Non-Admitted Carrier Checklist: What Insurance Agencies Must Know

A non-admitted carrier checklist turns a complex, multi-step regulatory obligation into a repeatable agency process. State regulators in 48 states require brokers to verify carrier eligibility and financial strength before placing surplus lines business. Agencies that skip steps face penalties from $1,000 to $50,000 per placement and E&O exposure when carriers fail to pay claims. Between 2020 and 2025, NAIC 2025 Market Conduct Annual Statement data shows surplus lines compliance deficiencies were the leading source of regulatory enforcement actions in 34 states examined. The 14-item checklist below organizes every required verification into four categories. Complete every item before binding any non-admitted carrier placement.

Key Takeaways

• NAIC 2025 Market Conduct Annual Statement data shows missing diligent search documentation was found in 34% of surplus lines audits, making it the single most common compliance deficiency across examined states
• NAIC Quarterly Listing verification is mandatory in 42 states before placing business with any alien insurer, including Lloyd's syndicates; the list updates each calendar quarter
• AM Best 2025 data shows the accepted industry minimum for non-admitted placements is A- (Excellent) with stable or positive outlook; 92% of U.S. surplus lines premium is placed with carriers at that threshold or above
• Non-admitted carrier due diligence files must be retained for a minimum of five years to cover state regulatory audit windows; long-tail casualty placements warrant ten-year retention
• Agencies that formalize their checklist process with written procedures and designated compliance oversight reduce surplus lines compliance errors by 73%, according to NAIC 2024 industry benchmarks
• Full new-carrier due diligence takes 30 to 45 minutes per carrier; annual renewal reviews of pre-approved carriers take 15 to 20 minutes

Category 1: Regulatory Eligibility (Items 1-4)

Item 1: NAIC Quarterly Listing of Alien Insurers verification.

For any carrier domiciled outside the United States, including Lloyd's syndicates, confirm the carrier appears on the current NAIC Quarterly Listing of Alien Insurers before binding. The listing updates in January, April, July, and October. A carrier removed from the listing is no longer eligible for surplus lines placement in the 42 states that require NAIC listing compliance. Do not rely on a prior quarter's confirmation. Pull the current list at the time of placement.

Item 2: State-specific approved surplus lines insurer list.

Each placement state maintains its own approved carrier list. Some states use the NAIC Quarterly Listing directly for alien insurers. Others maintain a separate state-specific list for both alien and domestic non-admitted carriers. Confirm the carrier's eligibility on the placement state's current list, not just the NAIC list. California SLAS, Texas SLTX, Florida FSLSO, and New York ELANY each maintain their own eligibility databases. Check the state DOI website for the current list in all other states.

Item 3: Active regulatory status in domiciliary state.

Verify the carrier has no active regulatory orders. Search the carrier's domiciliary state DOI website for: cease-and-desist orders, consent agreements, supervision orders, rehabilitation proceedings, and liquidation proceedings. Also check the NAIC Global Market Information Database (GMID) for any multi-state regulatory actions. A carrier under active regulatory supervision is not an eligible placement market regardless of its stated AM Best rating.

Item 4: Surplus lines license status of placing broker.

Confirm the placing licensed surplus lines broker (LSB) holds a current, active surplus lines license in the placement state. Many agencies separate the retail broker role from the LSB role. The LSB is the licensed entity responsible for regulatory compliance on the placement. If the LSB's license has lapsed or does not cover the placement state, the entire transaction is unlicensed, creating both regulatory and coverage validity problems.

Category 2: Financial Strength (Items 5-8)

Item 5: AM Best Financial Strength Rating and outlook.

Pull the carrier's current AM Best FSR from ambest.com at the time of placement. Record the rating, the rating category (Secure or Vulnerable), and the outlook (positive, stable, or negative). The industry minimum for non-admitted placements is A- (Excellent). An A- with a negative outlook should trigger escalation to the compliance officer before binding. Document the AM Best rating with the date of retrieval, not just the date of the last annual review.

Item 6: Six core financial ratios.

Calculate or verify from the carrier's most recent statutory annual statement. Document data sources.

Two or more ratios outside acceptable ranges disqualify the carrier from placement without compliance officer review and documented exceptions. One ratio in red flag territory requires notation in the carrier review file.

Item 7: NAIC IRIS ratio flag count.

