PROPERTY AND 

CASUALTY 

INSURANCE

Effects of the 

Nonadmitted and 

Reinsurance Reform 

Act of 2010

Report to Congressional Committees

January 2014

GAO-14-136

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-136, a report to 

congressional committees

January 2014

PROPERTY AND CASUALTY INSURANCE

Effects of the Nonadmitted and Reinsurance Reform 

Act of 2010

Why GAO Did This Study

Surplus lines insurers are critical to 

ensuring that businesses and 

individuals with difficult-to-insure risks 

can manage those risks. These 

insurers provide coverage for risks that 

the traditional, or admitted, insurance 

market is unwilling or unable to cover. 

Historically, insurance brokers who sell 

such coverage have found it to be time 

consuming and often difficult to 

allocate state taxes brokers collect and 

remit on insurance premiums on behalf 

of policyholders when the risks 

covered reside in multiple states. To 

help address this issue, Congress 

passed NRRA as part of the DoddFrank Wall Street Reform and 

Consumer Protection Act.

The act mandates GAO study changes 

in the surplus lines insurance market. 

This report (1) describes the size and 

condition of the surplus lines insurance 

market and (2) examines actions 

states have taken to implement 

NRRA’s provisions and the effects of 

the act, if any, on the price and 

availability of coverage. To address 

these questions, GAO analyzed endof-year financial data for 2008 through 

2012 for insurers who sold surplus 

lines insurance in 2012 and 

interviewed insurance regulators from 

states with a large number of surplus 

lines insurers, industry associations

representing interests in the surplus 

lines market, and large insurers and 

brokers. GAO also reviewed related 

studies and analyses.

In commenting on a draft of the report, 

the National Association of Insurance 

Commissioners provided technical 

comments, which GAO incorporated as 

appropriate.

What GAO Found

Surplus lines insurers’ premiums written have increased modestly and the 

companies have generally remained profitable. From 2008 through 2012 

premiums written by surplus lines insurers, who sell property/casualty insurance

through brokers in states where they are not licensed, grew slightly from $24.8 

billion to $25.2 billion and remained stable at around 5 percent of the property 

casualty market as a whole. Over this time, surplus lines insurers’ premiums 

generally exceeded their claims and underwriting expenses and they remained 

profitable. Surplus lines insurers also saw capital gains over this period.

Net Income of Property/Casualty and Surplus Lines Insurers, 2008-2012

Almost all states have modified their laws to implement at least portions of the 

Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). In 2010, Congress 

passed the act, which supporters argued would make it easier for surplus lines 

insurers and brokers conducting business across states. Under NRRA, only the 

“home state” of the insured—the state where the insured maintains its principal 

business or residence or, if the risk is 100 percent outside that state, the state to 

which the greatest percentage of the insured’s taxable premium is allocated—

may tax or regulate surplus lines insurance transactions. According to market 

participants GAO interviewed, the changes in states’ laws have simplified 

compliance for multistate risks. While most home states are collecting and 

retaining 100 percent of premium taxes, a few states are participating in a taxsharing agreement, as permitted under NRRA. According to industry 

associations, including those whom GAO interviewed, some states are making 

additional requests of surplus lines insurers beyond the requirements specified in 

NRRA. The National Association of Insurance Commissioners formed a 

subgroup to address this issue and in August 2013 issued options for improving 

compliance. Market participants said that NRRA has had little, if any, effect on

the prices or availability of coverage, as this was not an intent of the act. The

participants said that the insurance business cycles are primarily responsible for 

any changes in prices and availability. According to surplus lines insurers that 

GAO contacted, NRRA has caused little noticeable shifting in coverage between 

the admitted and surplus lines markets. View GAO-14-136. For more information, 

contact Daniel Garcia-Diaz at (202) 512-8678

or garciadiazd@gao.gov.
Page i GAO-14-136 Property and Casualty Insurance

Letter 1

Background 5

Surplus Lines Insurers’ Premiums Written Increased Modestly and 

Companies Have Generally Remained Profitable 11

Surplus Lines Insurers’ Capital Has Been Increasing 19

NRRA Implementation Has Begun in Most States and Appears to 

Have Had Little Effect on the Pricing and Availability of 

Coverage 22

Agency Comments 29

Appendix I Objectives, Scope, and Methodology 30

Appendix II National Association of Insurance Commissioner’s Alien Insurers 34

Appendix III Surplus Lines Insurers’ Premiums Written and Investments 39

Appendix IV States’ Premium Tax Rates on Surplus Lines Sales 44

Appendix V Premiums Written of Parent Companies of Foreign Surplus Lines Insurers

47

Appendix VI GAO Contact and Staff Acknowledgments 49

Tables

Table 1: Comparison of Surplus Lines Insurers and 

Property/Casualty Market and Investment Performance, 

2008–2012 16

Table 2: Surplus Lines Insurers, Policyholder Surplus, 2008–2012 20

Table 3: Surplus Lines Insurers Listed in NAIC’s Quarterly Listing 

of Alien Insurers, January 2010 through April 2013 35

Table 4: Home Countries of NAIC-Approved Alien Insurers 38

Contents
Page ii GAO-14-136 Property and Casualty Insurance

Table 5: Premiums Written by Top 25 Foreign Surplus Lines 

Insurers, 2012 39

Table 6: Premiums Written by Lloyd’s of London, the Top 25 

Foreign Surplus Lines Insurers, and All Foreign Surplus 

Lines Insurers, 2008–2012 40

Table 7: 10 States with the Largest Surplus Lines Premiums 

Written, 2010–2012 42

Table 8: Surplus Lines Insurers’ Investments, 2008–2012 43

Table 9: States’ Premium Tax Rates on Single State and 

MultiState Transactions 44

Table 10: Total Admitted and Surplus Lines Premiums Written by 

Subsidiaries of Top 25 Parent Companies That Have a 

National Association of Insurance Commission-Listed 

Foreign Surplus Line Subsidiary, by 2012 Surplus Line 

Premiums Written, 2008 and 2012 47

Figures

Figure 1: Type of Coverage Provided by Surplus Line Insurers, by 

Premiums Written, 2008 and 2012 8

Figure 2: Size of the Property/Casualty Market and Surplus Lines 

Market, Premiums Written, 2008–2012 13

Figure 3: Property/Casualty and Surplus Lines Insurers’ Net 

Income, 2008-2012 15

Figure 4: Expense and Loss Ratios, and Combined Ratios for the 

Property/Casualty Market and Surplus Line Insurers, 

2008–2012 18

Figure 5: Property/Casualty and Surplus Lines Insurers’ Capital, 

2008-2012 20

Figure 6: Percentage of Admitted and Surplus Line Insurers with 

Annual Impairments, 1997–2011 21

Figure 7: Illustration of Surplus Lines Premium Tax Payment 

Process Pre- and Post-NRRA 23

Figure 8: Types of Surplus Lines Premium Taxes as of November 

2013 25
Page iii GAO-14-136 Property and Casualty Insurance

Abbreviations

FIO Federal Insurance Office

IID International Insurers Department

NAIC National Association of Insurance Commissioners

NAPSLO National Association of Professional Surplus Lines Offices

NIMA Nonadmitted Insurance Multi-State Agreement

NRRA Nonadmitted and Reinsurance Reform Act of 2010

P/C property/casualty

RRG risk retention group

SLIMPACT Surplus Lines Insurance Multi-State Compliance Compact

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Page 1 GAO-14-136 Property and Casualty Insurance

441 G St. N.W.

Washington, DC 20548

January 16, 2014

The Honorable Tim Johnson 

Chair 

Committee on Banking, Housing, and Urban Affairs 

United States Senate

The Honorable Mike Crapo 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Jeb Hensarling 

Chair 

Committee on Financial Services 

House of Representatives 

The Honorable Maxine Waters 

Ranking Member 

Committee on Financial Services

House of Representatives

The surplus lines insurance market is a critical component of the larger 

property/casualty (P/C) insurance market because it can provide 

insurance coverage for risks that traditional insurers, sometimes referred 

to as admitted insurers, are unwilling or unable to cover. In 2012, the 

premiums for such coverage totaled over $25 billion. The risks covered 

can include those with potentially catastrophic property damage and 

liability associated with high-hazard products, special events, 

environmental impairment, and employment practices, among others.1

While admitted insurers must be licensed in the states where they sell 

insurance, surplus lines insurers must be licensed in only one state but 

may sell in others where they are not, provided they are authorized 

 1

P/C insurance provides protection for physical items such as houses, cars, 

commercial buildings, and inventory (property) and protection against legal 

liability (casualty). Property insurance is coverage for losses related to a 

policyholder’s own person/property. Casualty (or liability) insurance is coverage 

for a policyholder’s legal obligations to compensate for losses caused to others.
Page 2 GAO-14-136 Property and Casualty Insurance

according to the states’ surplus lines laws.2 In the surplus lines market, 

specialized insurance brokers typically seek coverage on behalf of clients. 

Unlike the insurers themselves, these brokers must be licensed to sell 

insurance in every state where they operate and must have a special 

license to operate in the surplus lines market.

In some cases, the risks that surplus lines insurers cover are spread 

across several states. Each of these states can tax premium income at a 

different rate, and historically it has often been difficult and time 

consuming for brokers to determine how to apportion premium taxes and 

determine which tax rates to apply.

3 Also, some states have had differing

requirements for brokers with respect to providing important information 

to policyholders, determining that a risk could not be placed with a 

traditional insurer before allowing use of a surplus lines insurer, and 

determining which insurers were eligible as surplus lines insurers. Surplus 

lines brokers have cited these differences as challenges brokers face in 

complying with state surplus lines regulations. To address these issues, 

Congress passed the Nonadmitted and Reinsurance Reform Act of 2010 

(NRRA) as part of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act).4 In enacting NRRA, Congress sought to 

streamline the process for taxing multistate risks, make it easier to access 

the surplus lines market, and create uniform standards for regulating 

surplus lines insurers.

 2

Surplus lines coverage is actually part of a larger “nonadmitted market” and is 

the largest component of that market. An insured can also access the 

nonadmitted market by purchasing insurance out of state from a carrier not 

licensed to sell insurance where the risk is located or through a broker not 

licensed by the jurisdiction where the risk is located.

3

Insurers generally have two sources of income: premium revenue and 

investment income.

4

Pub. L. No. 111-203, 124 Stat. 1376, 1589 (2010).
Page 3 GAO-14-136 Property and Casualty Insurance

NRRA also mandates that GAO study the legislation’s effect on the 

admitted and nonadmitted markets—specifically, surplus lines coverage.

5

This report (1) describes the size and condition of the surplus lines

market and (2) examines actions states have taken to implement NRRA’s 

provisions and describes the effects of the act, if any, on the price and 

availability of insurance coverage in the surplus lines market. 

To address these objectives, we analyzed end-of-year financial and 

corporate data for 2008 through 2012 on all surplus lines insurers and the 

surplus lines and P/C industries obtained from SNL Financial, A.M. Best, 

National Association of Professional Surplus Lines Offices (NAPSLO), 

and National Association of Insurance Commissioners (NAIC).6 We 

identified a population of 199 surplus lines insurers that operated in 

calendar year 2012 based on documentation from NAIC. These insurers

were eligible or approved to sell surplus lines insurance in 2012 and 

actually did sell it in that year.7 We did not include risk retention groups in 

our study population because the nonadmitted insurance reforms of 

NRRA specifically excluded these groups. We also obtained and 

examined states’ lists of eligible surplus lines insurers from state 

departments of insurance, state surplus lines associations, and NAIC. We 

 5

Although the nonadmitted market includes surplus lines insurers and other P/C 

insurers that provide surplus coverage, such as risk retention groups, our 

analysis includes only surplus lines insurers, because they are the focus of 

NRRA nonadmitted market reforms. A risk retention group (RRG) is a group of 

similar businesses with similar risk exposures, such as educational institutions or 

building contractors that create their own insurance company to self-insure their 

risks on a group basis. The specific definitional requirements for an RRG are set 

forth in 15 U.S.C. § 3901(a)(4).

