Achievable Casualty

Oregon Surplus Lines and Federal Terrorism Insurance

8 min read

Two sources of property and casualty coverage sit outside the ordinary admitted market. The federal terrorism insurance program stands behind commercial insurers for losses from certified acts of terrorism. Surplus lines insurers write risks the admitted market will not. This chapter covers both, including Oregon’s rules for placing surplus lines coverage.

Federal Terrorism Insurance Program (15 USC 6701; Public Law 109-144, 110-160)

The Terrorism Risk Insurance Act of 2002 created a federal backstop for commercial property and casualty losses from acts of terrorism. It has been extended several times, including by the Terrorism Risk Insurance Extension Act of 2005 (Public Law 109-144) and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Public Law 110-160). Later reauthorizations in 2015 (Public Law 114-1) and 2019 (Public Law 116-94) set the current figures. The Act is printed as a note to 15 U.S.C. 6701, and the Program is scheduled to end on December 31, 2027.

What it covers: commercial lines of property and casualty insurance, including excess insurance, workers’ compensation and directors and officers liability. It does not cover personal lines, or commercial auto, burglary and theft, surety, professional liability (other than directors and officers), medical malpractice, crop, federal (NFIP) flood, health or life insurance, among others
Who administers it: the Terrorism Insurance Program sits in the Department of the Treasury, and the Secretary of the Treasury administers it. Every insurer that meets the Act’s definition must participate
Mandatory availability: each participating insurer must make available, in all its property and casualty policies, coverage for insured terrorism losses on terms that do not differ materially from its coverage for other losses. The policyholder decides whether to buy it
Disclosure: to be eligible for federal payment, the insurer must give the policyholder clear and conspicuous disclosure of the premium charged for terrorism coverage and the federal share of compensation, on a separate line item, at offer and renewal. Since 2007 it must also disclose the program’s $100 billion annual cap
Certified acts of terrorism: the Program pays only for an act the Secretary of the Treasury certifies as terrorism, in consultation with the Secretary of Homeland Security and the Attorney General. The act must be violent or dangerous to human life, property or infrastructure, cause damage in the United States (or to a U.S. air carrier, vessel or mission abroad), and be committed to coerce the civilian population or influence U.S. government policy. An act committed in a war declared by Congress (except for workers’ compensation) cannot be certified, and neither can one whose property and casualty losses total $5 million or less
How losses are shared: each insurer first pays losses up to its insurer deductible, equal to 20 percent of its direct earned premium for the prior year. Above that, the federal government pays 80 percent and the insurer 20 percent. No federal payment is made unless industry-wide insured losses from certified acts exceed the program trigger of $200 million in the year

Surplus lines (ORS 735.410, 735.415)

Definitions and markets

Surplus lines insurance is coverage placed with a nonadmitted insurer: one not authorized to do business in Oregon. It is how Oregon residents and businesses get coverage the authorized (admitted) market will not write. Oregon’s Surplus Lines Law is ORS 735.400 to 735.495. Its key terms (ORS 735.405):

An admitted insurer is authorized to do an insurance business in Oregon. A nonadmitted insurer is not
An eligible surplus lines insurer is a nonadmitted insurer with which a surplus lines licensee may place coverage
To export is to place surplus lines insurance with a nonadmitted insurer
An insured’s home state is generally where it has its principal place of business or, for an individual, principal residence. If all of the insured risk is located outside that state, the home state is the state to which the greatest share of the policy’s taxable premium is allocated (ORS 735.405). Oregon regulates and taxes the surplus lines placements on Oregon home state risks
An exempt commercial purchaser is a large commercial buyer with a qualified risk manager that paid more than $100,000 in nationwide commercial property and casualty premium in the past 12 months, and meets a size test such as a net worth over $10 million or annual revenues over $20 million (adjusted periodically)

When surplus lines may be used (ORS 735.410). Insurance may be placed with a nonadmitted insurer through a surplus lines licensee only if:

The insurer is an eligible surplus lines insurer
A diligent search was first made among the admitted insurers actually writing that kind and class of insurance in Oregon, and the full amount or kind of coverage could not be obtained from them

The diligent search is not required for an exempt commercial purchaser that has been told coverage may be available in the admitted market with more regulatory oversight, and has then asked in writing for the nonadmitted placement. Nor is it required for a coverage on the Director’s published list of coverages generally unavailable in the admitted market for affordable housing (ORS 735.410(4)).

