Texas Property & Casualty insurance license practice exam
Free Texas-specific practice questions with every answer explained, written against the current Texas exam outline. Practice test, practice questions, exam simulator: one page, the real thing.
Free Texas Property & Casualty practice questions
Answer each question, then check it to see why every option is right or wrong. No account needed.
Texas law places the regulation of the insurance business under a single statewide official who heads the Texas Department of Insurance. Which official holds the general authority to enforce the Texas Insurance Code and adopt rules to carry it out?
A. The Attorney General provides legal representation and may prosecute, but day to day regulation and rulemaking for insurance rest with the Commissioner, not that office.
B. Texas replaced its multi member board structure with a single appointed Commissioner, so an elected board no longer holds this rulemaking role and the option is outdated.
C. Correct Texas vests general regulatory and rulemaking authority over the insurance business in the Commissioner of Insurance, who heads the Department and enforces the Insurance Code.
D. The Comptroller handles premium tax collection but does not regulate insurer market conduct or adopt insurance rules, so this confuses a revenue role with regulation.
In Texas the Commissioner of Insurance is the single chief regulator who heads the Department of Insurance and adopts rules to enforce the Insurance Code. The old multi member board no longer fills that role.
The Commissioner of Insurance directs an examiner to review the books, accounts, and records of a Texas authorized insurer to verify its financial condition and compliance. Who is generally responsible for paying the reasonable costs of that examination?
A. Texas does not pass examination costs to individual policyholders as a renewal surcharge, so this invents a billing method that the statute does not authorize.
B. Examinations are not funded as a free taxpayer service; the examined insurer bears the cost, so attributing it to general taxpayers is incorrect.
C. Agents are not made jointly liable for a carrier's examination costs; the obligation falls on the examined insurer, so this shifts liability to the wrong party.
D. Correct Texas law requires the examined insurer to pay the reasonable costs of the Department's examination of its books, accounts, and records.
When the Commissioner examines a Texas insurer's records, the examined insurer pays the reasonable cost of that examination. The expense is not charged to policyholders, agents, or general taxpayers.
Before the Commissioner of Insurance may impose a disciplinary sanction on a Texas licensee for an alleged Insurance Code violation, what procedural protection must the licensee generally be given?
A. Correct Texas requires notice and an opportunity for a hearing before a final disciplinary order, which protects the licensee's due process rights.
B. Administrative discipline does not require a criminal indictment; the Commissioner acts through a civil administrative process, so a grand jury step is not needed.
C. No private trade association vote gates the Commissioner's authority, so requiring association approval is not part of any Texas disciplinary procedure.
D. Restitution may sometimes be ordered as a remedy, but a complete advance premium refund is not a precondition to holding a hearing, so this misstates the process.
Texas administrative discipline follows due process: the Commissioner gives the licensee written notice and an opportunity for a hearing before entering a final order. Criminal charges are a separate matter.
A Texas insurer is found, after notice and hearing, to have committed an unfair trade practice in violation of the Insurance Code. Which sanction is the Commissioner of Insurance authorized to impose for that proven violation?
A. Criminal fines and restitution are imposed through the criminal courts, not assessed administratively, so the Commissioner cannot levy them in place of prosecution.
B. Correct Texas authorizes the Commissioner to levy administrative penalties and to suspend or revoke a violator's authority, which are core administrative enforcement remedies.
C. Treble damages are a civil remedy awarded by a court to specific injured parties, so the Commissioner cannot order blanket multiplied damages as an administrative sanction.
D. The Commissioner cannot compel a private transfer of an insurer's book to a chosen competitor as a penalty; that is not an authorized enforcement remedy.
For a proven Insurance Code violation the Commissioner may impose administrative penalties and suspend or revoke authority to do business. Criminal punishment is reserved to the courts.
An insurer wants to begin writing homeowners policies to Texas residents. Before it may lawfully do so, what must the Texas Department of Insurance issue to that insurer?
A. Correct Texas law requires an insurer to hold a certificate of authority from the department before transacting insurance, which is the corporate permission to write business in the state.
B. A producer license authorizes an agent to sell, not a company to transact insurance, so it confuses individual licensing with the insurer's own authority to operate.
C. A surplus lines stamp relates to placing business with nonadmitted carriers, not to granting an insurer authority to operate as admitted, so the device is misapplied here.
D. A certificate of deposit is a banking instrument, not a regulatory authorization to transact insurance, so it has no role in licensing an insurer to write business.
