Alabama Surplus Lines: Filings, Premium Tax, and Penalties

To place surplus lines insurance in Alabama, a broker must already hold a resident property and casualty producer license, obtain a separate surplus lines broker license from the Alabama Department of Insurance backed by a $50,000 bond, place coverage only with an eligible non-admitted insurer after a diligent effort to find admitted coverage, file a report within 30 days of each placement and a verified annual statement by March 1, remit a 6% premium tax, and disclose to the insured that the carrier is not licensed by the state. Those are the Alabama surplus lines broker requirements in outline. The rest is detail, and the detail is where licenses are lost.

Getting Licensed

The surplus lines broker license sits on top of a regular producer license. An applicant must already hold a resident Alabama property and casualty producer license, and the commissioner also weighs whether the applicant has enough insurance experience before granting the surplus lines authority.¹

The application must include a bond in favor of the State of Alabama with at least $50,000 in aggregate liability, written by a corporate surety approved by the commissioner. The bond stays in force for the license term and any renewal. The commissioner can raise the required amount based on how much surplus lines tax the broker paid in prior years. The bond secures the broker’s compliance with the surplus lines law and prompt remittance of taxes.¹

The licensing fee is set under Alabama Code 27-4-2. The National Insurance Producer Registry, which handles electronic applications, currently lists the surplus lines broker fee at $530.² The license expires on December 31 following its issue, so plan renewal around a year-end cycle.

Nonresident brokers can also hold an Alabama surplus lines license. As a condition, they must consent to service of process through the commissioner for any cause of action arising out of an Alabama transaction.¹

Continuing education obligations for the underlying producer license carry over. Failing to complete CE can result in suspension or revocation, which pulls the surplus lines license with it.

When You Can Place Coverage Outside the Admitted Market

Alabama Code 27-10-20 restricts surplus lines to risks the admitted market won’t fully take. Before placing coverage with a non-admitted insurer, the broker must make a “diligent effort” to procure the insurance from authorized carriers that already write that type of coverage in Alabama. The statute doesn’t set a magic number of declinations. It requires that the full amount of insurance either cannot be obtained from admitted insurers or has been placed with them to the extent they are willing to write it.³

Two boundaries matter. The placement cannot be motivated by finding a lower premium than an admitted carrier would accept. And the surplus lines law does not apply to life insurance or disability insurance at all.³

The statute also references a potential exemption from the diligent effort requirement for transactions under 15 U.S.C. § 8205, which allows streamlined placement processes for certain surplus lines coverage.

Industrial Insured Exemption

Large commercial buyers can bypass the diligent search step if they qualify as “industrial insureds.” All three of the following must be true: the insured uses a full-time insurance manager, employee buyer, or retained qualified insurance consultant; pays at least $25,000 in aggregate annual premiums across all risks, excluding workers’ compensation and group insurance; and has at least 25 employees.³

Which Non-Admitted Insurers You Can Use

Alabama Code 27-10-26 restricts eligible insurers based on where they are domiciled.

A U.S.-domiciled non-admitted insurer must be authorized in at least one U.S. state for the type of insurance involved and must maintain capital and surplus of at least $5 million, or a guaranteed trust fund of at least $5 million.
An alien (foreign-domiciled) insurer must be authorized in at least one U.S. state or listed on the NAIC Quarterly Listing of Alien Insurers, must maintain a trust fund of at least $2.5 million within the United States held for the benefit of U.S. policyholders, and must have capital and surplus of at least $15 million.⁴

Filings You Owe the Commissioner

The 30-Day Placement Report

Within 30 days after the effective date of any surplus lines policy, the broker must file a written report with the commissioner containing enough information to determine whether the placement was lawful under Section 27-10-20. The commissioner can require that the report be in the form of a sworn affidavit and can require a signed statement from the insured confirming that coverage was placed with an unauthorized insurer with the insured’s knowledge and consent.⁵

The March 1 Annual Statement

Every surplus lines broker must file a verified statement with the commissioner by March 1 covering all surplus lines business transacted during the preceding calendar year. If the broker transacted no surplus lines business that year, no statement is required. The annual statement must show the gross amount of each type of insurance transacted, aggregate gross premiums (excluding state and federal tax amounts), aggregate return premiums and taxes paid to insureds, aggregate net premiums, and any additional information the commissioner requests.⁶