6

SNL Financial is a private financial database that contains publicly filed 

regulatory and financial reports. A.M. Best is a credit rating organization that

serves the insurance industry and periodically conducts and publishes marketwide research. NAPSLO is an association that represents surplus lines insurers 

and brokers. NAIC is a voluntary association of the heads of insurance 

departments from the 50 states, District of Columbia, and five territories.

7

According to SNL Financial data, the number of insurers, including risk retention 

groups, eligible to write surplus lines coverage was 2,858 in calendar year 2008 

and had declined to 2,756 for calendar year 2012. While over 2,000 insurers 

were eligible to write surplus lines coverage in 2012, only 199 actually did sell 

such coverage in that year.
Page 4 GAO-14-136 Property and Casualty Insurance

interviewed officials with NAIC and the Federal Insurance Office (FIO).8

We also interviewed several market participants, including surplus lines

insurers and their corporate parents; two large brokers; representatives of 

multiple industry associations representing brokers, insurers, 

underwriters, managing general agents, and actuaries; and state 

insurance regulators and stamping offices.9 We selected these 

organizations for interviews based on each having a role in the surplus 

lines market. To assess issues related to data reliability, we reviewed 

related documentation, conducted interviews with knowledgeable officials, 

and reviewed previous related reliability assessments GAO had 

conducted of these data and determined that no material changes had 

been made in how the data were collected and tabulated. We determined 

that, for the purpose of describing the size and condition of the surplus 

lines insurance market, for this review, the data were sufficiently reliable. 

We also reviewed past GAO work and the work of others who have 

examined surplus lines and related insurance markets. Appendix I 

provides detailed information on the methodology.

We conducted this performance audit from April 2013 to January 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

 8

FIO was established by the Dodd-Frank Act. It is not a regulator or supervisor 

but monitors all aspects of the insurance industry. For example, it identifies 

issues or gaps in the regulation of insurers that could contribute to a systemic 

crisis in the insurance industry or the U.S. financial system. FIO also coordinates 

federal efforts and develops federal policy on international insurance matters. It 

represents the interests of the federal government in the International 

Association of Insurance Supervisors, while NAIC and the states represent the 

interests of state insurance regulators. The International Association of Insurance 

Supervisors represents insurance regulators and supervisors of more than 200 

jurisdictions in nearly 140 countries. Its objectives are to promote effective and 

globally consistent supervision of the insurance industry in order to develop and

maintain fair, safe, and stable insurance markets for the benefit and protection of 

policyholders and to contribute to global financial stability.

9

Stamping offices provide oversight, information, and assistance to brokers 

conducting surplus lines transactions. They were formed by surplus lines brokers 

as a form of self-regulation to facilitate compliance with the unique regulatory 

requirements applicable to surplus lines transactions. The offices are funded by a 

processing or "stamping” fee that they earn for reviewing surplus lines

coverages. According to NAPSLO officials, in 2011 more than two-thirds of the 

national surplus lines premiums flowed through these stamping offices. Today, 

14 states—Arizona, California, Florida, Idaho, Illinois, Minnesota, Mississippi, 

Nevada, New York, Oregon, Pennsylvania, Texas, Utah, and Washington—have 

surplus lines stamping offices. 
Page 5 GAO-14-136 Property and Casualty Insurance

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Admitted insurers can be licensed to sell several lines or types of 

coverage to individuals or families, including personal lines—e.g., 

homeowners, renters, and automobile insurance—and commercial 

lines—e.g., general liability, commercial property, and product liability 

insurance. Admitted insurers can sell insurance in one or more states but 

must be licensed to operate in every state in which they sell coverage. 

Their activities are regulated primarily by the states, which make and 

enforce their own laws and regulations. State regulators license agents, 

review insurance products and premium rates, and examine insurers’ 

financial solvency and market conduct. To help ensure adequacy and 

fairness in pricing and coverage, state regulators oversee the insurance 

rates and forms of admitted insurers.

Admitted P/C insurers have two primary sources of revenue: premiums

from selling insurance and investment income. They collected $293.9

billion in premiums in 1998 and $523.9 billion in 2012.

10 Compared to the 

liabilities held by life insurers, their liabilities tend to be fairly short-term, 

so they generally invest in a mix of relatively low-risk, liquid, conservative 

instruments, such as government and municipal bonds, higher-grade 

corporate bonds, short-term securities, and cash. State regulators require 

admitted insurance companies to maintain specific levels of capital in 

order to continue to conduct business. To help ensure that policyholders 

continue to receive coverage if their insurer becomes insolvent or unable 

to meet its liabilities, states have guaranty funds (separate for life and P/C 

insurance), which are funded by assessments on insurers doing business 

 10In this report, we use the term “premiums written” to mean “direct premiums 

written,” which is the number of insurance policy premiums written not including 

the policies given to reinsurers. These figures reflect the direct (gross) premiums

written that are registered on the books of an insurer or a reinsurer at the time a 

policy is issued and paid for. See GAO, Insurance Markets: Impacts of and 

Regulatory Response to the 2007-2009 Financial Crisis, GAO-13-583

(Washington, D.C.: June 27, 2013).

Background

The Admitted Insurance 

Market
Page 6 GAO-14-136 Property and Casualty Insurance

in their state.11 All states have laws that permit surplus lines insurers to 

sell coverage in their states, but do not cover their policies with state 

guaranty funds (which are funded by assessments on admitted insurers 

doing business in their state), leaving policyholders unprotected if their 

surplus lines insurer becomes insolvent.

P/C insurers provide coverage for numerous property and casualty risks, 

but there are some risks that they will not cover—for instance, risks that 

are difficult to assess, occur too frequently to be acceptable to admitted 

insurers, are specialized or unusual, or require coverage that exceeds the 

capacity of admitted carriers. In these cases, potential insureds may turn 

to the nonadmitted market. This market functions as a safety valve,

offering insurance products for risks that the admitted market will not 

cover.

Among the nonadmitted insurers are surplus lines insurers. These 

insurers provide coverage for general, management, and professional 

liabilities and commercial automobile, environmental, and property risks, 

among other things, and tailor their products to meet the needs of the 

 11Guaranty funds for life and P/C insurance are similar to the Federal Deposit 

Insurance Corporation for insured depository institutions. Guaranty funds pay 

covered claims within limits set by individual state laws and the insurance 

contract. For instance, the overall benefit “cap” in most states for an individual life 

or property casualty policy is $300,000, though some states have maximums that 

are higher. Certain products, such as some variable annuities, financial guaranty 

insurance, and mortgage guaranty insurance, are not covered by state guaranty 

funds.

The Nonadmitted 

Insurance Market and 

Surplus Lines Insurers
Page 7 GAO-14-136 Property and Casualty Insurance

insured.12 For example, they may write policies to cover a research 

laboratory working on an unproven drug, special sporting or other events, 

or liabilities arising from environmental impairment. They may also write 

policies on new and innovative products that have little loss history—

something admitted insurers would typically require in order to adequately 

price the risk. Some of the carriers also write coverage for personal lines, 

such as homeowners insurance in catastrophe-prone areas.13 Figure 1 

shows that over the 5-year period from 2008 through 2012, these insurers 

provided relatively larger amounts of coverage for commercial lines and 

property liabilities, with lesser amounts of coverage for reinsurance and 

personal lines. There was also a sizeable amount of coverage provided 

by companies writing less than $1 million in premiums where the liabilities 

covered were not clearly identified.

 12General liability insurance covers an organization's responsibility for bodily 

injury and property damage arising because of the organization's premises, 

operations, and products, other than liabilities covered under other insurance 

policies. Management liability insurance covers loss exposures for directors and 

officers (e.g., to cover lawsuits against them), employment practices (e.g., 

employment-related discrimination claims), and fiduciary exposures (e.g., claims 

made by beneficiaries of an employee benefit plan against the plan’s officials for 

breach of their fiduciary responsibilities). Professional liability insurance (also 

known as malpractice insurance or errors and omissions liability insurance) is 

coverage provided to professions requiring specialized education and knowledge 

and skills that are primarily intellectual (e.g., health care, finance, and law) rather 

than physical. Commercial auto insurance covers liabilities to organizations 

arising from the ownership, maintenance, or use of autos. Environmental 

insurance covers losses for bodily injury, property damage, and clean-up or 

remediation that exceeds coverage provided in general liability or commercial 

property policies. Commercial property insurance covers risks to buildings and 

other structures (e.g., vacant buildings) and personal property that are commonly 

not available in the admitted market.

13Arthur L. Flitner, and Jerome Trupin, Surplus Lines Insurance Products

(Malvern, Pennsylvania: The Institutes, 2006). 
Page 8 GAO-14-136 Property and Casualty Insurance

Figure 1: Type of Coverage Provided by Surplus Line Insurers, by Premiums Written, 2008 and 2012

Notes: The types of coverage are based on SNL Financial’s “designated focus,” which identifies the 

types of coverage or broad categories of lines of business provided by an insurer. A company is 

designated as having a “commercial lines” focus if it has very diversified operations within the 

commercial lines. The “Coverage type not stated” focus is for companies with less than $1 million in 

net premiums written, which, based on their size, SNL did not assign a designated focus. “Other”

includes reinsurance, personal lines, commercial medical malpractice, commercial workers’ 

compensation, commercial financial lines, and large reinsurance. See appendix I for an explanation of 

SNL’s methodology for indentifying types of coverage. 

Surplus lines insurers have more flexibility with respect to the terms and 

pricing of the coverage offered because, according to NAIC, unlike 

admitted insurers, they do not need state approval to modify policy 

exclusions and coverages. This flexibility to tailor the coverage provided 

and the price at which they provide it enables nonadmitted insurers to 

manage unique or large risks.

Surplus lines insurers can be domiciled—that is, headquartered—either in 

the United States or abroad. Those domiciled in the U.S and licensed in 

at least one U.S. state are known as “foreign” insurers in states other than 

their state of domicile, while those domiciled in a foreign country are 

known as “alien” insurers.14 A foreign surplus lines insurer is regulated as 

an admitted insurer in the state in which it is domiciled, and that state is

 14According to NAIC, alien insurers write about 25 percent of the U.S. surplus 

lines premiums annually, with Lloyd’s of London writing approximately 70 percent 

of that business.
Page 9 GAO-14-136 Property and Casualty Insurance

its financial solvency regulator.15 Alien insurers wishing to enter the U.S. 

surplus lines market must apply to NAIC’s International Insurers 

Department (IID) for inclusion in the Quarterly Listing of Alien Insurers, 

which reviews their financial condition as part of the alien insurer 

application process. These insurers then become an eligible surplus lines 

insurer in all states. Alien insurers may also apply to an individual state to 

become authorized only in that jurisdiction. Table 3 in appendix II lists the 

alien insurers approved by NAIC from 2008 through 2012, and table 4

shows their location—mostly in England and Bermuda. 

Surplus lines insurers must sell their insurance through a broker.16 These 

brokers are licensed retail agents that represent insurance buyers and 

place coverage with surplus lines insurers.17 They are responsible for (1) 

selecting an eligible surplus lines insurer, (2) reporting the surplus lines 

transaction to insurance regulators, (3) remitting the premium tax due on 

the transaction to state tax authorities, and (4) assuring compliance with 

all the requirements of the surplus lines state regulations. To place 

coverage in the surplus lines market, brokers must follow state due 

diligence requirements. Although they vary from state to state, according 

to an association representing surplus lines insurers and brokers, these 

requirements generally call for brokers to establish that three admitted 

companies licensed to write the kind and type of insurance requested 

have declined to provide it before turning to a surplus lines insurer.

Historically, brokers and the surplus lines insurers have had to comply 

with a multitude of state laws and regulations dealing with taxation, 

oversight, and market access. For example, brokers have had to comply 

with differing rules across states for things like providing policyholders 

with important notices and determining which insurers were eligible for 

placing business. Brokers also have had to remit taxes on all surplus lines 

insurance transactions. Historically the revenue from surplus lines

 15NRRA defines “state” to include the District of Columbia, the Commonwealth of 

Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and 

American Samoa.