In Texas an insurer must obtain a certificate of authority from the Department of Insurance before transacting insurance. That certificate is the company's permission to operate, separate from any individual producer license.
An insurance company was incorporated under the laws of Ohio and now seeks authority to write policies in Texas. From the standpoint of Texas regulation, how is this company classified?
A. Domestic status is determined by where the insurer is organized, not where it applies to write, so an Ohio company is not domestic to Texas despite seeking entry.
B. Correct Texas treats an insurer chartered in another U.S. state as foreign, since the terms turn on the state of organization, which for an Ohio charter is outside Texas but inside the country.
C. Alien status applies to insurers organized outside the United States, but Ohio is a sister state, so this misclassifies a domestic-country company as foreign to the nation.
D. Out-of-state insurers can and routinely do gain authority in Texas, so labeling them inherently unauthorized misstates how admission for foreign carriers actually works.
Domestic means organized in Texas, foreign means organized in another U.S. state, and alien means organized in another country. Classification follows where the insurer was chartered, not where it writes.
A Texas organization issues property insurance through a group of underwriters who each accept individual liability for their share of a risk, operating under a plan recognized by Texas law. What kind of insurer does this describe?
A. A mutual is owned collectively by policyholders rather than composed of underwriters bearing individual shares, so it does not capture the separate-liability structure described.
B. A reciprocal spreads risk among subscribers through an attorney in fact, which is a different mutual-aid model than underwriters individually assuming portions of a risk.
C. Correct A Texas Lloyds plan is the state-recognized arrangement where individual underwriters separately assume shares of a risk, which exactly matches a group accepting individual liability under that plan.
D. A risk retention group is a federally enabled liability pool for similar businesses, not the underwriter-syndicate structure that defines a Texas Lloyds plan.
A Texas Lloyds plan is a state-recognized form where individual underwriters each accept a share of a risk. It differs from a mutual, a reciprocal, or a risk retention group in how liability is structured.
A specialized commercial risk cannot find coverage among Texas carriers that hold a certificate of authority. An agent places it with an eligible nonadmitted carrier. How is that nonadmitted carrier best described under Texas law?
A. Admitted insurers hold a certificate of authority and file under state rules, which is the opposite of a nonadmitted carrier placed through surplus lines, so the label is reversed.
B. Domestic status concerns where a company is organized and never grants exemption from oversight, so this conflates organization with admission and overstates the freedom involved.
C. A reinsurer covers other insurers rather than placing coverage for an original insured, so it does not describe a carrier writing the hard-to-place risk for the policyholder.
D. Correct A nonadmitted, eligible surplus lines insurer has no Texas certificate of authority yet may accept coverage that admitted carriers decline, which is exactly the placement described.
An admitted insurer holds a Texas certificate of authority, while a nonadmitted surplus lines insurer does not but may be eligible to write risks admitted carriers will not. Surplus lines fills coverage gaps.
Two Texas insurers compete for the same business. One is owned by its shareholders, who elect its directors and receive dividends on stock. How is this shareholder-owned insurer classified?
A. Correct A stock insurer is a corporation owned by stockholders who supply capital and elect directors, which matches an insurer whose owners hold stock and receive shareholder dividends.
B. A mutual is owned by its policyholders, not by stockholders, so attributing shareholder ownership to a mutual reverses the defining feature of each form.
C. A reciprocal is an unincorporated exchange of coverage among subscribers, not a corporation with stockholders, so the ownership model does not fit shareholders holding stock.
D. A fraternal benefit society serves members of a lodge or order rather than profit-seeking shareholders, so it does not describe a stockholder-owned company.
A stock insurer is owned by shareholders who hold its capital stock, while a mutual is owned by its policyholders. Ownership and how earnings are distributed distinguish the two forms.
An out-of-state company has not obtained a Texas certificate of authority, yet it mails coverage offers to Texas residents and collects premiums from those who accept. Under Texas law, why is this conduct a regulatory concern?
A. Soliciting and collecting premiums are acts within the definition of transacting insurance, so calling mailed solicitation exempt understates what the statute actually reaches.
B. Correct Texas defines transacting insurance to include soliciting and collecting premiums, so performing those acts without a certificate of authority is acting as an unauthorized insurer.
C. Surplus lines tax remittance applies to properly placed nonadmitted business, not to an unauthorized insurer transacting directly, so paying tax later does not cure the violation.
D. Foreign insurers must apply for and receive a certificate of authority, so authority is never automatic on entry, which makes this an inaccurate reading of the admission process.
