Delaware Surplus Lines Requirements for Brokers and Insurers

To place surplus lines insurance in Delaware, a broker must meet the requirements of Title 18, Chapter 19 of the Delaware Code: hold a dedicated surplus lines broker license on top of an active Delaware property and casualty producer license, document a diligent search of admitted carriers before exporting a risk, use only eligible nonadmitted insurers, give the insured the required written disclosures, file every transaction through the OPTins electronic platform, and collect and remit a 3% premium tax on gross premiums. The Delaware surplus lines broker requirements apply to policies where Delaware is the insured’s home state, and the Department of Insurance enforces them through audits, filing reviews, and license actions.

Licensing You Need Before Placing Business

You cannot apply for a surplus lines broker license in Delaware without first holding an active property and casualty insurance producer license in the state. The P&C license is the one that requires passing a state-administered exam; there is no separate surplus lines examination. The surplus lines authority is layered on top and can cover one or more lines, including property, casualty, surety, marine and transportation, and personal lines.

The application fee for the surplus lines broker license is $275.¹ Keeping the license active requires 24 hours of continuing education every two years, three of which must be ethics.²

Diligent Search Before Exporting a Risk

A broker may only place coverage with a nonadmitted insurer after a genuine effort to find it among insurers admitted in Delaware. The statute calls this a “diligent effort” and requires that the full amount of coverage needed is not available from admitted carriers actually writing that line in Delaware. Only the excess or unavailable portion may go to a surplus lines insurer.³

The statute does not set a fixed number of declinations. The Commissioner prescribes the specific standards and the method of certifying the search by regulation. The search itself must be performed by a surplus lines broker or a licensed property and casualty producer, and the written statement documenting the effort has to live in the broker’s permanent records and remains open to public inspection.³

Price and policy terms are not reasons to export. Coverage cannot be moved to the surplus lines market just because a nonadmitted insurer will offer a lower rate or more favorable language than an admitted carrier.

When the Diligent Search Does Not Apply

An exempt commercial purchaser can bypass the diligent search. For those placements the broker only has to disclose that admitted-market coverage may be available with greater regulatory protection, and the purchaser must then request in writing that the broker place the coverage with a nonadmitted insurer.³

To qualify, the insured must employ or retain a qualified risk manager, must have paid more than $100,000 in aggregate commercial property and casualty premiums in the prior 12 months, and must meet at least one of these thresholds:

Net worth over $20,000,000
Annual revenue over $50,000,000
More than 500 full-time or equivalent employees individually, or more than 1,000 across an affiliated group
Nonprofit or public entity with at least $30,000,000 in annual expenditures
Municipality with a population over 50,000

The dollar thresholds for net worth, revenue, and nonprofit budget adjust every five years based on the Consumer Price Index.³ Risk purchasing groups are also exempt from the diligent search under a separate provision.

Which Nonadmitted Insurers You Can Use

Not every nonadmitted insurer is eligible. A domestic U.S. insurer must carry capital and surplus equal to the greater of Delaware’s minimum capital and surplus requirements or $15 million. The Commissioner may make an exception based on factors such as management, parent company strength, and underwriting trends, but capital and surplus can never fall below $4.5 million.⁴

Alien insurers, meaning those domiciled outside the United States, must appear on the Quarterly Listing of Alien Insurers maintained by the NAIC’s International Insurers Department.⁴ Check the list before binding.

Required Disclosures to the Insured

A surplus lines policy is not binding and no premium is due until the broker gives the insured a written notice stating two things: the insurer is not licensed in Delaware and is not subject to state supervision, and losses will not be covered by the state insurance guaranty fund if the insurer becomes insolvent.³ Without that written disclosure, the policy has no legal force.

Every surplus lines contract must also carry a printed or stamped disclosure statement initialed by the placing broker, repeating that the insurer is not under the jurisdiction of the Delaware Insurance Department and does not participate in state guaranty funds. A copy stays with the policy records.³

Disclosure is lighter for exempt commercial purchasers. The notice only needs to appear on the confirmation of insurance, certificate of placement, or the policy itself, whichever reaches the insured first, and the insured’s signature is not required.