16Such insurers are the focus of this report and do not include nonadmitted 

insurers (i.e., insurers not licensed to transact business in an insured’s home 

state) who sell insurance directly to buyers.

17Brokers are licensed by the states.

Categories and Examples of 

Common Surplus Lines Risks

Risks typically written in the surplus 

lines market fall into three 

categories: (1) nonstandard risks, 

which have unusual underwriting 

characteristics; (2) unique risks,

which admitted carriers do not offer; 

and (3) capacity risks for which an 

insured seeks a higher level of 

coverage than admitted insurers are 

willing to provide. Examples of the 

types of risks commonly insured by 

the surplus lines market include:

• coastal properties;

• developers rebuilding 

homes and businesses in 

hurricane-prone areas;

• celebrities who want to 

insure certain features 

such as legs or hands;

• school districts building 

new schools; and

• nonprofit associations that 

provide food, medical care, 

and education to the Third 

World.

Source: National Association of 

Professional Surplus Lines Offices, Ltd.
Page 10 GAO-14-136 Property and Casualty Insurance

transactions that took place outside the insurer’s state of domicile had to 

be among all states where parts of the risks were located. 

NRRA, which generally took effect on July 21, 2011, contains provisions 

that are intended to address the various regulatory concerns discussed 

earlier and, in turn, streamline the brokers’ placement of insurance 

coverage in the surplus lines market. The act creates a “home-state” 

system of taxation and regulation to resolve difficulties in determining how 

to tax and regulate surplus lines transactions. NRRA defines the home 

state as the state in which the insured maintains its principal place of 

business, or in the case of an individual, the individual’s principal 

residence. If all the insured risk is outside this state, NRRA defines the 

home state as the state to which the greatest percentage of taxable 

premium taxed for that insurance contract is allocated. Under NRRA, the 

home state has sole and exclusive authority to tax and regulate a sale of 

surplus lines insurance. In addition, only the insured’s home state may 

require a surplus lines broker to be licensed, even for transactions that 

involve multiple states. NRRA also permits but does not require states to 

form an interstate compact or otherwise establish procedures to allocate 

premium taxes collected by an insured’s home state for transactions. 

These compacts, if instituted, are intended to help states adopt 

nationwide uniform requirements, forms, and procedures for reporting, 

paying, collecting, and allocating premium taxes.

NRRA further seeks to simplify and make more uniform the criteria states 

use to determine which insurers can be eligible to sell insurance on a 

surplus lines basis. Specifically, NRRA states that a state may not impose 

eligibility requirements on or establish eligibility criteria for surplus lines

insurers domiciled in the United States that are authorized to write 

policies in their state of domicile. The act also states that the insurer 

generally must maintain minimum capital and surplus levels as required 

by NAIC’s Non-Admitted Insurance Model Act, which is the greater of $15 

million or the minimum capital and surplus requirements of the insured’s 

home state, or in certain situations, less than the minimum capital and 

surplus when a state’s insurance commissioner finds an insurer 

The Nonadmitted and 

Reinsurance Reform Act 

of 2010
Page 11 GAO-14-136 Property and Casualty Insurance

acceptable.18 This model act, among other things, is intended to protect 

persons seeking insurance, assure such insurance is placed only with 

reputable and financially sound insurers, and establish state regulation of 

surplus lines insurance. NRRA also specifies that a state may not prohibit 

a broker from placing surplus lines insurance with an alien insurer listed 

on NAIC’s Quarterly Listing of Alien Insurers. Under NRRA, Congress 

delegated to NAIC responsibility for reviewing and approving the financial 

information of alien surplus lines insurers. Finally, NRRA contains a 

provision specifying that, after July 21, 2012, a state may not collect any 

fees for licensing a surplus lines broker unless it participates in NAIC’s 

national producer database or an equivalent.

Although NAIC does not regulate admitted or surplus lines insurers, 

according to NAIC officials it does provide services designed to make 

certain interactions between insurers and regulators more efficient. 

According to NAIC, these services include providing detailed insurance 

data to help regulators analyze insurance sales and practices; 

maintaining a range of databases useful to regulators; and coordinating 

regulatory efforts by providing guidance, model laws and regulations, and 

information-sharing tools.

From 2008 to 2012 premiums written by surplus lines insurers grew by 

1.6 percent (from $24.8 billion to $25.2 billion) and remained around 5 

percent of the property casualty market as a whole. Over this time, even 

though insurers’ claims and underwriting expenses generally exceeded 

premiums, their net investment income allowed them to remain profitable. 

As a result, surplus lines insurers also saw growth in capital holdings.

 18By surplus we mean policyholder surplus, which is an important measure of an insurer’s 

ability to pay claims and represents the extent to which an insurer’s assets exceed its 

liabilities. Generally, a model act or law is meant as a guide for subsequent legislation. 

State legislatures may adopt model acts in whole or in part or modify them to fit their 

needs. Most states’ surplus lines laws are very similar to those recommended in the 

model act, but actual requirements vary by state, ranging from a high of $45 million in 

California to $300,000 in the District of Columbia and $500,000 in South Dakota. 

Surplus Lines 

Insurers’ Premiums 

Written Increased 

Modestly and 

Companies Have 

Generally Remained

Profitable 
Page 12 GAO-14-136 Property and Casualty Insurance

From 2008 to 2012, premiums written by the population of surplus lines 

insurers that we examined rose modestly, mirroring trends in the overall 

P/C market. While the total amount of premiums written (the sum of 

premiums written by the surplus insurers on an admitted basis in their 

states of domicile and on a surplus lines basis) declined following the 

2008 financial crisis in both markets, it began increasing in 2011 and 

continued to rise through 2012. In the surplus lines market, premiums 

written increased about 3.2 percent in 2011, rising from about $22.2 

billion in 2010 to $22.9 billion in 2011, and rose another 10.0 percent to 

$25.2 billion in 2012. Premiums written in the overall P/C market rose 

from $498.6 billion in 2008 to $523.4 billion in 2012. Surplus lines 

premiums, which account for a small fraction of this overall P/C market, 

declined slightly as a share of total P/C premiums in 2009 and 2010 but 

began rising in 2011. In 2012, they accounted for 4.8 percent of the 

overall P/C market (see fig. 2).

Premiums Written by Surplus 

Lines Insurers Have Increased 

Since 2008
Page 13 GAO-14-136 Property and Casualty Insurance

Figure 2: Size of the Property/Casualty Market and Surplus Lines Market, Premiums 

Written, 2008–2012

According to market analyses and surplus lines insurers and 

representatives of industry we interviewed, surplus lines premiums can 

fall for several reasons, including an overall slowdown in the economy 

and a “soft” insurance market, which tends to occur after losses have 

been relatively low. Economic slowdowns or downturns, such as the one 

during the 2007-2009 financial crisis, can result in fewer new business 

ventures of the type that would use surplus lines insurance. And in a 

softening insurance market, generally after losses have been relatively 

low, admitted insurers are often willing to write higher-risk coverage for 

lower prices—coverage that might at another time be written by surplus 

lines insurers. In contrast, during a “hard” insurance market, generally 

after losses have been higher, admitted insurers are often less willing to 

write high-risk coverage, and surplus lines insurers are more likely to step 
Page 14 GAO-14-136 Property and Casualty Insurance

in to write such coverage. With the U.S. economy in recovery, pricing 

evidence suggests that since 2010 insurance markets have likely been 

hardening, creating a flow of business from the admitted market into the 

surplus lines market. Consistent with this trend, insurers that sell surplus 

lines coverage saw the proportion of their total premiums from surplus 

lines transactions increase slightly in 2011 and 2012, rising from 63.9

percent to 65.3 percent.

Most of the largest surplus lines insurers sell surplus lines coverage 

almost exclusively, while smaller insurers that sell this coverage write 

most of their premiums in the admitted market. Because U.S. surplus line 

insurers are licensed as admitted insurers in their states of domicile, they 

may sell some coverage on an admitted basis (see table 5 in app. III). Of 

the top 25 surplus lines insurers as measured by total premiums written 

(both admitted and surplus lines), 20 wrote over 98 percent of their 

premiums as surplus lines in 2012, on average. Only three wrote less 

than 95 percent. By comparison, the remaining smaller surplus lines 

insurers received on average 38.9 percent of their premiums from the 

surplus lines business during this period.

Since 2008, the list of top 25 surplus lines insurers has remained largely 

unchanged, and these insurers have sold the bulk of surplus lines 

coverage. Most of the top 25 insurers from 2012 were also among the top 

insurers from 2008 through 2011 and in 2012 wrote about $16.9 billion in 

surplus lines premiums, or about 66.9 percent of the market (see fig. 2). 

The largest five surplus lines insurers each wrote over $1 billion in 

premiums, with the largest U.S. based surplus lines insurer, Lexington 

Insurance, writing $4.2 billion in premiums in 2012. Lloyd’s of London, 

which is licensed as an admitted carrier in Illinois, Kentucky, and the U.S. 

Virgin Islands, is the largest surplus lines insurer and wrote $6.3 billion in 

surplus lines premiums in 2012, or about 25 percent of the total 2012 

premiums written for all U.S. based surplus lines insurers. Lloyd’s surplus 

lines premiums are written primarily to cover property exposures, and in 

2012 their share of the surplus lines market premium was largest in 

Texas (30 percent) and South Carolina (29 percent) and was at least 20 

percent each in Florida, Georgia, Louisiana, Massachusetts, and North 

Carolina. Table 6 in appendix III includes detailed information about 

premiums written by the top 25 surplus lines insurers.

A majority of surplus lines premiums were written in a small number of 

states. For example, from 2010 through 2012 just under half of the 

surplus lines premiums written in the United States were written in 4 

states, and almost two-thirds of the premiums were written in 10 states 
Page 15 GAO-14-136 Property and Casualty Insurance

(see table 7 in app. III). For each of these years, the top four states with 

the most surplus lines premiums written were, respectively, California, 

Florida, Texas, and New York—the four states with the most P/C 

premiums written in the admitted market as well. 

Insurer’s net income, which takes into account all aspects of the 

company’s operations, including premiums written, losses, other costs, 

and investment income, is a measure of profitability. As shown in figure 3, 

the net income for P/C and surplus lines increased overall from 2008 to 

2012. Net income for surplus lines insurers more than doubled over the 

period, from $4.3 billion to $9.5 billion, but for P/C insurers it increased 

nine-fold, from $3.7 billion to $37.3 billion, which is below the pre-crisis 

highs of $66.4 billion and $63.6 billion in 2006 and 2007, respectively, but 

has generally been trending upward.

Figure 3: Property/Casualty and Surplus Lines Insurers’ Net Income, 2008-2012

Surplus Lines Insurers’ Net 

Income Has Generally Increased
Page 16 GAO-14-136 Property and Casualty Insurance

Income from investments is important for surplus lines insurers because it 

can allow them to operate at an overall profit despite unprofitable 

underwriting operations. As we discussed earlier in this report, 

investments of the broader P/C industry, which include surplus lines 

insurers, were negatively affected by the 2008 financial crisis, and the net 

investment income decreased for both surplus lines insurers and the P/C 

industry from 2008 through 2012 (see table 1).

19 From 2008 through 

2012, the surplus lines insurers that we examined saw their invested 

assets increase from $152.7 billion to $233.1 billion, respectively. These 

assets were held in a broad range of instruments, but the bulk was in 

bonds. An increasing percentage was invested in industrial bonds and 

decreasing percentages in government and other bonds. These insurers 

also held more in cash and other short-term investments from 2009 

through 2012, but less so than in 2008. They have also tended to 

increase their investments in common stock, but that amount remains 

below 7 percent of total cash and investments (see table 8 in app. III). 