Transacting insurance in Texas includes soliciting coverage and collecting premiums. Doing those acts without a certificate of authority makes a company an unauthorized insurer, regardless of how the contact is made.
A new producer in Texas wants to write only Texas-domiciled risks that licensed admitted insurers have refused, placing them with eligible nonadmitted carriers. Which Texas license authorizes this activity?
A. A general lines license authorizes placing business with admitted carriers, not the export of risk to nonadmitted insurers, so it does not reach the surplus lines transaction described here.
B. An MGA acts with delegated underwriting authority for an insurer, not as the placing agent exporting a declined risk, so this confuses delegated underwriting with surplus lines placement.
C. Correct Texas requires a separate surplus lines license to place coverage with eligible nonadmitted insurers after the admitted market declines the risk, which is exactly the activity described.
D. A temporary license is a short-term bridge tied to specific circumstances, not the authority to export risk to nonadmitted carriers, so it does not enable surplus lines work.
Placing coverage with eligible nonadmitted insurers in Texas requires a surplus lines license, a distinct authority from a general lines agent license, used only after the admitted market declines the risk.
A Texas resident producer changes home address and moves to a new mailing address across town. What does Texas law require the producer to do about this change?
A. An address change does affect how the regulator reaches a licensee, so treating it as private ignores the statutory duty to keep contact information current.
B. Waiting until renewal misstates the timing, since the duty to report an address change runs promptly after the move rather than being deferred to renewal.
C. A move does not create a new applicant, so surrender and reapplication is far more than the law asks and confuses a notification duty with relicensing.
D. Correct Texas requires a licensee to notify the Department of an address change within the period set by the licensing rules, which keeps the official record accurate for service and oversight.
Texas producers must notify the Department of an address change within the time the licensing rules require. The duty is prompt and ongoing, not something deferred to the next renewal.
A licensed Texas agent wants to act for an insurer and bind coverage on its behalf for the lines the agent holds. Before the agent can transact that insurer's business, what additional step is required under Texas law?
A. Correct Texas requires an insurer appointment before an agent may transact that insurer's business, so the appointment, filed as the rules direct, is the missing step the agent needs.
B. Acting for an insurer does not automatically require an MGA license, which involves delegated underwriting authority, so this overstates what binding ordinary coverage requires.
C. A surplus lines bond ties to nonadmitted placements, not to a routine appointment by an admitted insurer, so it is the wrong requirement for transacting standard business.
D. A new insurer relationship does not start under a temporary license, which serves narrow bridging situations, so this confuses appointment with temporary licensing.
In Texas an agent generally needs an insurer appointment, filed as the rules direct, before transacting that insurer's business. Holding a license alone does not authorize acting for a particular carrier.
A Texas resident producer is convicted of a felony unrelated to insurance. Under the Texas licensing rules, what is the producer's obligation regarding this conviction?
A. The reporting duty is not limited to insurance-related felonies, so assuming an unrelated conviction needs no report misreads the scope of the notification requirement.
B. Correct Texas requires a licensee to report a felony conviction to the Department within the time the rules set, because such convictions bear on the trustworthiness the license depends on.
C. The duty is affirmative and falls on the licensee, so passively waiting for discovery flips a self-reporting obligation into one the producer does not actually hold.
D. The notification turns on the felony conviction itself, not on whether the sentence is incarceration or probation, so conditioning it on prison time misstates the trigger.
Texas licensees must report a felony conviction to the Department within the time the rules require, regardless of whether the felony involved insurance. The duty is affirmative and rests on the licensee.
A Texas resident producer lets a license lapse by missing the renewal and the continuing education tied to it, but the lapse is recent. How does Texas generally treat this situation compared with a revocation?
A. Although both stop activity, expiration and revocation differ in cause and consequence, so calling them identical erases the distinction the rules draw between them.
B. Expiration is not automatically permanent, since a recently expired license may often be reinstated under the rules, so an absolute bar on restoration overstates the result.
C. Correct Expiration reflects a missed renewal and can often be cured under the rules, whereas revocation is a disciplinary action removing the license, so the two carry very different paths and consequences.
D. This reverses the severity, because revocation is the disciplinary removal and expiration is the lapse that may be cured, so it labels the harsher action as the milder one.
Expiration follows a missed renewal and can often be reinstated under the rules, while revocation is a disciplinary loss of the license. The two are distinct in both cause and remedy.
