nonadmitted and Reinsurance Reform Act of 2010,” 124 Stat. 1589, 15 U.S.C. 8201 et seq., or any successor or replacement law, the superintendent shall conduct a fiscal analysis of the impact of entering into a multistate agreement or compact for determining eligibility for placement of unauthorized insurance and for payment, reporting, collection, and allocation of the tax on unauthorized insurance. If the fiscal analysis indicates that entering into a multistate agreement or compact is advantageous to this state, the superintendent may enter into the surplus lines insurance multistate compliance compact adopted by the national conference of insurance legislators and known as “SLIMPACT,” as amended on December 21, 2010, and including any subsequent amendment; or, if it is in this state’s financial best interest, the superintendent shall request that the general assembly authorize the superintendent to enter into a different multistate agreement or compact.
(E) The superintendent may adopt rules in accordance with Chapter 119. of the Revised Code to carry out the purposes of sections 3905.30 to 3905.38 of the Revised Code.
All these two sections of code do is eliminate the due diligent process of trying to place in the admitted market. The thought is that if you have a risk manager or are dealing with a sophisticated insurance professional, you do not need to go through the process of getting declinations in the admitted market.
The section of code dealing with surplus lines tax exemption is the following:
Section 3905.36 | Taxing firms dealing with unauthorized foreign insurers; waiver of penalty and interest charges; surplus lines brokers.
Effective:
September 10, 2012
Latest Legislation:
House Bill 487 – 129th General Assembly
PDF:
(A) Every insured association, company, corporation, or other person that enters, directly or indirectly, into any independent procurement or direct placement agreement with any insurance company, association, individual, firm, underwriter, or Lloyd’s, not authorized to do business in this state, whereby the insured shall procure, continue, or renew contracts of insurance with such unauthorized insurance company, association, individual, firm, underwriter, or Lloyd’s, for which insurance there is a gross premium, shall file the details of the transaction annually, on or before the thirty-first day of March, and shall at the same time pay to the treasurer of state, or to the superintendent of insurance upon the mutual agreement of the superintendent and the treasurer, a tax of five per cent of such gross premium, after a deduction for return premium, if any, as calculated in the prescribed format or in compliance with any requirements of the compact entered into by the superintendent pursuant to division (D) of section 3905.33 of the Revised Code. An insurer may submit the required details of the transaction and remit the tax payment on behalf of an insured.
All taxes collected under this section shall be paid into the general revenue fund. If the tax is not paid when due, the tax shall be increased by a penalty of twenty-five per cent. An interest charge computed as set forth in section 5725.221 of the Revised Code shall be made on the entire sum of the tax plus penalty, which interest shall be computed from the date the tax is due until it is paid. For purposes of this section, payment is considered made when it is received by the treasurer or the superintendent, irrespective of any United States postal service marking or other stamp or mark indicating the date on which the payment may have been mailed.
The superintendent of insurance, in the superintendent’s sole discretion, may waive the twenty-five per cent penalty and interest charge thereon for a first-time, inadvertent nonpayment of the tax when due if the nonpayment is reported immediately upon discovery and the outstanding tax is thereafter immediately paid to the superintendent.
(B) Each person licensed under section 3905.30 of the Revised Code shall pay to the treasurer of state, or to the superintendent of insurance upon the mutual agreement of the superintendent and the treasurer, on or before the thirty-first day of March of each year, five per cent of the balance of the gross premiums charged for insurance placed or procured under the license after a deduction for return premiums in the prescribed format or in compliance with any requirements of the compact entered into by the superintendent pursuant to division (D) of section 3905.33 of the Revised Code. The tax shall be collected from the insured by the surplus lines broker who placed or procured the policy of insurance at the time the policy is delivered to the insured. No license issued under section 3905.30 of the Revised Code shall be renewed until payment is made. If the tax is not paid when due, the tax shall be increased by a penalty of twenty-five per cent. An interest charge computed as set forth in section 5725.221 of the Revised Code shall be made on the entire sum of the tax plus penalty, which interest shall be computed from the date the tax is due until it is paid. For purposes of this section, payment is considered made when it is received by the treasurer or the superintendent, irrespective of any United States postal service marking or other stamp or mark indicating the date on which the payment may have been mailed.
The superintendent, in the superintendent’s sole discretion, may waive the twenty-five per cent penalty and interest charge thereon for a first-time, inadvertent nonpayment of the tax when due if the nonpayment is reported immediately upon discovery and the outstanding tax is thereafter immediately paid to the superintendent.
(C) This section does not apply to:
(1) An insured otherwise exempt from the payment of premium or franchise taxes under state or federal law;
(2) Attorneys-at-law acting on behalf of their clients in the adjustment of claims or losses;
(3) Transactions involving policies issued by a captive insurer. For this purpose, a “captive insurer” means any of the following:
(a) An insurer owned by one or more individuals or organizations, whose exclusive purpose is to insure risks of one or more of the parent organizations or individual owners and risks of one or more affiliates of the parent organizations or individual owners;
(b) In the case of groups and associations, insurers owned by the group or association whose exclusive purpose is to insure risks of members of the group or association and affiliates of the members;
(c) Other types of insurers, licensed and operated in accordance with the captive insurance laws of their jurisdictions of domicile and operated in a manner so as to self-insure risks of their owners and insureds.
(4) Professional or medical liability insurance procured by a hospital organized under Chapter 3701. of the Revised Code;
(5) Insurance with an initial policy period of more than three years and that is procured to cover known events related to environmental remediation that occurred prior to the effective date of that insurance;
(6) Insurance procured on behalf of an entity that manufactures, packages, and sells, as more than fifty per cent of the entity’s business, pharmaceutical products for human use where the production, packaging, and sale of such products are subject to regulation by an agency of the United States;
(7) A political subdivision or any combination or consortium of two or more political subdivisions.
(D) As used in this section:
(1) “Political subdivision” means any county; municipal corporation; township; township police district; township fire district; joint fire district; joint ambulance district; joint emergency medical services district; fire and ambulance district; joint recreation district; township waste disposal district; township road district; community college district; technical college district; detention facility district; a district organized under section 2151.65 of the Revised Code; a combined district organized under sections 2151.65 and 2152.41 of the Revised Code; a joint-county alcohol, drug addiction, and mental health service district; a drainage improvement district created under section 6131.52 of the Revised Code; a union cemetery district; a county school financing district; a city, local, exempted village, cooperative education, or joint vocational school district; or a regional student education district created under section 3313.83 of the Revised Code, any public division, district, commission, authority, department, board, officer, or institution of any one or more of those political subdivisions, that is entirely or substantially supported by public tax moneys.
(2) “Municipal corporation” means all municipal corporations, including those that have adopted a charter under Article XVIII, Ohio Constitution.
So unless they meet one of these 7 surplus lines tax exemption categories, they ARE NOT EXEMPT from surplus lines tax. Nearly all of the exemptions fall into the political subdivision category since the states does not want to tax them since they are “funded” by tax revenue.
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