Which insurers are eligible (ORS 735.415). At the time of placement, the nonadmitted insurer must be authorized to write that kind of insurance by its home jurisdiction’s regulator, and must qualify financially. Usually that means capital and surplus of at least the greater of its domicile’s minimum or $15 million; the Director may accept less on specific findings, but never less than $4.5 million. An alien insurer qualifies by adding a trust fund in the United States of at least $5.4 million to that, or by being listed on the NAIC Quarterly Listing of Alien Insurers. Insurance exchanges and groups of underwriters have their own capital and trust fund tests. The Director may declare an insurer ineligible if it is in unsound financial condition, is no longer eligible under these standards, has willfully violated Oregon law, or does not pay claims reasonably promptly (ORS 735.420).

Licensing requirements

Only a person licensed under ORS chapter 744 to transact surplus lines insurance may procure surplus lines coverage on an Oregon home state risk (ORS 735.450). A surplus lines licensee is an insurance producer licensed under ORS chapter 744 to place insurance on Oregon home state risks with nonadmitted insurers (ORS 735.405). A person licensed as a surplus lines producer in their home state may receive an Oregon nonresident surplus lines license (ORS 744.063).

The licensee’s duties include:

Filing with the Director, within 90 days after placing the coverage, a signed statement of the insured, the insurer, the risk and the premium. With it goes a statement of the diligent search, signed by the producing producer. That statement affirms the insured was told before placement that the insurer is not licensed in Oregon and not subject to its supervision, and that the state’s insurance guaranty fund will not pay its losses if it becomes insolvent (ORS 735.425)
Reporting and paying the surplus lines premium tax of 2 percent of gross premiums on Oregon home state risks, plus 0.3 percent for the State Fire Marshal. The licensee collects these from the insured and may not absorb or rebate any part of them (ORS 735.465, 735.470)

The Surplus Line Association of Oregon is the advisory organization of surplus lines licensees. It reviews their filings for compliance, and may collect the taxes and filings on the Director’s behalf (ORS 735.430).

Sidenote

Know this...

A surplus lines insured gives up the state guaranty fund. That is why the insured must be told, before the coverage is placed, that the insurer is not licensed or supervised in Oregon and that the Oregon Insurance Guaranty Association will not pay its claims if it fails.

Lesson summary

TRIA requires insurers to offer terrorism coverage and disclose its premium and the federal share. The federal government pays 80 percent of certified losses above the insurer’s deductible (20 percent of its prior-year direct earned premium), once industry losses exceed $200 million. The Program runs through December 31, 2027.
Surplus lines coverage may be placed only after a diligent search of the admitted market (unless an exception applies), only with an eligible nonadmitted insurer, and only by a surplus lines licensee, who files the placement within 90 days and collects the 2 percent tax (ORS 735.410 to 735.470).

Next | 66. Vermont State Regulations & NAIC Insurance Law

Oregon Surplus Lines and Federal Terrorism Insurance

Federal Terrorism Insurance Program (15 USC 6701; Public Law 109-144, 110-160)