Premium Tax

Alabama levies a 6% tax on direct surplus lines premiums, calculated on premiums less any return premiums and excluding amounts collected to cover state or federal taxes. The broker remits the tax to the State Treasurer through the commissioner by March 1, based on the prior calendar year’s business as reported in the annual statement.⁷

Multi-State Risks: Follow the Home State

When a policy covers risks in more than one state, only the insured’s home state may require payment of premium tax under 15 U.S.C. § 8201. No other state where a risk is located can impose its own tax on the same policy.⁸

The home state is generally where the insured maintains its principal place of business, or principal residence for an individual. If 100% of the risk lies outside that state, the home state becomes the state to which the greatest share of taxable premium is allocated. So for an Alabama-headquartered business with property spread across the Southeast, Alabama collects the full 6% on the entire premium. The home state may require brokers to file annual tax allocation reports breaking premium out by state.⁸

The flip side matters too. An Alabama broker placing coverage for an insured whose home state is Georgia follows Georgia’s surplus lines law for that transaction, not Alabama’s.

Federal Excise Tax on Foreign Insurer Premiums

When coverage is placed with a foreign insurer (one domiciled outside the United States, not just outside Alabama), a federal excise tax may apply on top of Alabama’s 6%. Under 26 U.S.C. § 4371, the rate is 4% of premium for casualty insurance and indemnity bonds, 1% for life, sickness, and accident policies, and 1% for reinsurance.⁹

Premiums paid to insurers or reinsurers resident in countries with an applicable U.S. tax treaty containing an excise tax exemption can qualify for relief. Covered countries include France, Germany, Ireland, Japan, the Netherlands, and others. To claim the exemption, a closing agreement between the IRS and the foreign insurer must be in effect for the relevant tax period.¹⁰ Placements through Lloyd’s and European specialty markets hit this tax regularly, so quote the combined burden clearly.

Disclosure to the Insured

Because a surplus lines insurer is not admitted in Alabama, the policyholder loses certain protections. The broker has to make that plain before the sale.

The core disclosure is that the insurer is not licensed by the State of Alabama and is not subject to the same regulatory oversight as an admitted carrier. The policyholder should also be told that surplus lines insurers are not covered by the Alabama Insurance Guaranty Association, so there is no state safety net if the carrier becomes insolvent. When an admitted carrier fails, the guaranty fund picks up qualifying claims. When a surplus lines carrier fails, the policyholder does not have that backstop.

Communicate the 6% premium tax up front, and share information about the insurer’s financial strength, including ratings from agencies such as A.M. Best.

Penalties for Getting It Wrong

Under Alabama Code 27-10-37, anyone who represents or aids a non-admitted insurer in willful violation of the surplus lines law commits a misdemeanor punishable by a fine of up to $1,000, imprisonment for up to one year, or both.¹¹

Any person or business entity that willfully violates any provision of the surplus lines article also faces a civil penalty of up to $1,000 for the first offense and up to $2,000 for each subsequent offense. Those penalties are in addition to any license suspension, revocation, or refusal to renew.¹¹

1
Alabama Legislature. Alabama Code 27-10-24 – Licensing of Surplus Line Brokers
2
National Insurance Producer Registry. Alabama Resident Licensing Business
3
Alabama Legislature. Alabama Code 27-10-20 – Procuring of Surplus Lines from Unauthorized Insurers
4
Alabama Legislature. Alabama Code 27-10-26 – Eligibility of Insurers for Placement of Surplus Line Insurance
5
Justia. Alabama Code 27-10-21 – Report of Surplus Line Broker
6
Alabama Legislature. Alabama Code 27-10-30 – Annual Statement of Surplus Line Broker
7
Alabama Legislature. Alabama Code 27-10-31 – Annual Tax of Surplus Line Brokers
8
Office of the Law Revision Counsel. 15 USC 8201 – Reporting, Payment, and Allocation of Premium Taxes
9
Office of the Law Revision Counsel. 26 USC 4371 – Imposition of Tax
10
Internal Revenue Service. Exemption from Section 4371 Excise Tax
11
Alabama Legislature. Alabama Code 27-10-37 – Penalty for Violation of Article