Filing Every Transaction Through OPTins

Since January 1, 2018, all surplus lines broker reports, forms, and payments must be submitted through the OPTins electronic platform. The Department does not accept paper or emailed submissions.⁵

For each surplus lines transaction involving a Delaware home-state insured, file a Notice of Insurance Transaction (Form SL-1905) for single-state risks or a Report of Multi-State Surplus Lines Transaction (Form SL-1903-MS) for multi-state risks. These are due within 30 days of the policy’s effective date, and every transaction during the year counts: new policies, renewals, endorsements, audits, cancellations, and return premium actions.⁵

By March 1 each year, every licensed broker files an annual statement summarizing all surplus lines business from the prior calendar year, broken down by gross premiums by type, single-state versus multi-state allocation, returned premiums, net premiums, and geographic distribution across the counties and the City of Wilmington. The annual filing is required even if no transactions occurred.³

Records to Keep

Broker records on each surplus lines policy must include the insured’s name and address, each insurer on the risk and its share, premium amounts, policy effective dates and terms, a description of the insured property or risk, and a tax allocation spreadsheet for multi-state policies. The written diligent-search statement sits in the same file. All records are open to Department examination for five years after the coverage was issued.³

The 3% Premium Tax and Quarterly Reports

Brokers collect and remit a 3% tax on gross premiums charged, less returned premiums, and excluding amounts collected for federal and state taxes or examination fees. The tax applies to insurance placed for home-state insureds in Delaware.⁶

The statute names a March 1 default payment date, but the Commissioner has ordered quarterly reporting. Quarterly tax reports on Form SL-1925-Q are due April 30, July 30, October 30, and January 30, summarizing the transaction filings from that quarter and calculating the tax owed. Payment accompanies the report when tax is due. Zero-transaction quarters do not require a filing.⁷

Keep transaction filings and quarterly tax reports consistent. Discrepancies between the two sets of filings draw Department scrutiny.

When Delaware’s Rules Apply: The Home State Rule

Under the federal Nonadmitted and Reinsurance Reform Act, only the insured’s home state can collect premium tax and apply its surplus lines rules to a given placement. For a business, the home state is where it maintains its principal place of business; for an individual, state of principal residence. If 100% of the insured risk sits outside that state, the home state becomes the state receiving the largest share of taxable premium. For affiliated groups on a single policy, it is the state of the group member with the largest percentage of premium attributed to it.

Delaware’s 3% premium tax, diligent search obligation, filing requirements, and disclosure rules all apply specifically to policies where Delaware is the home state of the insured.⁶ For multi-state policies with Delaware as the home state, brokers must keep a tax allocation spreadsheet breaking out premium by state.³

Enforcement and What Trips Brokers Up

The Department audits and investigates surplus lines brokers and insurers. Violations are subject to penalties under the general enforcement provisions of Title 18, which can include fines and license actions. Anyone who represents or assists a nonadmitted insurer in violation of the chapter faces penalties referenced in Section 106 of the Insurance Code.³

Compliance failures that commonly draw attention include thin diligent-search documentation, late or inaccurate filings, missing written disclosures, and placements with ineligible nonadmitted insurers. OPTins gives the Department a real-time view of transaction activity, so gaps in reporting show up quickly.

One point to carry back to clients: surplus lines insurers sit outside Delaware’s guaranty fund system. If the insurer becomes insolvent, no state backstop pays the claim. That exposure is why the written disclosure is a condition of the policy binding at all and why the insurer eligibility capital floors are set where they are.

1
NIPR. Delaware Resident Licensing Business
2
Delaware Regulations. Delaware Administrative Code Title 18 504
3
Delaware Code Online. Delaware Code Title 18 Chapter 19 – Subchapter II Surplus Lines Insurance
4
Justia Law. Delaware Code Title 18 Chapter 19 Section 1931 – Minimum Financial Eligibility
5
Delaware Department of Insurance. Surplus Lines Brokers
6
Justia Law. Delaware Code Title 18 Chapter 19 Section 1925 – Tax on Surplus Lines
7
Delaware Department of Insurance. Surplus Lines Bulletin No. 22 – Surplus Lines Brokers Premium Tax Obligation