Achievable Property & Casualty

75. Texas Insurance Regulations

75.1. The Regulatory Framework

Insurer Classifications and Guaranty Association

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Classifying insurers

Every insurer doing business in Texas falls into several classifications at once. The exam tests each independently.

Admitted vs. non-admitted

An admitted (authorized) insurer holds a Certificate of Authority from TDI under TIC 801.051–.053 and is fully subject to Texas regulation: rate and form review, premium taxes, market conduct examinations, and mandatory membership in the appropriate guaranty association.

A non-admitted (unauthorized) insurer does not hold a Texas Certificate of Authority. It may still write coverage in Texas, but only through a licensed surplus lines agent under TIC Chapter 981, and only when admitted carriers cannot or will not cover the risk. Non-admitted insurer policyholders are not eligible for guaranty association coverage if the carrier fails.

Domestic, foreign, and alien (TIC 982.001)

All three terms describe where the insurer is chartered, viewed from the perspective of Texas:

Domestic. Chartered in Texas.
Foreign. Chartered in another U.S. state. A New Jersey-chartered insurer is foreign in Texas — even though in everyday English “foreign” suggests another country.
Alien. Chartered outside the United States.

These three classifications are independent of admitted status. A foreign insurer can be admitted in Texas (if it has a Certificate of Authority) or non-admitted (if it has not sought one).

MEMORY HOOK — Domestic, foreign, alien

Think of the test state as home: domestic = born here, foreign = born in another U.S. state, alien = born in another country. The exam loves the trap where an Ohio insurer applies for Texas authority and is called “foreign” — students who hear “Ohio” and pick “alien” lose easy points.

Organizational forms: stock, mutual, fraternal, Texas Lloyds (TIC 801.001, 885, 941)

Stock insurer. A for-profit corporation owned by shareholders. Profits flow to shareholders as dividends; policyholders are customers, not owners.
Mutual insurer. A company owned by its policyholders. Net earnings may be distributed to policyholders as policy dividends (which are technically a return of unused premium, not an inducement to buy).
Fraternal benefit society (TIC Chapter 885). A nonprofit organization with a lodge system that issues insurance only to its members. Fraternals are organized around a common purpose (often religious, ethnic, or occupational) and are regulated under their own chapter.
Texas Lloyds (TIC Chapter 941). A Lloyd’s plan: at least 10 “underwriters” (individuals, partnerships, or associations of individuals) who sign articles of agreement to write insurance through an attorney in fact. Each underwriter accepts a share of the risk on the policies the plan writes and is not liable as a partner (TIC 941.051, 941.151). A Lloyd’s plan may write any kind of insurance lawfully written in Texas except life insurance (TIC 941.002).

The Texas Property and Casualty Insurance Guaranty Association

If an admitted property and casualty insurer becomes insolvent and cannot pay its claims, Texas policyholders and claimants are not left empty-handed. The Texas Property and Casualty Insurance Guaranty Association, governed by TIC Chapter 462, pays covered claims up to set limits.

Membership. Every insurer that holds a Texas certificate of authority and writes a kind of insurance Chapter 462 covers is a member insurer: stock and mutual companies, Lloyd’s plans, reciprocal exchanges, and county mutuals among them. Remaining a member is a condition of doing business in Texas (TIC 462.004, 462.051).
Covered claims. A claim is covered if it is unpaid, arises under a policy issued by an insurer authorized in Texas, and is either made by a liability claimant or insured who was a Texas resident at the time of the insured event or a first-party claim for damage to property permanently located in Texas (TIC 462.201).
Limits. An individual covered claim may not exceed $300,000. A covered claim for unearned premium may not exceed $25,000. A workers’ compensation claim is paid in full (TIC 462.202, 462.213).
Lines it does not cover. Life, annuity, health, and disability insurance; fidelity and surety bonds; title insurance; mortgage and financial guaranty insurance; credit insurance; warranties; and ocean marine insurance (TIC 462.007). Life, annuity, and health policies have a separate association of their own, the Texas Life and Health Insurance Guaranty Association (TIC Chapter 463).
Funding. After an insolvency, the association assesses its member insurers in proportion to each one’s net direct written premiums for the preceding calendar year, and a member’s assessments in a year generally may not exceed 2% of those premiums (TIC 462.151, 462.152). An insurer may credit the assessments it pays against its Texas premium tax, at 10% a year for 10 years or over a longer period it chooses (TIC 462.157).

