MGAs, surplus lines, adjusters and keeping a Texas license

Managing General Agents and Surplus Lines Authority

In Texas, a managing general agent means a person, firm, or corporation that has supervisory responsibility for the local agency and field operations of an insurer in Texas or is authorized by an insurer to accept or process policies produced and sold by other agents (Tex. Ins. Code §4053.001(3)). An agent licensed under one of the provisions listed in §4053.002 is not a managing general agent unless the agent accepts 50 percent or more of the agent's total annual business or does $500,000 or more of total annual business measured by premium volume, whichever amount is less, from policies produced and sold by other agents (Tex. Ins. Code §4053.002). Except for a corporation that qualifies for the statutory exemption, a person, firm, or corporation may not act as a managing general agent without a license issued under Chapter 4053 (Tex. Ins. Code §4053.051(a), (b)). If Carlos accepts $600,000 in annual premium from policies produced and sold by other agents, he exceeds the threshold in §4053.002; he needs a managing general agent license if he acts as a managing general agent under §4053.001(3) and no licensing exemption applies.

Texas law exempts several transactions and relationships from managing general agent regulation. Texas Insurance Code Chapter 4053 does not apply to the transaction of life, health, and accident insurance business, including variable life insurance and variable annuity contracts (Tex. Ins. Code §4053.003(1)). The chapter also does not apply to a full-time salaried employee of an insurer acting for and in connection with the insurer's insurance business (Tex. Ins. Code §4053.003(2)), nor does it apply to an adjuster or inspector of risks for an insurer (Tex. Ins. Code §4053.003(3)). Furthermore, a business corporation authorized to engage in business in Texas is exempt from managing general agent licensing if all its outstanding stock is solely owned by an insurer authorized in Texas, that insurer completely controls its business affairs, its principal purpose is to accumulate commissions for payment to an agent who could lawfully receive them directly, and it engages in no other managing general agent acts (Tex. Ins. Code §4053.051(b)).

A managing general agent license entitles you to represent or act for one or more insurers without holding a separate license for each insurer (Tex. Ins. Code §4053.053). A managing general agent must execute on the insurer's behalf a contract entered into with an agent (Tex. Ins. Code §4053.051(c)). Each appointment must be reported to the commissioner on a form prescribed by the commissioner (Tex. Ins. Code §4053.054(a)). That form must state whether the managing general agent may exercise claim settlement authority and, if so, whether that authority exceeds $25,000 on any one claim (Tex. Ins. Code §4053.054(b)(5)(A)), whether that authority includes third-party liability other than property damage (Tex. Ins. Code §4053.054(b)(5)(B)), and whether the managing general agent customarily holds funds exceeding $100,000 to pay losses and loss adjustment expenses for the insurer (Tex. Ins. Code §4053.054(b)(6)). For each additional appointment application, a managing general agent must pay a nonrefundable fee not to exceed $16 as determined by the department (Tex. Ins. Code §4053.054(c)). If approval is not received before the eighth day after the commissioner receives the completed application and fee, you and the insurer may assume approval in the absence of notice of disapproval (Tex. Ins. Code §4053.054(d)). If you are not appointed or under appointment to represent an insurer at renewal time, your license lapses and the commissioner must deny the renewal (Tex. Ins. Code §4053.055).

Surplus lines transactions carry separate licensing standards. An agent licensed by Texas may not issue or cause to be issued an insurance contract with an eligible surplus lines insurer unless the agent possesses a surplus lines license issued by the department (Tex. Ins. Code §981.202). Even if you hold an active general property and casualty license, you may not issue or cause to be issued an insurance contract with an eligible surplus lines insurer unless you hold a surplus lines license issued by the department.