Table 1: Comparison of Surplus Lines Insurers and Property/Casualty Market and Investment Performance, 2008–2012

Dollars in millions

2008 2009 2010 2011 2012

Surplus Lines Insurers 

Net investment income $6,096.9 a $7,386.8 $8,043.8 $10,032.3 $10,177.4

Capital gain/loss -13,101.7 b 9,345.3 9,556.8 847.3 8,708.1

P/C Industry

Net investment income $53,132.9 a $48,401.9 $48,099.5 $50,890.6 $50,109.2

Capital gain/loss -78,255.9 b 16,998.8 19,747.2 1,885.4 23,726.4

Source: GAO analysis of SNL Financial data.

a

 19Total investment return consists of net investment income and capital gain or loss. Net 

investment income includes all interest, dividends, and other earnings derived from an 

insurer’s invested assets minus any associated investment expenses, taxes (excluding 

federal income taxes), licenses, fees, depreciation on real estate, and other invested 

assets. Capital gain or loss reflects increases or decreases in the value of an investment, 

and can be divided into realized and unrealized. Capital gains or losses are “realized” 

when assets are sold, and reflect the difference between sales price and purchase price, 

along with other adjustments. “Unrealized” capital gains or losses reflect changes in value 

of assets that have not yet been sold.

Net investment income earned includes investment income earned from all forms of investment,

including interest and dividends, investment fees earned relating to uninsured accident and health 

plans, dividends from SCA entities, joint ventures, partnership, and limited liability companies: minus 

investment expenses, taxes (excluding federal income taxes), licenses, fees, depreciation on real 

Surplus Lines Insurers’ 

Net Investment Income 

Has Increased
Page 17 GAO-14-136 Property and Casualty Insurance

estate, and other invested assets. Also includes investment income credited to uninsured accident 

and health plans and interest on borrowed money. It excludes capital gains on investments and 

equity in undistributed income or loss of SCA entities, joint ventures, partnerships, and limited liability 

companies.

b

Capital gain/loss includes realized capital gain/loss (the net realized capital gains less capital gains 

tax including realized investment related to foreign exchange for the current year) and unrealized 

capital gain/loss (the change in net unrealized capital gains less capital gains tax). Capital gains or 

losses are “realized” when assets are sold, and reflect the difference between sales price and 

purchase price, along with other adjustments. “Unrealized” capital gains or losses reflect changes in 

value of assets that have not yet been sold.

Our analysis of data on net investment income earned (income earned 

from all forms of investments) shows that from 2008 to 2012 the net 

investment income increased for surplus lines insurers and decreased 

slightly for the P/C market (see table 1). For surplus lines, this net 

investment income rose from $6.1 billion to $10.22 billion, while for P/C 

insurers it started the period at $53.1 billion and finished the period at 

$50.1 billion. 

Over this 5-year period, surplus lines and P/C insurers saw an increase in 

their capital gains each year until 2011 when it dropped and then 

increased again in 2012. Surplus lines insurers had capital losses of 

$13.1 billion in 2008, rising to $9.6 billion in 2010, and dropping to $0.8 

billion in 2011 because of a significant decrease in unrealized capital 

gains. Capital gains increased to $8.7 billion in 2012 due to a rebound in 

these capital gains. P/C insurers saw capital losses of $78.3 billion in 

2008, but capital gains of $23.7 billion in 2012. According to an A.M. Best

report, in 2008 and 2009, the P/C industry’s assets were strained by 

write-downs of devalued assets, mortgage-backed securities, and other 

related assets, and the changes in 2010 and 2011 for both the P/C 

industry and surplus lines insurers are largely attributable to their 

increased investment in relatively short-term fixed income securities that 

carry low interest rates.

From 2008 through 2012, surplus lines insurers generally have made 

money on their underwriting operations. Insurers’ underwriting operations 

generally consist of the premiums it collects and the expenses it incurs

related to insurance activities. Expenses can generally be divided into two 

categories: (1) underwriting expenses and (2) loss and loss adjustment 

expenses. Underwriting expenses are those incurred by an insurer as it

obtains business, such as brokers’ commissions, employee incentive 

programs, and marketing. Loss and loss adjustment expenses are losses 

insurers incur as they investigate and settle claims, including actual claim 

payments as well as legal fees. Expressed as a percentage of premiums 

Surplus Lines Insurers’ 

Generally Made Money on 

Their Underwriting 

Operations
Page 18 GAO-14-136 Property and Casualty Insurance

written, these ratios are referred as the “expense” and “loss” ratios, 

respectively. The insurer’s underwriting profitability can be measured by 

summing the loss and the expense ratios. This sum, measured relative to 

premiums written is referred to as the “combined” ratio, where a value of 

less than 100 percent indicates that an insurer’s underwriting is profitable,

and a value of more than 100 percent indicates an underwriting loss.

The expense ratio for the surplus lines industry as a whole was greater 

than the ratio for the broader P/C market (see fig. 4). In part, this could 

reflect the higher costs associated with assessing and pricing the more 

complex risks often covered by surplus lines insurers. The expense ratios 

for the surplus lines industry increased slightly over this period, rising 

from 28.2 percent in 2008 to 29.4 percent in 2012. 

Figure 4: Expense and Loss Ratios, and Combined Ratios for the Property/Casualty Market and Surplus Line Insurers, 2008–

2012

a

The 2008 ratios for one top 25 company was omitted because that outlier insurer reported a large 

negative expense ratio for that year.

b

Expense ratio is the net underwriting expenses as a percentage of net premiums written.
Page 19 GAO-14-136 Property and Casualty Insurance

c

Loss ratio is the net loss and loss adjustment expense incurred as a percentage of net premiums 

written.

d

Combined ratio is the loss and loss adjustment expense ratio plus expense ratio.

Since 2008, surplus lines insurers’ loss ratios have increased but 

remained below those of the broader P/C market (see fig. 4). In 2012, 

these expenses for the surplus lines insurers in our analysis were 70.6 

percent of premiums written. According to an A.M. Best report, the loss 

and loss adjustment cost percentage increased from 2010 to 2011 for 

both admitted and surplus lines insurers because of large losses from 

weather-related catastrophes and a weak economy. In 2012, surplus lines 

insurers experienced losses because of Superstorm Sandy. 

Figure 4 shows that from 2008 to 2012, the overall underwriting activity of 

surplus lines insurers in our analysis was profitable every year except in 

2011 (the industry was profitable in 2012 because the unrounded 

combined ratio for 2012 was 99.94). In contrast, the 25 largest surplus 

lines insurers had underwriting profits in 2008 and 2009, with an average 

combined ratio of less than 100 percent in each of those years, but 

showed losses for the remaining 3 years. An A.M. Best report noted that 

the competitive insurance marketplace and the recent recession 

combined to weaken surplus lines insurers’ underwriting performance in 

2010 and 2011 and led to overall underwriting losses in the P/C market. 

And according to the Insurance Journal, catastrophic losses especially in 

New York and New Jersey, due to Superstorm Sandy in 2012, drove up 

surplus lines insurers’ loss and combined ratios for 2012 to the point 

where they exceed those of the total P/C market.

Surplus lines insurers’ capital has increased since 2008, adding to their 

bottom line. A key measure of their capital is “policyholders surplus.”20 A 

higher level of policyholder surplus means that an insurer has more 

capital available to pay claims. Figure 5 shows that the capital for surplus 

lines insurers has been increasing since 2008, similar to an increase also 

seen in the P/C market.

 20We use the term “capital” to mean policyholders’ surplus for P/C insurers. The measure 

generally refers to the excess of an insurance company’s assets above its legal 

obligations to meet the benefits, or liabilities, payable to its policyholders.

Surplus Lines 

Insurers’ Capital Has 

Been Increasing
Page 20 GAO-14-136 Property and Casualty Insurance

Figure 5: Property/Casualty and Surplus Lines Insurers’ Capital, 2008-2012

Note: We use the term “capital” to mean policyholders’ surplus for property/casualty insurers.

Table 2 shows that from 2008 to 2012 the surplus level for these insurers 

was $71.3 billion in 2008 and rose to $132.4 billion in 2012, and for the 

top 25 surplus lines insurers, their total policyholder surplus rose from 

$15.6 billion in 2008 to $17.6 billion in 2012.

Table 2: Surplus Lines Insurers, Policyholder Surplus, 2008–2012

Dollars in millions

2008 2009 2010 2011 2012

All National Association of Insurance Commissioners (NAIC)-listed 

surplus lines insurers $71,292.0 $86,965.6 $118,286.3 $119,902.5 $132,406.2

Top 25 NAIC-listed surplus lines insurers 15,627.5 14,308.2 15,416.9 15,326.3 17,572.9

Source: GAO analysis of SNL Financial data. 

Surplus lines insurers have also experienced few impairments of their 

capital (see fig. 6). Impairments occur when an insurer’s assets are too 

low in comparison to their liabilities. According to an A.M. Best report, 

accounting for the number of insurers in the industry, the surplus 

industry’s average rate of impairment from 1977 to 2011 was 0.99 

percent, slightly higher than the impairment rate of 0.90 percent for P/C 
Page 21 GAO-14-136 Property and Casualty Insurance

insurers. A.M. Best added that from 1998 to 2003, impairments occurred 

because of the increased failure rate of insurers that relied heavily on 

underwriting done by managing general agents and because some 

parents of surplus lines subsidiaries became insolvent.21 A.M. Best added 

that more recently surplus lines insurers have not experienced any 

impairments since 2004, because of better underwriting performance, 

improved financial market conditions, and more favorable pricing.22 Thus, 

the recent experience of surplus lines insurers compares favorably to that 

of admitted insurers, which experienced a higher percentage of 

impairments.

Figure 6: Percentage of Admitted and Surplus Line Insurers with Annual Impairments, 1997–2011

Note: Financial impairment refers to an insurer’s assets being lower than its liabilities. 

 21A managing general agent is an insurance agent or broker that, unlike 

traditional agents/brokers, is vested with underwriting authority from an insurer.

22As reported by A.M. Best, which is a company that conducts financial analyses 

of insurance companies, including surplus lines insurers.
Page 22 GAO-14-136 Property and Casualty Insurance

Almost all states have begun to implement NRRA, which our review of the 

legislative history shows that Congress passed in 2010 to make it easier 

for surplus lines insurers and brokers conducting business across states. 

According to surplus lines insurers, brokers, and representatives of 

industry associations, the act has simplified the collection of premium 

taxes for multistate risks. Market participants we spoke with said that 

NRRA has had little, if any, effect on the prices or availability of coverage, 

as NRRA was not intended to affect these areas. The participants noted 

that any changes in price and availability would be due to the insurance 

cycle rather than NRRA. 

As noted, NRRA created a home state system for the regulation and 

taxation of surplus lines insurance. According to our review of state 

insurance laws in all 50 states, as of December 2013, all states except 

Michigan have amended their laws to address this provision, which 

regulators and market participants we spoke with consider to be the key 

provision of NRRA. We found that the states had largely adopted a 

definition of the home state that closely matched the term as defined in 

NRRA—that is, the state in which the insured maintains its principal place 

of business or residence or, if all the risk resides outside that state, the 

state to which the greatest percentage of taxable premium is allocated for 

that insurance contract. According to officials of an association 

representing surplus lines insurers and brokers, the home state provision 

has produced significant benefits for the surplus lines industry by 

reducing the need for insurers to comply with differing sets of rules, 

disclosures, and requirements. As shown in figure 7, the act has also 

simplified the payment of premium taxes for transactions involving a 

multistate risk. Most market participants we interviewed agreed that the 

home state provision has brought needed clarity to the market.

NRRA 

Implementation Has 

Begun in Most States 

and Appears to Have 

Had Little Effect on

the Pricing and 

Availability of 

Coverage 

Almost All States Have 

Modified Their Laws to 

Implement NRRA’s Home 

State Definition 
Page 23 GAO-14-136 Property and Casualty Insurance

Figure 7: Illustration of Surplus Lines Premium Tax Payment Process Pre- and Post-NRRA 

Note: NRRA defines the home state as the state in which the insured maintains its principal place of 

business or residence or, if all the risk resides outside that state, the state with the greatest 

percentage of taxable premium for that transaction. 