Sidenote

PITFALL — Who ultimately pays for the guaranty association

Member insurers pay the assessments, but each one can take what it paid as a credit against the premium tax it owes Texas. Over time, part of the cost of the protection is borne by the state’s premium tax revenue, not by insurers alone.

Who the association does not protect

Surplus lines policyholders. The association covers only policies issued by insurers authorized in Texas. A surplus lines insurer is not authorized and is not a member, and every surplus lines policy must say so (TIC 462.201, 981.101).
Claims filed too late. Apart from workers’ compensation claims, a claim filed with the association more than 18 months after the order of liquidation is not a covered claim (TIC 462.211).

HIGH-YIELD — The P&C guaranty association traps

(1) $300,000 per claim, $25,000 for unearned premium, and workers’ compensation paid in full. (2) Only policies of admitted insurers are covered; surplus lines is not. (3) Life, health, and annuity coverage belongs to a different association.

Admitted vs. non-admitted insurers

Admitted: holds TDI Certificate of Authority (TIC 801.051–.053); subject to rate/form review, taxes, exams, guaranty association membership
Non-admitted: no Certificate; TX business only via licensed surplus lines agent (Ch. 981) when admitted carriers won’t cover risk; no guaranty association protection

Domestic, foreign, alien (TIC 982.001)

Based on charter location viewed from Texas: domestic = chartered in TX; foreign = chartered in another U.S. state (exam trap: “Ohio insurer” = foreign, not alien); alien = chartered outside U.S.
Independent of admitted status — foreign/alien insurers can be admitted or non-admitted

Organizational forms

Stock insurer: for-profit, shareholder-owned, pays shareholder dividends
Mutual insurer: policyholder-owned; dividends = return of unused premium
Fraternal benefit society (Ch. 885): nonprofit, lodge system, insures only members
Texas Lloyds (Ch. 941): ≥10 underwriters sign articles of agreement, write through attorney in fact, each liable only for own share; may write any TX-lawful insurance except life

Texas P&C Insurance Guaranty Association (TIC Ch. 462)

Pays covered claims if an admitted P&C insurer becomes insolvent; membership mandatory for all TDI-authorized insurers writing covered lines
Covered claim: unpaid, from TX-authorized insurer, claimant/insured TX resident OR property permanently in TX
Limits: $300,000 per claim; $25,000 unearned premium; workers’ comp paid in full
Excluded lines: life, annuity, health, disability, fidelity/surety, title, mortgage/financial guaranty, credit insurance, warranties, ocean marine (life/health/annuity covered by separate Ch. 463 association)
Funding: assessments based on prior year’s net written premiums (capped 2%/year); insurers may credit assessments against TX premium tax (10%/year for 10 years, or longer)

Who is NOT protected / high-yield traps

Surplus lines policyholders excluded (insurer not TX-authorized/member)
Claims filed over 18 months after liquidation order not covered (except workers’ comp)
Key numbers: $300k/claim, $25k unearned premium, comp paid in full; life/health/annuity under separate association

Next | 75.2.1 License Types and the Licensing Process

Insurer Classifications and Guaranty Association

Classifying insurers

Every insurer doing business in Texas falls into several classifications at once. The exam tests each independently.

Admitted vs. non-admitted

Domestic, foreign, and alien (TIC 982.001)

All three terms describe where the insurer is chartered, viewed from the perspective of Texas:

Domestic. Chartered in Texas.
Foreign. Chartered in another U.S. state. A New Jersey-chartered insurer is foreign in Texas — even though in everyday English “foreign” suggests another country.
Alien. Chartered outside the United States.

These three classifications are independent of admitted status. A foreign insurer can be admitted in Texas (if it has a Certificate of Authority) or non-admitted (if it has not sought one).