What it covers: commercial lines of property and casualty insurance, including excess insurance, workers’ compensation and directors and officers liability. It does not cover personal lines, or commercial auto, burglary and theft, surety, professional liability (other than directors and officers), medical malpractice, crop, federal (NFIP) flood, health or life insurance, among others
Who administers it: the Terrorism Insurance Program sits in the Department of the Treasury, and the Secretary of the Treasury administers it. Every insurer that meets the Act’s definition must participate
Mandatory availability: each participating insurer must make available, in all its property and casualty policies, coverage for insured terrorism losses on terms that do not differ materially from its coverage for other losses. The policyholder decides whether to buy it
Disclosure: to be eligible for federal payment, the insurer must give the policyholder clear and conspicuous disclosure of the premium charged for terrorism coverage and the federal share of compensation, on a separate line item, at offer and renewal. Since 2007 it must also disclose the program’s $100 billion annual cap
Certified acts of terrorism: the Program pays only for an act the Secretary of the Treasury certifies as terrorism, in consultation with the Secretary of Homeland Security and the Attorney General. The act must be violent or dangerous to human life, property or infrastructure, cause damage in the United States (or to a U.S. air carrier, vessel or mission abroad), and be committed to coerce the civilian population or influence U.S. government policy. An act committed in a war declared by Congress (except for workers’ compensation) cannot be certified, and neither can one whose property and casualty losses total $5 million or less
How losses are shared: each insurer first pays losses up to its insurer deductible, equal to 20 percent of its direct earned premium for the prior year. Above that, the federal government pays 80 percent and the insurer 20 percent. No federal payment is made unless industry-wide insured losses from certified acts exceed the program trigger of $200 million in the year

Surplus lines (ORS 735.410, 735.415)

Definitions and markets

An admitted insurer is authorized to do an insurance business in Oregon. A nonadmitted insurer is not
An eligible surplus lines insurer is a nonadmitted insurer with which a surplus lines licensee may place coverage
To export is to place surplus lines insurance with a nonadmitted insurer
An insured’s home state is generally where it has its principal place of business or, for an individual, principal residence. If all of the insured risk is located outside that state, the home state is the state to which the greatest share of the policy’s taxable premium is allocated (ORS 735.405). Oregon regulates and taxes the surplus lines placements on Oregon home state risks
An exempt commercial purchaser is a large commercial buyer with a qualified risk manager that paid more than $100,000 in nationwide commercial property and casualty premium in the past 12 months, and meets a size test such as a net worth over $10 million or annual revenues over $20 million (adjusted periodically)

When surplus lines may be used (ORS 735.410). Insurance may be placed with a nonadmitted insurer through a surplus lines licensee only if:

The insurer is an eligible surplus lines insurer
A diligent search was first made among the admitted insurers actually writing that kind and class of insurance in Oregon, and the full amount or kind of coverage could not be obtained from them

Licensing requirements

The licensee’s duties include:

Filing with the Director, within 90 days after placing the coverage, a signed statement of the insured, the insurer, the risk and the premium. With it goes a statement of the diligent search, signed by the producing producer. That statement affirms the insured was told before placement that the insurer is not licensed in Oregon and not subject to its supervision, and that the state’s insurance guaranty fund will not pay its losses if it becomes insolvent (ORS 735.425)
Reporting and paying the surplus lines premium tax of 2 percent of gross premiums on Oregon home state risks, plus 0.3 percent for the State Fire Marshal. The licensee collects these from the insured and may not absorb or rebate any part of them (ORS 735.465, 735.470)

Sidenote

Know this...

Lesson summary

TRIA requires insurers to offer terrorism coverage and disclose its premium and the federal share. The federal government pays 80 percent of certified losses above the insurer’s deductible (20 percent of its prior-year direct earned premium), once industry losses exceed $200 million. The Program runs through December 31, 2027.
Surplus lines coverage may be placed only after a diligent search of the admitted market (unless an exception applies), only with an eligible nonadmitted insurer, and only by a surplus lines licensee, who files the placement within 90 days and collects the 2 percent tax (ORS 735.410 to 735.470).