A Texas property and casualty agency must be ready if the Department asks to review how transactions were handled for clients. What records obligation does Texas place on the licensee to support such review?
A. Discarding records at closing defeats the purpose of review, so this ignores the duty to retain records for the period the rules require after a transaction.
B. Retention is not limited to disputed files, so confining it to complaint cases misreads a general recordkeeping duty that applies across the agency's transactions.
C. An agent's recordkeeping duty is the agent's own and is not discharged by the insurer's files, so shifting it entirely to the carrier misstates where the responsibility sits.
D. Correct Texas requires a licensee to keep transaction records for the period the rules set and produce them for Department review, which is exactly what supports the oversight described.
Texas licensees must maintain transaction records for the period the rules require and make them available to the Department on request. The duty is the agent's own and is not satisfied by the insurer's files.
A Texas property and casualty agent offers a prospective homeowners client a personal gift card worth several hundred dollars as an inducement to buy a policy, an item the policy itself does not provide. Under the Texas Insurance Code provisions on unfair trade practices, this conduct is best classified as what?
A. Correct Texas law defines rebating as giving any valuable consideration not specified in the policy as an inducement to buy, which precisely describes the off-contract gift card here.
B. Twisting involves misrepresentation that induces a policyholder to lapse or switch a policy, but here no existing coverage or misleading comparison is described, only an inducement gift.
C. Defamation requires a false or maliciously critical statement about an insurer, and the scenario describes a gift inducement rather than any statement about a competitor.
D. Coercion involves compelling a purchase through an unfair tie-in or threat, while the agent here is enticing voluntarily with a gift rather than forcing the sale.
Rebating under Texas law is offering any valuable consideration not stated in the policy to induce its purchase. Distinguish it from twisting, which turns on misrepresentation that induces a policyholder to replace coverage.
A Texas insurer's claims adjuster has clear liability on a covered auto loss but repeatedly delays acknowledging the claim and ignores the insured's calls in hopes the insured will accept far less than the loss is worth. Under the Texas Insurance Code on unfair claim settlement practices, how is this pattern of conduct best characterized?
A. Pressuring through delay is not a protected tactic; Texas law expressly prohibits failing to act with reasonable promptness on claim communications.
B. Correct Texas law lists failing to adopt reasonable standards for prompt claim handling and not attempting good-faith settlement once liability is clear as prohibited unfair claim settlement practices.
C. Underwriting concerns selecting and pricing risks before issuance, not handling a claim after a covered loss, so this mislabels post-loss conduct as underwriting.
D. Controlled business refers to writing insurance chiefly on the agent's own or related interests, which is unrelated to delaying a third party's claim.
When liability is reasonably clear, Texas law requires insurers to attempt prompt, fair, good-faith settlement. Stonewalling to force a low payout is a prohibited unfair claim settlement practice, not a negotiating strategy.
Two Texas insurers privately agree that neither will quote commercial property coverage to a particular contractor, intending to pressure that contractor out of the local market. Under the Texas Insurance Code on prohibited trade practices, which violation does this agreement most directly represent?
A. Unfair discrimination involves differing rates or terms among like risks, but the scenario describes a coordinated refusal to quote at all, not differential pricing of similar risks.
B. Misrepresentation requires a false statement about a policy or risk, and no false statement is described here, only a private agreement not to quote.
C. Correct Texas law prohibits any agreement or concerted action that constitutes a boycott, an unreasonable restraint of trade, or a monopoly in the business of insurance, which this joint refusal achieves.
D. Rebating involves giving value to induce a purchase, while these insurers are jointly withholding coverage, which is the opposite of an inducement to buy.
A concerted refusal to deal aimed at restraining or monopolizing insurance is a prohibited boycott, coercion, or intimidation under Texas law. The key signal is an agreement among insurers to restrain trade.
A Texas insurer files rates that charge two commercial buildings with the same construction, occupancy, protection, and loss exposure markedly different premiums, with the difference based on a factor unrelated to the hazard. Under the Texas Insurance Code rating and unfair trade practice rules, this is prohibited primarily because it amounts to what?
A. Rates are judged excessive only when unreasonably high for the coverage, not simply because they exceed loss costs, so this overstates the standard and misses the like-risk issue.
B. Inadequacy concerns rates too low to support the risk, which is a solvency concern, not the core defect when like risks are charged unjustifiably different premiums.
C. Rebating is an off-contract inducement given to a buyer, while a filed rate difference between two insureds is a discrimination question, not a rebate to either party.