Under the home state system, as an option for collecting and allocating 

premium taxes, NRRA permitted but did not require states to form an 
Page 24 GAO-14-136 Property and Casualty Insurance

interstate compact or otherwise establish procedures to allocate premium 

taxes paid to a home state.

23 These compacts, if instituted, were intended 

to help states adopt nationwide uniform requirements, forms, and 

procedures for reporting, paying, collecting, and allocating premium taxes 

for multistate risks. To date, only a few states have chosen to participate 

in an interstate compact. Two compacts exist, but only one was 

operational as of November 2013. The operational compact, called the 

Nonadmitted Insurance Multi-State Agreement (NIMA), includes five 

participating states—Florida, Louisiana, South Dakota, Utah, and 

Wyoming—and Puerto Rico (fig. 8). The other compact is the Surplus 

Lines Insurance Multi-State Compliance Compact (SLIMPACT). It 

comprises nine states—Alabama, Indiana, Kansas, Kentucky, New 

Mexico, North Dakota, Rhode Island, Tennessee, and Vermont—but 

requires 10 states (or 40 percent of surplus lines premiums written), 

whichever comes first—to take effect. Having not reached the minimum 

threshold, SLIMPACT is not currently operational. 

 23An interstate compact is a legal agreement between two or more states to act 

cooperatively to address matters of interest to both states.
Page 25 GAO-14-136 Property and Casualty Insurance

Figure 8: Types of Surplus Lines Premium Taxes as of November 2013 

Rather than joining an interstate compact, most states have opted to levy 

(at their own state tax rate) and then retain 100 percent of the premium 

tax when they are the home state of the insured (see fig. 8). Although 
Page 26 GAO-14-136 Property and Casualty Insurance

data were unavailable to analyze the net effect on taxes of states 

adopting this approach, representatives from two industry associations 

we spoke with have expressed support for it because of its simplicity and 

view it as most consistent with the intent of NRRA.

Market participants, such as surplus lines insurers, and representatives of 

the industry associations we interviewed said that a state’s decision of 

whether to join a compact depended largely on the amount of revenue 

involved. One analysis of the tax-sharing effect of NIMA, performed by an 

association representing surplus lines insurers and brokers, showed that

a small amount of tax revenue, roughly $125,000 across the participating 

states, was eligible for sharing among NIMA’s members. The largest 

states in terms of premium, such as California, New York, and Texas, are 

currently not members of an interstate compact. Rather, these states tax 

and retain 100 percent of premium when they are the home state of the 

insured, as discussed above. Market participants told us it is unlikely 

these large states would join an interstate compact because they stand to 

collect more revenue by using their current approach rather than by 

joining an interstate compact. In addition, states apply a range of tax rates 

to both single and multistate risks when they are the home state of the 

insured (see table 9 in app. IV). For example, some states will use the tax 

rate in their own state, while others will use the applicable tax rate from 

the respective states where each portion of the multistate risk resides. 

In addition, according to NAIC, all states except for Washington are now 

participating in its national insurance producer database for licensing 

surplus lines brokers, which NRRA made a prerequisite for collecting fees 

for licensing an individual or entity as a surplus lines broker.

24 The 

database contains information on insurance producers’ (agents’ and 

brokers’) name, address, state of license, and any regulatory actions 

taken, among other elements. According to NAIC, the database, which is 

updated daily, links state regulatory licensing systems into a single 

common system. NAIC officials told us that they are working with 

Washington on the implementation of the state’s surplus lines for both 

initial licensing and renewals of surplus lines brokers and the state will be 

participating in the database in December 2013. 

 24States may also participate in any other equivalent uniform national database, 

for the licensure of surplus lines brokers and the renewal of such licenses. 
Page 27 GAO-14-136 Property and Casualty Insurance

Section 524 of NRRA establishes nationwide criteria for determining 

whether insurers are eligible to sell in states where they are not 

domiciled. In particular, the section discourages states from imposing 

eligibility requirements on these insurers if they are authorized to write 

coverage and meet minimum capital and surplus requirements in the 

insured’s home state.25 However, a range of industry associations we 

spoke with representing insurers, and insurance agents and brokers, 

among others, noted that some states were taking actions that they 

believed were inconsistent with Section 524. For example, the 

associations said that some states were requesting information—such as 

business plans, disaster plans, and policy forms—that the associations 

believe were not relevant to confirming the criteria set forth in Section 

524. They said that some states were also asking for fees or other 

charges that are not specified in Section 524. According to the 

associations, in some cases, states are applying different standards for 

single and multistate risks, a particular issue for alien insurers. For 

example, according to the associations, one state may consider an alien 

insurer listed on NAIC’s Quarterly Listing of Alien Insurers as eligible to 

sell coverage if the covered risk resides in more than one state; however, 

if the policy is a single state policy, then the same alien insurer must meet 

state-specific eligibility standards to write the policy. The associations say 

that these actions place an additional administrative burden on surplus 

lines insurers and result in a lack of consistency across states, which 

NRRA was intended to address. 

To reduce the requesting of additional information by state insurance 

regulators, NAIC formed a subgroup that in August 2013 developed 

options for improving access to financial information by regulators, 

brokers, and the insured. These options, which received input from the 

surplus lines industry, include the following: 

• NAIC will provide quarterly and annual summaries of insurer financial 

data (surplus lines total direct premium written and policyholders’ 

surplus) to help states confirm an insurer’s financial health, 

• states will make greater use of NAIC’s automated systems to verify 

insurer financial data, and 

• states will provide a link to NAIC’s Quarterly Listing of Alien Insurers

on their insurance department websites. 

 25Insurers may also meet an equivalent requirement: the greater of $15 million or 

the minimum capital requirements of the insured’s home state. 

To Assess Eligibility, Some 

States Are Making 

Additional Requests of 

Nonadmitted Insurers 
Page 28 GAO-14-136 Property and Casualty Insurance

According to NAIC officials, they will continue to encourage states to 

implement these suggestions and in 2014, the association may consider 

a survey to gauge state implementation. 

According to surplus lines insurers and brokers and representatives of the 

industry associations that we contacted, NRRA has had little, if any, effect 

on the price and availability of coverage in the admitted and surplus lines 

markets. Market participants noted that the changes under NRRA were 

intended to streamline and simplify the taxation and regulation of surplus 

lines insurance, and these changes would not likely affect the price or 

availability of coverage. Market participants noted that the insurance cycle 

of soft and hard markets (rising and falling premiums), as discussed in 

greater detail later, was the primary factor affecting the price and 

availability of coverage. They added that in their view it would be difficult 

to determine the precise effect, if any, of NRRA because it generally 

would be difficult to separate the effects of laws and regulations from the 

normal functioning of the insurance cycle.

While surplus lines insurers generally write tailored products, according to 

a market participant, in some instances the insured (individuals or groups 

covered by an insurance policy) may move from the surplus lines to the 

admitted market. Insureds may do so because an admitted insurer 

changed its underwriting and pricing standards to accept risks that it 

previously did not accept. For example, an admitted insurer that did not 

cover commercial apartment risks may decide to do so. According to a 

study of surplus lines insurance, whether this strategy succeeds depends 

on the admitted insurer’s underwriting and pricing expertise and ability to 

comply with the state’s form and rate filing regulations.26 The study noted 

that insureds may also migrate from one market to another because of 

the insurance cycle, a concept noted by many of the market participants 

that we interviewed. As we have discussed, in a soft market, admitted 

insurers may lower their acceptability standards, broaden their coverage, 

and decrease prices to retain customers and attract new ones. In a hard 

market, by contrast, admitted insurers may raise their acceptability 

standards, restrict coverage, and raise prices, so insureds may not find 

the coverage they want in the admitted market and thus move to the 

surplus lines market.

 26Flitner and Trupin, Surplus Lines Insurance Products, 1.19. 

NRRA Appears to Have 

Had Little, If Any, Effect on 

Prices and Availability of 

Coverage 
Page 29 GAO-14-136 Property and Casualty Insurance

According to market participants, any changes in coverage would be due 

to the insurance cycle rather than NRRA and there has been little 

noticeable shifting in coverage between the admitted and surplus lines 

markets as a result of NRRA. 

We provided a draft report to NAIC for review and comment. NAIC 

provided technical comments, which we incorporated, as appropriate.

We are sending copies of this report to the appropriate congressional 

committees. In addition, the report is available at no charge on the GAO 

website at http://www.gao.gov.

If you have any questions about this report, please contact me at (202) 

512-8678 or garciadiazd@gao.gov. Contact points our Offices of 

Congressional Relations and Public Affairs are listed on the last page of 

this report. GAO staff who made major contributions to this report are 

listed in appendix VI.

Daniel Garcia-Diaz

Director, Financial Markets 

and Community Investment

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-14-136 Property and Casualty Insurance

The objectives of this report were to (1) describe the size and condition of 

the surplus lines insurance market and (2) examine actions states have 

taken to implement the Nonadmitted and Reinsurance Reform Act’s 

(NRRA) provisions and the effects of the act, if any, on the price and 

availability of surplus lines coverage. 

To describe the size and condition of the surplus lines market, we 

obtained and analyzed, but did not independently verify, end-of-year 

financial and corporate data, from 2008 through 2013, on 199 surplus 

lines insurers from the following sources: 

• SNL Financial,

• A.M. Best,

• National Association of Professional Surplus Lines Offices (NAPSLO), 

and 

• National Association of Insurance Commissioners (NAIC).1

We identified surplus lines insurers as those that NAIC recognized as 

eligible or approved to sell surplus lines insurance in calendar year 2012 

and actually did sell it in that year.2 Specifically, we examined lists of 

eligible surplus lines insurers from state department of insurance 

websites, state surplus lines association websites, and NAIC’s website. 

Several states published lists of insurers that are permitted to write 

surplus lines coverage in their state. The lists provided various types of 

information on each insurer but were not consistent in all cases. To 

address this inconsistency, we cross-checked the lists with insurer 

profiles from NAIC and SNL Financial and resolved any discrepancies.

 1

SNL Financial is a private financial database that contains publicly filed 

regulatory and financial reports. A.M. Best is a credit rating organization that 

serves the insurance industry. NAPSLO is an association that represents surplus 

lines insurers and brokers. NAIC is a voluntary association of the heads of 

insurance departments from the 50 states, District of Columbia, and five 

territories. 

2

Using SNL Financial data, the number of insurers, including risk retention 

groups, eligible to write surplus lines coverage was 2,858 in calendar year 2008 

and declined to 2,756 for calendar year 2012.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-14-136 Property and Casualty Insurance

We did not include risk retention groups, since the nonadmitted insurer 

provisions of NRRA specifically omitted these groups.3

Using the corporate and financial data described above, we analyzed 

data on these surplus lines insurers’ financial characteristics, such as 

their premiums written, expense ratios, and capital.4 We also examined 

the general focus of their activities, such as whether they are involved in 

commercial property, commercial general liability, personal lines, or 

commercial medical malpractice. We used the types of coverage 

identified in SNL Financial’s “designated focus,” which identifies the types 

of coverage or broad categories of business provided by the insurer. 

Specifically, if a company writes 60 percent or more of its overall P/C 

premiums in a specific category, it is given a corresponding SNLdesignated focus. SNL uses the following methodology to assign a focus 

to a company: Companies with less than $1 million in net premium written 

are not given a line of business designated focus. Companies whose 

reinsurance business is greater than 64 percent (a figure determined by 

SNL Financial) of their premiums written are classified as reinsurers. 