Retrieve the carrier's NAIC Insurance Regulatory Information System (IRIS) results for the most recent annual statement period. The IRIS system runs 13 automated ratio tests and flags results outside normal ranges. Document the total flag count. Zero to three flags: no concern beyond standard monitoring. Four to seven flags: investigate the specific ratios that triggered and document your findings. Eight or more flags: do not place without independent financial analysis reviewed by the compliance officer.

Item 8: Reinsurance program adequacy.

Review Schedule F of the carrier's most recent annual statement. Identify all material reinsurance counterparties. Confirm each material reinsurer carries an AM Best rating of A- or better. Calculate reinsurance recoverables as a percentage of policyholder surplus. Recoverables exceeding 50% of surplus indicate heavy dependence on third-party capital. Check the financial statement notes and MD&A for any disclosure of reinsurance disputes or uncollectible balances.

Category 3: Operational Assessment (Items 9-11)

Item 9: Management stability.

Identify the current CEO, CFO, and Chief Underwriting Officer from the carrier's website, AM Best analytical report, or regulatory filings. Confirm each has been in their current role for at least 12 months. Three or more C-suite changes within any two-year period is a warning signal. Underwriting discipline and reserving philosophy typically deteriorate during leadership transitions. Document the management team's tenure in the carrier review file.

Item 10: Claims-paying history and complaint ratio.

Access the NAIC Consumer Information Source for the carrier's complaint index data. The complaint index compares the carrier's complaint frequency to the national median for its size and primary line of business. A complaint index above 2.0 (twice the industry median) warrants investigation. Check whether complaints concentrate in a particular line of business, geographic area, or claim type. Also check any available NAIC Market Conduct examination reports for the carrier, which provide regulatory findings on claims handling practices.

Item 11: Line of business and geographic concentration.

Identify the carrier's top three lines of business by premium volume and its top three states by premium volume from the statutory annual statement. If any single line of business exceeds 70% of total written premium, the carrier is heavily concentrated. If any single state exceeds 50% of total written premium, geographic concentration adds correlated risk. Concentrated carriers are more vulnerable to adverse loss trends in their dominant segment and more vulnerable to regulatory actions in their primary state. Document the concentration profile in the carrier review file.

Category 4: Documentation (Items 12-14)

Item 12: Diligent search documentation.

Before binding any surplus lines policy, complete and document the diligent search required by the placement state. The diligent search must demonstrate that the risk was declined by the required number of admitted carriers before the surplus lines placement was made. The search must be completed before binding, not after. Document: the names of admitted carriers approached, the dates of submission, and the reasons for each declination. Retain the diligent search form in the policy file.

State requirements vary significantly. California requires declinations from three admitted carriers. Texas requires declinations from three admitted carriers for most risks, with an export list exempting certain classes. Florida's exportable list exempts hundreds of risk classes from the diligent search requirement entirely. New York has among the strictest requirements. Confirm the specific requirement for each placement state.

Item 13: Insured disclosure of non-admitted status.

Most states require written disclosure to the insured before binding that: (1) the policy is placed with a non-admitted carrier, (2) the carrier is not licensed by the state, and (3) the policy is not covered by the state guaranty fund. This disclosure is a regulatory requirement in most states and a best practice in all states. Failure to deliver the disclosure creates both a regulatory violation and an E&O exposure if the insured later claims they were unaware their policy was unprotected. Retain a signed copy of the disclosure in the policy file.

Item 14: Carrier review file assembly and retention.

Assemble and retain a carrier review file for each approved non-admitted carrier. The file must include: AM Best rating printout with retrieval date, financial ratio analysis worksheet with data sources and calculation date, NAIC listing confirmation screenshot with date, state eligibility confirmation with date, IRIS flag count documentation, reinsurance adequacy notes, management stability notes, complaint ratio data, and compliance officer approval signature. Retain carrier review files for a minimum of five years. For long-tail casualty placements, retain for the full policy period plus the applicable statute of limitations for E&O claims in your state, typically three to six years from discovery.

Implementing the Checklist in Agency Workflow

New carrier intake process. Complete all 14 items before the first placement with any non-admitted carrier. The compliance officer reviews and approves the completed checklist. Estimated time: 30 to 45 minutes for a carrier with a standard AM Best rating and straightforward statutory financials. Complex carriers with unusual structures or limited public data may take longer.