MEMORY HOOK — Domestic, foreign, alien

Organizational forms: stock, mutual, fraternal, Texas Lloyds (TIC 801.001, 885, 941)

Stock insurer. A for-profit corporation owned by shareholders. Profits flow to shareholders as dividends; policyholders are customers, not owners.
Mutual insurer. A company owned by its policyholders. Net earnings may be distributed to policyholders as policy dividends (which are technically a return of unused premium, not an inducement to buy).
Fraternal benefit society (TIC Chapter 885). A nonprofit organization with a lodge system that issues insurance only to its members. Fraternals are organized around a common purpose (often religious, ethnic, or occupational) and are regulated under their own chapter.
Texas Lloyds (TIC Chapter 941). A Lloyd’s plan: at least 10 “underwriters” (individuals, partnerships, or associations of individuals) who sign articles of agreement to write insurance through an attorney in fact. Each underwriter accepts a share of the risk on the policies the plan writes and is not liable as a partner (TIC 941.051, 941.151). A Lloyd’s plan may write any kind of insurance lawfully written in Texas except life insurance (TIC 941.002).

The Texas Property and Casualty Insurance Guaranty Association

Membership. Every insurer that holds a Texas certificate of authority and writes a kind of insurance Chapter 462 covers is a member insurer: stock and mutual companies, Lloyd’s plans, reciprocal exchanges, and county mutuals among them. Remaining a member is a condition of doing business in Texas (TIC 462.004, 462.051).
Covered claims. A claim is covered if it is unpaid, arises under a policy issued by an insurer authorized in Texas, and is either made by a liability claimant or insured who was a Texas resident at the time of the insured event or a first-party claim for damage to property permanently located in Texas (TIC 462.201).
Limits. An individual covered claim may not exceed $300,000. A covered claim for unearned premium may not exceed $25,000. A workers’ compensation claim is paid in full (TIC 462.202, 462.213).
Lines it does not cover. Life, annuity, health, and disability insurance; fidelity and surety bonds; title insurance; mortgage and financial guaranty insurance; credit insurance; warranties; and ocean marine insurance (TIC 462.007). Life, annuity, and health policies have a separate association of their own, the Texas Life and Health Insurance Guaranty Association (TIC Chapter 463).
Funding. After an insolvency, the association assesses its member insurers in proportion to each one’s net direct written premiums for the preceding calendar year, and a member’s assessments in a year generally may not exceed 2% of those premiums (TIC 462.151, 462.152). An insurer may credit the assessments it pays against its Texas premium tax, at 10% a year for 10 years or over a longer period it chooses (TIC 462.157).

Sidenote

PITFALL — Who ultimately pays for the guaranty association

Who the association does not protect

Surplus lines policyholders. The association covers only policies issued by insurers authorized in Texas. A surplus lines insurer is not authorized and is not a member, and every surplus lines policy must say so (TIC 462.201, 981.101).
Claims filed too late. Apart from workers’ compensation claims, a claim filed with the association more than 18 months after the order of liquidation is not a covered claim (TIC 462.211).

HIGH-YIELD — The P&C guaranty association traps

Key points

Admitted vs. non-admitted insurers

Admitted: holds TDI Certificate of Authority (TIC 801.051–.053); subject to rate/form review, taxes, exams, guaranty association membership
Non-admitted: no Certificate; TX business only via licensed surplus lines agent (Ch. 981) when admitted carriers won’t cover risk; no guaranty association protection

Domestic, foreign, alien (TIC 982.001)

Based on charter location viewed from Texas: domestic = chartered in TX; foreign = chartered in another U.S. state (exam trap: “Ohio insurer” = foreign, not alien); alien = chartered outside U.S.
Independent of admitted status — foreign/alien insurers can be admitted or non-admitted

Organizational forms

Stock insurer: for-profit, shareholder-owned, pays shareholder dividends
Mutual insurer: policyholder-owned; dividends = return of unused premium
Fraternal benefit society (Ch. 885): nonprofit, lodge system, insures only members
Texas Lloyds (Ch. 941): ≥10 underwriters sign articles of agreement, write through attorney in fact, each liable only for own share; may write any TX-lawful insurance except life

Texas P&C Insurance Guaranty Association (TIC Ch. 462)

Pays covered claims if an admitted P&C insurer becomes insolvent; membership mandatory for all TDI-authorized insurers writing covered lines
Covered claim: unpaid, from TX-authorized insurer, claimant/insured TX resident OR property permanently in TX
Limits: $300,000 per claim; $25,000 unearned premium; workers’ comp paid in full
Excluded lines: life, annuity, health, disability, fidelity/surety, title, mortgage/financial guaranty, credit insurance, warranties, ocean marine (life/health/annuity covered by separate Ch. 463 association)
Funding: assessments based on prior year’s net written premiums (capped 2%/year); insurers may credit assessments against TX premium tax (10%/year for 10 years, or longer)

Who is NOT protected / high-yield traps

Surplus lines policyholders excluded (insurer not TX-authorized/member)
Claims filed over 18 months after liquidation order not covered (except workers’ comp)
Key numbers: $300k/claim, $25k unearned premium, comp paid in full; life/health/annuity under separate association

Classifying insurers

Every insurer doing business in Texas falls into several classifications at once. The exam tests each independently.