Reinsurance companies with more than $1 billion in assets are 

designated as large reinsurers. All other insurers are designated as 

having a personal, commercial, or accident and health focus. A company 

is designated as having a commercial lines focus if it has very diversified 

operations within the commercial lines. Otherwise, SNL designates a 

company as focusing on one of the following commercial lines: 

commercial property (auto, multiperil, fire and allied, and inland and 

ocean marine), commercial medical malpractice, commercial workers’ 

compensation, commercial financial lines (financial lines such as fidelity, 

 3

A risk retention group (RRG) is a group of similar businesses with similar risk 

exposures, such as educational institutions or building contractors, which create 

their own insurance company to self-insure their risks on a group basis. The 

specific definitional requirements for an RRG are set forth in 15 U.S.C. § 

3901(a)(4).Our analysis also does not include insurance captives. A captive 

insurance company is established by a single company or groups of companies 

that self-insure their own risks.

4

We use the term “premiums written” to mean “direct premiums written,” which is 

the amount of insurance policy premiums written not including the policies given 

to reinsurers. Expense ratios measure the level of underwriting and 

administrative expenses relative to net premiums written. Loss reserve is an 

insurer’s estimate of the value of claims not yet paid or the liabilities for unpaid 

losses. 
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-14-136 Property and Casualty Insurance

surety, and mortgage guaranty), and commercial general liability (other 

and general liability).

To provide a comparison of the surplus lines market to the admitted 

market, we drew upon a recent report we issued on the insurance 

markets and the impacts of and responses to the 2007-2009 financial 

crisis.5 This recent report examined, among other things, admitted 

insurers’ investments, underwriting performance, and premium revenues. 

To assess issues related to data reliability for the current report, we 

reviewed related documentation, conducted interviews with 

knowledgeable officials, and reviewed previous related reliability 

assessments and determined that no material changes had been made in 

how they collected and tabulated the data. We determined that, for the 

purpose of describing the size and condition of the surplus lines 

insurance market, for this review, the data were sufficiently reliable.

To examine actions taken by states to implement NRRA and the effect of 

the act, if any, on the price and availability of coverage, we reviewed and 

analyzed the insurance laws of the 50 states and the District of Columbia, 

focusing on each state’s implementation of the “home state” provision of 

NRRA. We focused on this provision because regulators and market 

participants consider it to be the key provision of NRRA. To supplement 

our analysis, we consulted a law firm’s law manual on the surplus lines 

laws in the United States.6

 

In addition, we interviewed staff from NAIC and the Federal Insurance 

Office within the U.S. Department of the Treasury. We also interviewed 

officials from two state departments of insurance (Delaware and Illinois), 

based on these states having a large number of surplus lines insurers 

domiciled in their state. We interviewed officials from two state surplus 

line associations (New York and California) for the same reason. Finally, 

we contacted relevant associations of the insurance industry, including:

• NAPSLO, 

• Property Casualty Insurers Association of America, 

 5

GAO, Insurance Markets: Impacts of and Regulatory Response to the 2007-

2009 Financial Crisis, GAO-13-583 (Washington, D.C.: June 27, 2013).

6

Edward Wildman Palmer LLP, Excess and Surplus Lines in the United States 

Including Direct Procurement Laws and Industrial Insured Exemptions, John P. 

Dearie, Jr., ed., (New York, NY: Revised January 2013).
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-14-136 Property and Casualty Insurance

• American Insurance Association, 

• Council of Insurance Agents and Brokers, 

• American Academy of Actuaries, and 

• American Association of Managing General Agents. 

We selected these associations for interviews because of their role in the 

surplus lines market; in representing the interests of insurers, 

underwriters, brokers, and others; or for their expertise. We also 

interviewed four insurer parent companies, whom we selected based on 

their large amounts of surplus lines premiums written and having 

subsidiaries that operate in both the admitted and surplus lines markets. 

To obtain the perspectives of those who serve as intermediaries between 

insurers and the insured, we interviewed two large brokers. In addition, 

we reviewed documents from NAIC including a compendium of state laws 

on surplus lines, a sample bulletin for states’ implementation of NRRA, 

and records from recent national meetings. We also reviewed related 

industry reports and analyses of the surplus lines market.

NRRA mandated that we determine and analyze the extent to which there 

has been a change in the number of individuals who have nonadmitted 

insurance policies, the type of coverage provided under such policies, 

and whether such coverage is available in the admitted insurance market. 

We solicited these data from industry associations, surplus lines insurers, 

and a large insurance broker, but were told that insurers do not track such 

information. Representatives of industry associations and a few insurers 

told us that coverage for individuals represents only a small segment of 

the market, as the market largely focuses on coverage for businesses. 

These representatives also said that any change in the number of 

individuals with coverage before and after NRRA is likely to be small. 

They added that any change in coverage would be due to the insurance 

cycle rather than NRRA. 

We conducted this performance audit from April 2013 to January 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: National Association of Insurance 

Commissioner’s Alien Insurers

Page 34 GAO-14-136 Property and Casualty Insurance

Section 524 of the Nonadmitted and Reinsurance Reform Act of 2010 

(NRRA), as part of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (the Dodd-Frank Act), says that states may not prohibit a 

surplus lines broker from placing nonadmitted insurance with, or 

procuring nonadmitted insurance from, a nonadmitted insurer domiciled 

outside the United States (also called an alien insurer) that is listed in 

National Association of Insurance Commissioner’s (NAIC) International 

Insurers Department (IID) Quarterly Listing of Alien Insurers. This 

publication includes a list of alien insurers that have filed financial 

statements, copies of auditors’ reports, the name of their U.S. attorneys 

or other representative, and details of U.S. trust accounts with the NAIC 

IID and, based upon these documents and other information, appear to

fulfill the criteria set forth in the International IID’s Plan of Operation for 

Listing of Alien Nonadmitted Insurers. According to NAIC, the listing 

provides brokers, exempt commercial purchasers, and insureds with 

assurance as to the eligibility of non-U.S. insurers with which excess and 

surplus lines insurance business is being quoted or placed. Alien insurers 

listed by NAIC must observe applicable state insurance laws and 

regulations, including those covering trust funds. NAIC cautions brokers 

that the appearance of an alien insurer’s name on this list is not an

endorsement by NAIC.

In order to be considered for inclusion in the NAIC publication, an insurer 

must demonstrate that it meets IID’s standards on capital and surplus, 

U.S. trust accounts, and integrity. First, a company must continually 

maintain enough capital or surplus to meet its obligations. IID set the 

minimum amount for April 2012 at $30 million and increased it to $45 

million as of January 2013. IID also considers the size of the company,

the type of business underwritten by the company, and trends in the 

company’s capital and surplus. Second, the insurer must establish a U.S. 

trust account in a U.S. financial institution, consisting of cash deposited 

with the trustee, securities, or an acceptable letter of credit on behalf of 

U.S. policyholders. IID provides applicants details on the terms and 

conditions of such accounts. Third, an insurer is to have an established 

reputation of financial integrity and satisfactory underwriting and claims 

practices. According to A.M. Best, as of August 2012, 34 states 

maintained a list of regulated aliens, 11 states used IID’s “white list,” and 

Appendix II: National Association of 

Insurance Commissioner’s Alien Insurers
Appendix II: National Association of Insurance 

Commissioner’s Alien Insurers

Page 35 GAO-14-136 Property and Casualty Insurance

12 states used IID’s Quarterly Listing of Alien Insurers to qualify aliens as 

surplus lines Insurers.1

From January 2010 through April 2013, 72 surplus lines insurers were 

listed in NAIC’s Quarterly Listing of Alien Insurers (see table 3). This 

count combines the over 80 Lloyd’s of London syndicates into one entry. 

Also over this time, several companies were added to the list while others 

were dropped, and some companies changed their name.

Table 3: Surplus Lines Insurers Listed in NAIC’s Quarterly Listing of Alien Insurers, January 2010 through April 2013

Alien ID# Insurer Country

AA-1120810 ACE European Group Limited England

AA-2730007 ACE Seguros, S.A. Mexico

AA-1120841 AIG Europe Limited (Chartis Europe Limited in 2012) England

AA-1120146 Alea London Limited England

AA-1320065 Allianz Global Corporate & Specialty (France) France

AA-1344102 Allianz Global Corporate & Specialty AG Germany

AA-1780094 Alterra Europe plc

AA-1780074 AmTrust International Underwriters, Ltd. Ireland

AA-1120053 Arch Insurance Company (Europe) Limited England

AA-3190873 Ariel Reinsurance Company, Ltd. Bermuda

AA-1120337 Aspen Insurance UK Limited a/k/a Aspen Re England

AA-3190004 Associated Electric & Gas Insurance Services Ltd (AEGIS) Bermuda

AA-1420113 Assuranceforeningen SKULD (Gjensidig) a/k/a SKULD P&I Club Norway

AA-1120375 Aviva International Insurance Limited England

AA-1320012 AXA Corporate Solutions Assurance France

AA-1784130 AXIS Specialty Europe Public Limited Company, AKA AXIS Specialty Europe SE, AKA AXIS 

Specialty Europe Limited

Ireland

AA-1120030 Berkshire Hathaway International Insurance Limited England

AA-1120007 Britannia Steam Ship Insurance Association Limited, The England

AA-1120290 British Aviation Insurance Company Limited, The England

AA-1120146 Catalina London Limited England

AA-1120049 Catlin Insurance Company (UK) Limited England

AA-1121106 CNA Insurance Company Limited England

 1

A white list is a list of the unauthorized insurers approved by a state to sell a 

surplus lines insurance policy.
Appendix II: National Association of Insurance 

Commissioner’s Alien Insurers

Page 36 GAO-14-136 Property and Casualty Insurance

Alien ID# Insurer Country

AA-1560210 Commonwealth Insurance Company Canada

AA-3194130 Endurance Specialty Insurance Ltd Bermuda

AA-3160013 Energy Insurance Mutual Limited

AA-3194231 Gard Marine & Energy Limited Bermuda

AA-3191188 Gard P.&I. (Bermuda) Ltd. Bermuda

AA-1360015 GENERALI, Assicurazioni Generali, S.p.A. a/k/a Assicurazioni Generali Di Trieste a/k/a 

Assicurazioni Generali Di Trieste E Venezia

Italy

AA-3190600 Glencoe Insurance Ltd. Bermuda

AA-1120697 Great Lakes Reinsurance (UK) PLC England

AA-1120757 Heddington Insurance (U.K) Limited England

AA-1460013 Infrassure Ltd. Switzerland

AA-1120822 International Insurance Company of Hannover Limited England

AA-1780104 Ironshore Europe Limited Ireland

AA-3190917 Ironshore Insurance Ltd. Bermuda

AA-1120066 Lancashire Insurance Company (UK) Limited England

AA-3190871 Lancashire Insurance Company Limited Bermuda

AA-3194157 Lantana Insurance Ltd. Bermuda

AA-1120855 Liberty Mutual Insurance Europe Limited England

Lloyd's Syndicates (various) England

AA-1120887 London & Edinburgh Insurance Company Limited England

AA-1844116 Mapfre Global Risks, Compañia Internacional de Seguros y Reaseguros, S.A. Spain

AA-1121276 Marine Insurance Company Limited, The England

AA-1121425 Markel International Insurance Company Limited England

AA-1121410 Mitsui Sumitomo Insurance Company (Europe) Limited England

AA-1580085 Mitsui Sumitomo Insurance Company Limited

AA-3194129 Montpelier Reinsurance Ltd. Bermuda

AA-3194201 Newbury Insurance Company Limited Bermuda

AA-1120006 North of England Protecting and Indemnity Association Limited, The England

AA-1560210 Northbridge Indemnity Insurance Corporation Canada

AA-1420012 Norwegian Hull Club Norway

AA-1120377 Ocean Marine Insurance Company Limited, The England

AA-1780096 PartnerRe Ireland Insurance Limited Ireland

AA-1120481 QBE Insurance (Europe) Limited England

AA-1120465 RiverStone Insurance (UK) Limited England

AA-1120019 SCOR UK Company Limited England

AA-1371003 Shipowners' Mutual Protection and Indemnity Association Luxembourg

AA-1440076 Sirius International Insurance Corporation Sweden
Appendix II: National Association of Insurance 

Commissioner’s Alien Insurers

Page 37 GAO-14-136 Property and Casualty Insurance

Alien ID# Insurer Country

AA-1121372 Standard Club Europe Ltd., The

AA-1125000 Sunderland Marine Mutual Insurance Company Limited England

AA-1121405 Swiss Re International SE Luxembourg

AA-1120512 Swiss Re Specialty Insurance (UK) Limited England

AA-3191044 Through Transport Mutual Insurance Association Limited Bermuda

AA-1121445 Tokio Marine Europe Insurance Limited England

AA-1120093 Torus Insurance (UK) Limited England

AA-1124127 TT Club Mutual Insurance Limited England

AA-1121480 Unionamerica Insurance Company Limited England

AA-3191146 United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited, The a/k/a UK P&I 

Club

Bermuda

AA-1120138 United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited, The a/k/a UK P&I 

Club

England

AA-1124141 W. R. Berkley Insurance (Europe) Limited England

AA-3194197 Wind River Reinsurance Company, Ltd. Bermuda

AA-1120001 Zurich Specialties London Limited England

Source: GAO analysis of NAIC data.