Federal Terrorism Insurance Program (15 USC 6701; Public Law 109-144, 110-160)

What it covers: commercial lines of property and casualty insurance, including excess insurance, workers’ compensation and directors and officers liability. It does not cover personal lines, or commercial auto, burglary and theft, surety, professional liability (other than directors and officers), medical malpractice, crop, federal (NFIP) flood, health or life insurance, among others
Who administers it: the Terrorism Insurance Program sits in the Department of the Treasury, and the Secretary of the Treasury administers it. Every insurer that meets the Act’s definition must participate
Mandatory availability: each participating insurer must make available, in all its property and casualty policies, coverage for insured terrorism losses on terms that do not differ materially from its coverage for other losses. The policyholder decides whether to buy it
Disclosure: to be eligible for federal payment, the insurer must give the policyholder clear and conspicuous disclosure of the premium charged for terrorism coverage and the federal share of compensation, on a separate line item, at offer and renewal. Since 2007 it must also disclose the program’s $100 billion annual cap
Certified acts of terrorism: the Program pays only for an act the Secretary of the Treasury certifies as terrorism, in consultation with the Secretary of Homeland Security and the Attorney General. The act must be violent or dangerous to human life, property or infrastructure, cause damage in the United States (or to a U.S. air carrier, vessel or mission abroad), and be committed to coerce the civilian population or influence U.S. government policy. An act committed in a war declared by Congress (except for workers’ compensation) cannot be certified, and neither can one whose property and casualty losses total $5 million or less
How losses are shared: each insurer first pays losses up to its insurer deductible, equal to 20 percent of its direct earned premium for the prior year. Above that, the federal government pays 80 percent and the insurer 20 percent. No federal payment is made unless industry-wide insured losses from certified acts exceed the program trigger of $200 million in the year

Surplus lines (ORS 735.410, 735.415)

Definitions and markets

An admitted insurer is authorized to do an insurance business in Oregon. A nonadmitted insurer is not
An eligible surplus lines insurer is a nonadmitted insurer with which a surplus lines licensee may place coverage
To export is to place surplus lines insurance with a nonadmitted insurer
An insured’s home state is generally where it has its principal place of business or, for an individual, principal residence. If all of the insured risk is located outside that state, the home state is the state to which the greatest share of the policy’s taxable premium is allocated (ORS 735.405). Oregon regulates and taxes the surplus lines placements on Oregon home state risks
An exempt commercial purchaser is a large commercial buyer with a qualified risk manager that paid more than $100,000 in nationwide commercial property and casualty premium in the past 12 months, and meets a size test such as a net worth over $10 million or annual revenues over $20 million (adjusted periodically)

When surplus lines may be used (ORS 735.410). Insurance may be placed with a nonadmitted insurer through a surplus lines licensee only if:

The insurer is an eligible surplus lines insurer
A diligent search was first made among the admitted insurers actually writing that kind and class of insurance in Oregon, and the full amount or kind of coverage could not be obtained from them

Licensing requirements

The licensee’s duties include:

Filing with the Director, within 90 days after placing the coverage, a signed statement of the insured, the insurer, the risk and the premium. With it goes a statement of the diligent search, signed by the producing producer. That statement affirms the insured was told before placement that the insurer is not licensed in Oregon and not subject to its supervision, and that the state’s insurance guaranty fund will not pay its losses if it becomes insolvent (ORS 735.425)
Reporting and paying the surplus lines premium tax of 2 percent of gross premiums on Oregon home state risks, plus 0.3 percent for the State Fire Marshal. The licensee collects these from the insured and may not absorb or rebate any part of them (ORS 735.465, 735.470)

Sidenote

Know this...

Lesson summary

TRIA requires insurers to offer terrorism coverage and disclose its premium and the federal share. The federal government pays 80 percent of certified losses above the insurer’s deductible (20 percent of its prior-year direct earned premium), once industry losses exceed $200 million. The Program runs through December 31, 2027.
Surplus lines coverage may be placed only after a diligent search of the admitted market (unless an exception applies), only with an eligible nonadmitted insurer, and only by a surplus lines licensee, who files the placement within 90 days and collects the 2 percent tax (ORS 735.410 to 735.470).