D. Correct Texas rating law forbids unfair discrimination, meaning rate or term differences between risks of substantially the same class and hazard that are not justified by expected loss or expense.
Texas requires rates that are not unfairly discriminatory, meaning like risks with like hazards should receive like treatment. Differences must rest on expected loss or expense, not on factors unrelated to the risk.
A Texas agent tells a prospect that a competing insurer is on the verge of insolvency and cannot be trusted to pay claims, a statement the agent knows is false, in order to move the prospect's business. Under the Texas Insurance Code on prohibited trade practices, this conduct is best identified as what?
A. Correct Texas law treats false or maliciously critical statements about an insurer's financial condition or business as defamation, an enumerated prohibited trade practice.
B. Twisting targets inducing a policyholder to lapse or switch through misrepresentation about the policies, but the harm here is a false statement attacking a competitor's solvency.
C. Unfair discrimination concerns rate or term differences among similar insureds, not statements an agent makes about a rival insurer, so the label does not fit.
D. Controlled business involves writing coverage chiefly on the agent's own related interests, which has nothing to do with making a false statement about a competitor.
Defamation in insurance is making or circulating a false or maliciously critical statement about an insurer's financial condition. Separate it from twisting, which uses misrepresentation to make a policyholder replace coverage.
A newly licensed Texas agent writes nearly all of his policies covering only himself, his family members, and a business he owns, with very little coverage sold to the general public. Under the Texas Insurance Code, this arrangement is restricted because it represents what concern?
A. Misrepresentation requires a false statement of fact about a policy or risk, and the scenario describes who is insured rather than any concealed or false statement.
B. Correct Texas restricts controlled business, where a license is used chiefly to write coverage on the agent's own life, property, or related interests rather than serving the public.
C. Boycott or coercion involves restraining trade or forcing purchases, but here the agent is writing his own related business, not pressuring outside buyers at all.
D. Rebating is an inducement of value offered to a buyer to make a sale, while the issue here is the concentration of self-interested business, not any off-contract inducement.
Controlled business is using a license primarily to insure the agent's own or related interests instead of the public. Texas limits it so licenses are not obtained merely to capture commissions on self-interested coverage.
A licensed Texas property and casualty agent wants to split part of her commission on a placed policy with another individual who helped bring in the client. Under Texas law, with whom may she lawfully share that commission?
A. A clerical employee may handle administrative tasks, but paying that unlicensed worker a commission for placing business is prohibited as compensating unlicensed activity.
B. An unlicensed referrer cannot receive a commission for soliciting or placing coverage; a permitted referral fee is narrow and not a share of the commission.
C. Correct Texas law permits commission sharing only with individuals properly licensed for the kind of insurance involved, which keeps payment tied to licensed activity.
D. Splitting commission with an underwriter who approved the risk is improper, because the underwriter is not a licensed producer placing the business for the client.
In Texas an agent may share or split a commission only with a person licensed for that line of insurance. Paying commissions to unlicensed individuals for placing business is prohibited.
A Texas agent collects premium from an insured to bind a homeowners policy but has not yet forwarded it to the insurer. How must Texas law require the agent to treat that premium money?
A. Treating collected premium as personal income ignores the agent's duty; the funds belong to the insurer or insured until properly accounted for and remitted.
B. Premium is not a deposit available for the agent to borrow; using fiduciary funds for personal purposes is conversion even if the agent intends to repay later.
C. The agent cannot unilaterally redirect held premium to other obligations; the money is owed on this transaction and must be handled as trust funds.
D. Correct Premium an agent collects is held in a fiduciary capacity for the insurer or insured, so the agent must keep it separate and remit it rather than convert it.
Premium an agent collects is held in trust for the insurer or insured. Texas treats commingling or converting those fiduciary funds as serious misconduct that can support license discipline.
A Texas insured pays a homeowners premium to a licensed agent, who then fails to forward it to the insurer before a covered fire loss occurs. How does Texas law generally treat the insurer's position on that premium?
A. Correct An agent collecting premium acts for the insurer, so the insured's payment to that agent is deemed received by the insurer even before remittance.
B. Nonreceipt by the insurer alone does not void coverage when the insured paid the authorized agent, because the agent collected on the insurer's behalf.
C. Requiring a second payment penalizes the insured for the agent's failure; payment to the authorized collecting agent already satisfies the insured's obligation.
D. Coverage does not hinge on the agent reimbursing the insurer; the insured already paid, and recovery of the funds is between insurer and agent.