Note: This table combines numerous Lloyd’s syndicates into one entry. Also, several companies were 

added, others were dropped, and still others changed names over this period. Where no country is 

listed, none was stated.

The NAIC-listed alien insurers are domiciled in several countries, but half 

of them were domiciled in England (see table 4). Another 14 were 

domiciled in Bermuda. The rest are domiciled in other countries, most of 

which are western European countries.
Appendix II: National Association of Insurance 

Commissioner’s Alien Insurers

Page 38 GAO-14-136 Property and Casualty Insurance

Table 4: Home Countries of NAIC-Approved Alien Insurers

Country Number of alien insurers domiciled in country 

England 36

Bermuda 14

Not stated 4

Ireland 4

Norway 2

Canada 2

France 2

Luxembourg 2

Sweden 1

Mexico 1

Switzerland 1

Germany 1

Spain 1

Italy 1

Total 72

Source: GAO analysis of NAIC data.

Note: This table combines numerous Lloyd’s syndicates into one entry. Also, several companies were 

added, others were dropped, and still others changed names over this period.
Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments

Page 39 GAO-14-136 Property and Casualty Insurance

Table 5 shows that the largest surplus lines insurers write most of their 

premiums in the surplus lines market, while smaller surplus lines insurers 

write most of their premiums in the admitted market.1

Table 5: Premiums Written by Top 25 Foreign Surplus Lines Insurers, 2012

Dollars in thousands

Surplus lines insurer

Premiums Written, 2012 Surplus lines premiums 

written as a percentage of 

total premiums written, 

Surplus lines Total 2012

Lexington Ins. Co. $4,231,217 $4,285,132 99%

Scottsdale Ins. Co. 1,253,252 1,270,469 99

Steadfast Insurance Co. 1,024,415 1,058,976 97

QBE Specialty Ins Co. 1,020,691 1,021,678 100

Chartis Specialty Ins Co. 810,365 809,854 100

Columbia Casualty Co. 777,851 782,097 100

Ironshore Specialty Ins Co. 665,099 708,699 94

Landmark American Ins. Co. 588,326 589,564 100

Nautilus Ins. Co. 487,032 489,903 99

AXIS Surplus Ins Co. 475,797 477,636 100

Indian Harbor Ins. Co. 455,130 455,768 100

Westchester Surplus Lines Ins Co. 452,322 454,599 100

Arch Specialty Ins. Co. 447,491 449,992 99

Illinois Union Ins. Co. 437,740 448,009 98

Evanston Ins. Co. 407,517 410,492 99

Colony Ins. Co. 404,675 404,898 100

First Mercury Ins. Co. 376,027 376,250 100

Essex Ins. Co. 371,637 371,709 100

Chubb Custom Ins. Co. 361,809 361,796 100

Liberty Surplus Ins. Corp. 353,284 355,862 99

Houston Casualty Co. 319,267 384,955 83

Admiral Ins Co. 305,896 306,031 100

Catlin Specialty Ins Co. 300,122 326,138 92

 1

We use the term “premiums written” to mean “direct premiums written,” which is 

the amount of insurance policy premiums written not including the policies given 

to reinsurers.

Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments
Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments

Page 40 GAO-14-136 Property and Casualty Insurance

Dollars in thousands

Surplus lines insurer

Premiums Written, 2012 Surplus lines premiums 

written as a percentage of 

total premiums written, 

Surplus lines Total 2012

Gemini Ins. Co. 280,117 280,308 100

Aspen Specialty Ins Co. 250,265 250,265 100

Total top 25 foreign surplus lines Insurers $16,857,343 $17,131,080 98.4%

Total rest of foreign surplus lines insurers $8,350,492 $21,498,941 38.9%

Total all foreign surplus line Insurers $25,207,836 $38,630,021 65.3%

Source: GAO analysis of SNL Financial data.

Table 6 provides detail on the surplus lines premiums written from 2008 

through 2012 by the top 25 surplus lines carriers in each of those years. 

The carriers are listed in order of descending surplus lines premiums 

written for 2012.

Table 6: Premiums Written by Lloyd’s of London, the Top 25 Foreign Surplus Lines Insurers, and All Foreign Surplus Lines 

Insurers, 2008–2012

Dollars in thousands

Surplus lines Insurer

Surplus lines premiums written Percentage change 

in surplus lines 

premiums written,

2008 2009 2010 2011 2012 2008-2012

Lloyd’s of London $6,062,359 $6,090,703 $5,789,151 $5,790,116 $6,269,517 3.42%

Lexington Ins. Co. 5,962,889 5,336,832 4,549,242 4,533,088 4,231,217 -29.0

Scottsdale Ins. Co. 1,074,324 1,030,400 1,004,024 1,086,995 1,253,252 16.7

Steadfast Insurance Co. 1,178,955 1,090,154 1,047,976 923,629 1,024,415 -13.1

QBE Specialty Ins Co. 150,378 527,256 a 607,943 583,141 1,020,691 578.8

Chartis Specialty Ins Co. 1,198,963 788,229 783,893 798,444 810,365 -32.4

Columbia Casualty Co. 730,788 726,922 712,595 746,582 777,851 6.4

Ironshore Specialty Ins Co. 43,694 312,095 a 512,587 601,266 665,099 1422.2

Landmark American Ins. Co. 587,463 569,963 508,418 531,960 588,326 0.1

Nautilus Ins. Co. 378,438 347,142 368,126 430,531 487,032 28.7

AXIS Surplus Ins Co. 538,252 512,046 501,762 463,840 475,797 -11.6

Indian Harbor Ins. Co. 403,603 357,412 333,705 349,972 455,130 12.8

Westchester Surplus Lines Ins Co. 516,845 454,912 412,548 407,986 452,322 -12.5

Arch Specialty Ins. Co. 466,162 441,551 402,245 411,999 447,491 -4.0

Illinois Union Ins. Co. 530,151 437,271 522,226 462,207 437,740 -17.4

Evanston Ins. Co. 613,577 517,929 468,112 408,230 407,517 -33.6
Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments

Page 41 GAO-14-136 Property and Casualty Insurance

Dollars in thousands

Surplus lines Insurer

Surplus lines premiums written Percentage change 

in surplus lines 

premiums written,

2008 2009 2010 2011 2012 2008-2012

Colony Ins. Co. 517,559 450,667 359,622 366,563 404,675 -21.8

First Mercury Ins. Co. 296,663 292,130 297,922 290,196 376,027 26.8

Essex Ins. Co. 359,132 285,305 293,257 320,938 371,637 3.5

Chubb Custom Ins. Co. 328,504 284,302 285,093 333,530 361,809 10.1

Liberty Surplus Ins. Corp. 217,382 209,126 197,968 a 275,117 a 353,284 62.5

Houston Casualty Co. 341,275 343,686 299,224 304,132 319,267 -6.4

Catlin Specialty Ins Co. 119,219 187,227 a 228,069 a 261,461 305,896 156.6

Admiral Ins Co. 413,608 331,104 282,416 284,168 300,122 -27.4

Gemini Ins. Co. 137,834 134,540 a 153,191 a 230,991 a 280,117 a 103.2

Aspen Specialty Ins Co. 1,655 75,966 a 157,904 a 185,000 a 250,265 a 15021.8

Alterra Excess & Surplus Ins Co. 181,176 247,438 a 271,358 280,114 244,683 35.1 a

Endurance American Specialty Ins 

Co. 187,048 256,903 a 245,349 274,907 243,450 30.2 a

Mt. Hawley Ins. Co. 313,365 251,065 226,937 212,272 238,816 a -23.8 a

Empire Indemnity Ins. Co. 361,802 278,201 166,257 136,151 a 145,033 a -59.9 a

National Fire & Marine Ins. Co. 339,359 196,377 127,113 a 117,826 a 127,742 a -62.4 a

Interstate Fire & Casualty Co. 331,045 246,106 199,932 a 181,072 a 193,259 a -41.6 a

St. Paul Surplus Lines Ins. Co. 200,420 171,410 154,436 a 67,989 43,610 a -78.2 a

Total top 25 surplus lines

insurers $18,200,527 $16,470,914 $15,524,649 $15,730,996 $16,857,343

Total all foreign surplus lines

insurers $24,817,210 $23,080,805 $22,179,937 $22,912,788 $25,207,828

Source: GAO analysis of data from SNL Financial and Lloyd’s of London.

a

Not in top 25 surplus lines insurers by surplus line direct premiums written for that year.

Surplus lines premiums are concentrated in a few states (see table 7). 

About half of the surplus lines premiums are written in 4 states, and just 

under two-thirds of the premiums are written in 10 states. From 2010-

2012, the 10 states with the most surplus lines premiums written in their 

states accounted for 62.8 percent, 63.3 percent, and 63.6 percent of the 

total premiums in 2010, 2011, and 2012, respectively.
Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments

Page 42 GAO-14-136 Property and Casualty Insurance

Table 7: 10 States with the Largest Surplus Lines Premiums Written, 2010–2012

State

Surplus lines premiums written in that state

2010 Rank 2011 Rank 2012 Rank

California $3,491,917,586 1 $3,548,577,214 1 $3,678,599,211 1

Florida 2,765,750,810 2 2,811,918,708 2 3,238,089,541 2

Texas 2,590,673,889 3 2,562,329,113 3 2,954,822,770 3

New York 1,644,281,742 4 1,658,896,733 4 1,897,085,405 4

Louisiana 929,742,945 5 917,166,358 6 965,426,258 6

Illinois 819,384,135 6 1,008,262,633 5 926,849,208 5

New Jersey 721,252,997 7 782,621,215 7 870,724,730 7

Pennsylvania 665,079,633 8 686,224,140 8 762,469,481 8

North Carolina 372,020,511 14 421,311,245 13 562,837,972 9

Georgia 470,564,662 10 514,675,060 10 555,913,202 10

Total top 10 states $16,412,817,778 $14,982,830,528 $14,607,883,341

Total all states $25,239,342,055 $22,884,248,654 $22,229,898,568

Source: GAO analysis of National Association of Insurance Commissioners data.

Note: “All states” includes the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, American 

Samoa, and the Northern Mariana Islands.