Admitted vs. non-admitted

Domestic, foreign, and alien (TIC 982.001)

All three terms describe where the insurer is chartered, viewed from the perspective of Texas:

Domestic. Chartered in Texas.
Foreign. Chartered in another U.S. state. A New Jersey-chartered insurer is foreign in Texas — even though in everyday English “foreign” suggests another country.
Alien. Chartered outside the United States.

These three classifications are independent of admitted status. A foreign insurer can be admitted in Texas (if it has a Certificate of Authority) or non-admitted (if it has not sought one).

MEMORY HOOK — Domestic, foreign, alien

Organizational forms: stock, mutual, fraternal, Texas Lloyds (TIC 801.001, 885, 941)

Stock insurer. A for-profit corporation owned by shareholders. Profits flow to shareholders as dividends; policyholders are customers, not owners.
Mutual insurer. A company owned by its policyholders. Net earnings may be distributed to policyholders as policy dividends (which are technically a return of unused premium, not an inducement to buy).
Fraternal benefit society (TIC Chapter 885). A nonprofit organization with a lodge system that issues insurance only to its members. Fraternals are organized around a common purpose (often religious, ethnic, or occupational) and are regulated under their own chapter.
Texas Lloyds (TIC Chapter 941). A Lloyd’s plan: at least 10 “underwriters” (individuals, partnerships, or associations of individuals) who sign articles of agreement to write insurance through an attorney in fact. Each underwriter accepts a share of the risk on the policies the plan writes and is not liable as a partner (TIC 941.051, 941.151). A Lloyd’s plan may write any kind of insurance lawfully written in Texas except life insurance (TIC 941.002).

The Texas Property and Casualty Insurance Guaranty Association

Membership. Every insurer that holds a Texas certificate of authority and writes a kind of insurance Chapter 462 covers is a member insurer: stock and mutual companies, Lloyd’s plans, reciprocal exchanges, and county mutuals among them. Remaining a member is a condition of doing business in Texas (TIC 462.004, 462.051).
Covered claims. A claim is covered if it is unpaid, arises under a policy issued by an insurer authorized in Texas, and is either made by a liability claimant or insured who was a Texas resident at the time of the insured event or a first-party claim for damage to property permanently located in Texas (TIC 462.201).
Limits. An individual covered claim may not exceed $300,000. A covered claim for unearned premium may not exceed $25,000. A workers’ compensation claim is paid in full (TIC 462.202, 462.213).
Lines it does not cover. Life, annuity, health, and disability insurance; fidelity and surety bonds; title insurance; mortgage and financial guaranty insurance; credit insurance; warranties; and ocean marine insurance (TIC 462.007). Life, annuity, and health policies have a separate association of their own, the Texas Life and Health Insurance Guaranty Association (TIC Chapter 463).
Funding. After an insolvency, the association assesses its member insurers in proportion to each one’s net direct written premiums for the preceding calendar year, and a member’s assessments in a year generally may not exceed 2% of those premiums (TIC 462.151, 462.152). An insurer may credit the assessments it pays against its Texas premium tax, at 10% a year for 10 years or over a longer period it chooses (TIC 462.157).

Sidenote

PITFALL — Who ultimately pays for the guaranty association

Who the association does not protect

Surplus lines policyholders. The association covers only policies issued by insurers authorized in Texas. A surplus lines insurer is not authorized and is not a member, and every surplus lines policy must say so (TIC 462.201, 981.101).
Claims filed too late. Apart from workers’ compensation claims, a claim filed with the association more than 18 months after the order of liquidation is not a covered claim (TIC 462.211).

HIGH-YIELD — The P&C guaranty association traps