When an insured pays premium to an agent authorized to collect for the insurer, the law treats that as payment to the insurer. The agent's later failure to remit is the insurer's collection problem, not the insured's.
A Texas agent solicits and writes a commercial property policy for a line of insurance and an insurer for which he holds no appointment. Under Texas law, what is the principal problem with this conduct?
A. A refund of valid premium is not the core issue; the problem is the agent transacting for an insurer and line he is not authorized to represent.
B. Correct A Texas agent must hold the proper license line and the authority to represent the insurer, so writing business outside that scope is unauthorized activity.
C. Verifying solvency is not the insured's burden and is unrelated; the defect is the agent acting outside the scope of his license and authority.
D. Coverage does not auto-convert to surplus lines, and surplus lines has its own licensing rules; the real flaw is acting beyond the agent's authority.
A Texas agent may transact only for the lines of insurance the license covers and for insurers the agent is authorized to represent. Acting beyond that scope is unauthorized and exposes the agent to discipline.
A Texas property and casualty agent learns that a longtime client's mailing address and named insureds have changed at renewal. Consistent with the agent's duties to the insurer, what should the agent do with this information?
A. Withholding material information until a claim defeats the agent's duty to keep the insurer accurately informed about the risk it is covering.
B. An agent generally cannot alter coverage on his own and must not act without insurer knowledge; the duty is to report material changes, not to quietly rewrite terms.
C. Correct An agent owes the insurer a duty to transmit material facts that affect underwriting, so reporting the address and insured changes lets the insurer rate the risk properly.
D. Passing the duty entirely to the client ignores the agent's own obligation to act with care and keep the insurer informed of facts material to the policy.
An agent owes the insurer a duty of care and disclosure, including transmitting material facts that affect underwriting. Reporting changes that alter the risk lets the insurer rate and document the policy correctly.
A Texas agent's license has lapsed, yet she continues soliciting and placing new property policies while she waits to reinstate it. Under Texas law, how does this affect her ability to earn commissions on that business?
A. Commission entitlement depends on lawful licensed activity at the time of the sale, so continued policy force does not validate placements made while unlicensed.
B. A licensed agent's later signature does not cure unlicensed solicitation by her; commissions cannot be paid for business she transacted without a license.
C. Intent or an innocent lapse does not create a reduced commission right; the law ties any commission to being properly licensed when the business is written.
D. Correct Texas conditions selling insurance and receiving commissions on holding the required active license, so transacting while lapsed is unauthorized and not compensable.
Selling insurance and earning commissions in Texas both require an active license for the activity. A lapsed agent who keeps soliciting is acting without authority and cannot lawfully be paid for that business.
A Texas agent has a commercial client who needs coverage for an unusual manufacturing exposure that admitted Texas carriers have declined. Before placing the risk with a surplus lines insurer, what must the agent generally establish about the coverage?
A. Correct Texas surplus lines law conditions placement on a diligent search showing the admitted market declined the risk, protecting consumers and the authorized market while allowing access to specialty capacity.
B. Surplus lines exist for risks the admitted market will not write, so ready availability from licensed carriers would actually bar a surplus lines placement rather than support it.
C. If an admitted carrier will issue the policy, the risk belongs in the admitted market; routing an available admitted policy through surplus lines defeats the purpose of the eligibility rule.
D. Surplus lines insurers are eligible nonadmitted carriers, not admitted Texas licensees; requiring admitted status would contradict the very nature of surplus lines placement.
Texas surplus lines coverage may be placed only after a diligent search shows authorized insurers declined the risk. Surplus lines serve exposures the admitted market will not write, not merely cheaper alternatives.
Under Texas law, which describes the status of an eligible surplus lines insurer that accepts a Texas risk through a licensed surplus lines agent?
A. Admitted carriers hold a certificate of authority and write in the standard market; surplus lines insurers operate as nonadmitted carriers, so this confuses the two categories.
B. Correct Eligible surplus lines insurers are nonadmitted to Texas but appear on the eligible list, so they may accept specialty placements without holding an ordinary certificate of authority.
C. A surplus lines insurer issues policies directly to insureds through a licensed agent, unlike a reinsurer that contracts with ceding companies rather than policyholders.
D. A risk retention group is a member-owned liability mechanism with its own framework; it is a distinct entity from an eligible nonadmitted surplus lines insurer.
An eligible surplus lines insurer is nonadmitted to Texas and lacks an ordinary certificate of authority, but is approved as eligible to accept the specialty risks the admitted market declines.