From 2008 through 2012, the 199 SL insurers that we examined had cash 

and invested assets from $152.7 billion to $233.1 billion, respectively, in 

several asset classes, and are mostly invested in bonds. An increasing 

percentage was invested in industrial bonds and decreasing percentages 

in government and other bonds. These insurers also invested somewhat 

heavily in cash and other short-term investments, but less so than in 

2008. They have also tended to increase their investments in common 

stock, but that amount remains under 7 percent of total cash and 

investments (see table 8).
Appendix III: Surplus Lines Insurers’ 

Premiums Written and Investments

Page 43 GAO-14-136 Property and Casualty Insurance

Table 8: Surplus Lines Insurers’ Investments, 2008–2012

Dollars in thousands

Total cash and investments

2008 2009 2010 2011 2012

$152,656,888 $173,420,057 $211,242,459 $214,953,998 $233,088,686

Bonds 77.0% 79.9% 79.4% 77.8% 77.7%

 U.S. Government bonds 28.3 28.2 28.5 26.5 25.9

 Special revenue bonds 26.4 25.7 26.2 26.6 26.3

 Industrial bonds 28.4 32.0 32.0 32.9 34.2

 Other bonds 16.9 a14.1 13.2 13.9 13.6

Preferred stock 0.8 b 0.9 0.9 0.9 0.9

Common stock 3.9 c4.1 4.9 5.8 6.6

Mortgage loans 0.0 0.0 0.0 0.0 0.1

Real estate 0.1 0.1 0.1 0.2 0.2

Contract loans 0.0 0.0 0.0 0.0 0.0

Cash & short term investments 17.3 14.1 13.6 14.5 13.5

Other investments 0.9 0.8 1.0 0.8 0.9

Source: GAO analysis of SNL Financial data.

a

Other bonds includes foreign government bonds; states, territories, and possessions bonds; political 

subdivisions bonds; public utilities bonds; credit tenant loans; and affiliated bonds. 

b

Preferred stocks are equities with a class of ownership in a corporation, where preferred 

stockholders have a higher claim on the assets and earnings than do common shareholders. 

Preferred stock generally has a dividend that must be paid out before dividends to common 

stockholders and the shares usually do not have voting rights.

c

Common stock is a security representing equity ownership of a company’s assets. Voting rights are 

normally accorded to holders of common stock.
Appendix IV: States’ Premium Tax Rates on 

Surplus Lines Sales

Page 44 GAO-14-136 Property and Casualty Insurance

Table 9: States’ Premium Tax Rates on Single State and MultiState Transactions 

State

Member of 

interstate 

compact

Tax rate 

(when state is insured’s home state)

Single state risks

(percent)

Multistate risks

(percent)

Alabama SLIMPACT 6% 6%

Alaska

a

no 2.7 2.7 e

Arizona no 3 3

Arkansas no 4 4

California no 3 3

Colorado no 3 3

Connecticut

b

no 4 4

Delaware no 2 2

District of Columbia no 2 2

Florida NIMA 5 5 e

Georgia

b,c

no 4 4

Hawaii no 4.68

Idaho

d

no 1.5 1.5

Illinois no 3.5 3.5

Indiana SLIMPACT 2.5 2.5

Iowa

a

no 1 1

Kansas SLIMPACT 6

Kentucky

a,d

SLIMPACT 3 3

Louisiana

a

NIMA 5 5

Maine

b,c

no 3 3

Maryland no 3 3

Massachusetts no 4

Michigan

d

no 2 2.5 e

Minnesota no 3 3

Mississippi no 4 4

Missouri no 5 5

Montana no 2.75 2.75

Nebraska no 3e

Nevada

d

no 3.5 3.5

New Hampshire no 3

New Jersey

d

no 5 5

New Mexico SLIMPACT 3.003 3.003

New York

a

no 3.6 3.6

Appendix IV: States’ Premium Tax Rates on 

Surplus Lines Sales
Appendix IV: States’ Premium Tax Rates on 

Surplus Lines Sales

Page 45 GAO-14-136 Property and Casualty Insurance

State

Member of 

interstate 

compact

Tax rate 

(when state is insured’s home state)

Single state risks

(percent)

Multistate risks

(percent)

N. Carolina no 5 5

N. Dakota SLIMPACT 1.75

Ohio

a,d

no 5 5

Oklahoma no 6 6

Oregon no 2.3 2.3

Pennsylvania no 3 3

Puerto Rico NIMA 9 9

Rhode Island

b,c

SLIMPACT 4 4

S. Carolina no 4 6 e

S. Dakota

b

NIMA 2.5 2.5 e

Tennessee

b,c,d

SLIMPACT 5 5

Texas

a

no 4.85 4.85

Utah NIMA 4.25 4.25

Vermont

b,c

SLIMPACT 3

Virgin Islands

a,b

no 5 No provision

Virginia no 2.25 2.25 e

Washington no 2 2

W. Virginia no 4 4.55 e

Wisconsin no 3 3

Wyoming NIMA 3 3

Source: GAO analysis of National Association of Insurance Commissioners data.

b,c

Note: NIMA, the Nonadmitted Insurance Multi-State Agreement, is an interstate agreement that states 

may enter to report, collect, and distribute surplus lines taxes according to a uniform risk allocation 

formula in a manner intended to be consistent with NRRA. SLIMPACT, the Surplus Lines Insurance 

Multi-State Compliance Compact, is an alternative interstate compact that according to the Council of 

State Governments is also intended to implement the intent of NRRA, streamline surplus lines 

taxation and regulation, and reform insurance regulation.

a

Rate may change if SLIMPACT becomes operational. Kentucky plans to implement an 11.8 percent 

rate if SLIMPACT becomes operational.

b

Portion of surplus lines premiums representing risk and exposures in the state at the percentage 

stated. 

C

Portions allocated to other NIMA states will be taxed at a rate in state where risk is located and 

shared by agreement. In Florida, portions allocated to non-NIMA states are taxed and retained at a 

rate in state where risk is located. Portions allocated to non-NIMA states are not taxed by Louisiana. 

Portions allocated to non-NIMA states are taxed and retained at 9 percent (or 15 percent for 

independently procured coverage) by Puerto Rico. Portions allocated to non-NIMA states are taxed 

and retained by S. Dakota at 2.5 percent plus applicable fire tax. Portions allocated to non-NIMA 

states are not taxed by Utah. Portions allocated to non-NIMA states are taxed and retained at 3 

percent in Wyoming.

d

Tax rate of state where risk is located.
Appendix IV: States’ Premium Tax Rates on 

Surplus Lines Sales

Page 46 GAO-14-136 Property and Casualty Insurance

e

In Alaska, add a 1 percent filing fee. In Florida add a 0.3 percent service fee. In Michigan, add a 0.5 

percent regulatory fee. In Nebraska (percent not stated) and S. Dakota (0.5 percent) fire taxes apply. 

In S. Carolina, a 2 percent municipal tax may apply. In Virginia, a 0.1 percent assessment for Virginia 

Bureau of Insurance may apply. In W. Virginia, add a 0.55 percent surcharge.
Appendix V: Premiums Written of Parent 

Companies of Foreign Surplus Lines Insurers

Page 47 GAO-14-136 Property and Casualty Insurance

The potential for business to shift between admitted and surplus lines 

insurance companies owned by a given parent company depends in part 

on the extent to which that parent’s subsidiaries offer the same coverages 

on both an admitted and surplus lines basis, and in the same markets.

While we could not determine if the admitted and surplus lines insurance 

subsidiaries owned by the parent companies listed in table 10 sold the 

same coverages or in the same markets, we did examine whether there 

was a change in the proportion of a parent’s subsidiaries business that 

was done in the surplus lines market. We also examined the surplus lines 

companies whose parents did not have other property and casualty (P/C) 

subsidiaries.

Table 10: Total Admitted and Surplus Lines Premiums Written by Subsidiaries of Top 25 Parent Companies That Have a 

National Association of Insurance Commission-Listed Foreign Surplus Line Subsidiary, by 2012 Surplus Line Premiums 

Written, 2008 and 2012

Dollars in thousands

SNL P/C group

Premiums Written

Total surplus lines, 

2008

Surplus lines as 

a percentage of

total, 2008 Total, 2012

Total surplus 

lines, 2012

Surplus lines as 

a percentage of

total, 2012

American International Group $7,230,679 25.1% $23,596,418 $5,041,939 21.4%

Nationwide Mutual Group 1,243,219 7.3 17,042,933 1,414,690 8.3

Zurich Insurance Group Ltd. 1,545,248 13.0 10,577,401 1,175,583 11.1

W. R. Berkley Corp. 951,547 26.5 4,028,480 1,113,018 27.6

Markel Corp. 1,185,201 64.0 2,073,810 1,064,527 51.3

QBE Insurance Group Ltd. 150,401 3.4 5,590,843 1,020,691 18.3

ACE Ltd. 1,046,996 12.2 9,277,091 890,062 9.6

CNA Financial Corp. 730,788 8.8 8,510,763 777,851 9.1

Ironshore Inc. 44,053 64.6 846,584 673,699 79.6

Alleghany Corp. 657,429 49.6 1,231,441 656,743 53.3

Fairfax Financial Holdings 578,481 22.6 2,854,235 650,596 22.8

AXIS Capital Holdings Ltd. 582,144 52.4 1,284,189 475,797 37.1

XL Group plc 406,141 13.4 2,474,034 455,897 18.4

Arch Capital Group Ltd. 468,017 26.1 1,890,693 447,491 23.7

Allied World Assurance Co. 341,717 65.8 990,115 426,742 43.1

Chubb Corp. 377,870 3.8 9,691,654 426,000 4.4

Argo Group International 614,361 51.7 934,866 409,909 43.8

Berkshire Hathaway Inc. 741,634 4.4 20,236,495 404,636 2.0

Liberty Mutual 256,009 1.0 28,297,511 353,284 1.2

HCC Insurance Holdings Inc. 362,818 31.3 1,138,794 335,056 29.4

Appendix V: Premiums Written of Parent 

Companies of Foreign Surplus Lines 

Insurers
Appendix V: Premiums Written of Parent 

Companies of Foreign Surplus Lines Insurers

Page 48 GAO-14-136 Property and Casualty Insurance

Dollars in thousands

SNL P/C group

Premiums Written

Total surplus lines, 

2008

Surplus lines as 

a percentage of

total, 2008 Total, 2012

Total surplus 

lines, 2012

Surplus lines as 

a percentage of

total, 2012

Assurant Inc. 301,807 7.8 4,290,979 319,343 7.4

American Financial Group Inc. 247,773 5.8 4,015,280 314,165 7.8

Catlin Group Ltd 119,219 83.4 579,682 305,896 52.8

Munich-American Holding 

Corp. 340,405 18.4 2,170,996 303,142 14.0

Travelers Companies Inc. 445,366 2.0 22,695,958 285,008 1.3

Total, for all 93 SNL P&C 

Groups (average for 

percentages) $24,918,350 22.3% $283,446,660 $24,945,357 22.4%

Total for 11 surplus lines 

companies not in a SNL P&C 

Group (average for 

percentages) $114,163 46.4% $402,885 $261,495 51.3%

Source: GAO analysis of SNL data.

Note: By parent we mean SNL’s P&C Group level, which excludes non-P&C subsidiaries.

As shown in table 10, SNL Financial, Inc. (SNL) P/C Groups (a proxy for 

parents, including only P/C insurers) with surplus lines insurer 

subsidiaries tend to have admitted subsidiaries whose premiums written 

exceed that of the surplus lines subsidiaries, often by a large percentage.1

Of the 25 companies with the highest premiums written in 2012, 4 had 

over half of their premiums provided by their surplus lines business lines, 

and of those, 1 (Ironshore, Inc.) had a significant portion of its premiums 

(79.6 percent) provided by these business lines. American International 

Group, Inc., the largest surplus lines provider as measured by 2012 

surplus lines premiums written, wrote $5 billion in surplus lines premiums 

in 2012, but that was 21.4 percent of its total premiums written. It shows 

that surplus lines insurers whose parents have no P/C subsidiaries wrote 

51.3 percent of their total premiums written in the surplus lines business 

lines in 2012, which was more than double the 22.4 percent for parents 

with P/C subsidiaries (see table 10).

 1

We use the term “premiums written” to mean “direct premiums written,” which is 

the number of insurance policy premiums written not including the policies given 

to reinsurers.
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 49 GAO-14-136 Property and Casualty Insurance

Daniel Garcia-Diaz, (202) 512-8678 or GarciaDiazD@gao.gov

In addition to the contact named above, Patrick Ward (Assistant Director), 

Emily Chalmers, Pamela Davidson, John Forrester, Ronald Ito, Marc 

Molino, and Jessica Sandler made important contributions to this report.

Appendix VI: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250724)
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