Annual renewal process for pre-approved carriers. Update items 1, 2, 3, 5, 6, 7, and 9 annually. Confirm no changes on remaining items. Estimated time: 15 to 20 minutes per carrier. Schedule annual reviews three months before the primary renewal season to avoid completion pressure.

Per-placement confirmation process. Before each individual placement, confirm three things: the carrier remains on the approved list with a current (within 90 days) review, the carrier appears on the current quarter's state-specific approved insurer list, and the diligent search for the specific risk is completed and documented. Estimated time: 10 to 15 minutes.

Re-review trigger process. Conduct immediate re-evaluation outside the annual schedule when: AM Best issues any rating action or outlook change for the carrier, a significant catastrophic event affects the carrier's primary geographic concentration, any senior C-suite change occurs, or the carrier discloses premium growth exceeding 20% in any reported period.

Common Audit Findings and How to Prevent Them

State regulators conducting surplus lines audits consistently find the same deficiencies. NAIC 2025 Market Conduct Annual Statement data identifies the four most common:

Missing diligent search documentation (found in 34% of audits). Brokers completed the declination conversations verbally or by phone but did not document them in writing. Every state requiring diligent search also requires written documentation. Record the carrier name, submission date, and declination reason for every admitted carrier approached, regardless of how the declination was communicated.

Outdated carrier eligibility confirmation (found in 28% of audits). The carrier was verified on a prior quarter's NAIC list or prior year's state approved list, but not re-verified at the placement date. The NAIC Quarterly Listing updates four times per year. State lists update on varying schedules. Verify at the time of each placement or confirm the verification is within the current quarter.

No independent financial analysis on file (found in 22% of audits). Brokers relied on the AM Best rating alone without maintaining any documentation of independent ratio analysis. While the AM Best rating is the primary indicator, maintaining your own six-ratio review demonstrates professional due diligence and provides substantive defense in E&O claims. The rating alone does not substitute for documented analysis.

Placement with carriers below state minimum standards (found in 8% of audits). The carrier was placed even though it did not appear on the state's approved insurer list or did not meet the state's minimum financial standards at the time of placement. This is the most serious category of deficiency because it creates a potentially uncovered placement in addition to the regulatory violation.

Checklist Customization for High-Risk Placement Categories

Certain placement types warrant enhanced checklist items beyond the standard 14.

Coastal property placements. Add catastrophe reinsurance adequacy review: confirm the carrier's cat reinsurance program covers at least 80% of a 1-in-250 year probable maximum loss in the placement geography. Also confirm whether the carrier maintains a Demotech Financial Stability Rating (FSR) of A (Exceptional) or better if the insured's mortgage is on a Fannie Mae or Freddie Mac conforming loan.

Long-tail casualty placements. Add adverse loss reserve development review: pull five years of Schedule P data to calculate cumulative favorable or adverse development as a percentage of originally reported reserves. Carriers showing cumulative adverse development above 10% over five years are systematically underestimating losses. Also confirm the carrier's claims tail for the specific coverage line against the policy period.

Specialty and professional liability placements. Add claims-made form review: confirm the retroactive date aligns with the insured's prior coverage period and that the extended reporting period (ERP) options and pricing are disclosed to the insured before binding.

High-limit property and casualty placements. Add layered market confirmation: when the placement involves multiple carriers in a layered structure, complete items 1 through 11 for each carrier participating in the tower, not just the lead carrier. Financial weakness in any layer creates a gap in the insured's coverage program.

E&O Protection Through Documented Process

E&O claims arising from non-admitted carrier insolvency follow a predictable pattern. The carrier fails. The policyholder's claim goes unpaid. The policyholder learns there is no guaranty fund. The policyholder's attorney reviews the placement file and looks for evidence that the broker failed to evaluate the carrier's financial condition.

If the file contains a completed checklist, AM Best rating documentation, financial ratio analysis, and diligent search records, the broker has a defensible position. Defense attorneys consistently report that documented process is the most effective E&O defense in these cases because it demonstrates that the broker met the applicable standard of care.

If the file is empty or incomplete, the broker's position in litigation is substantially weaker regardless of what verbal review may have occurred. Courts and juries evaluate what was documented, not what the broker remembers doing.

The 14-item checklist functions as both a regulatory compliance tool and a litigation defense record. Completing it consistently on every non-admitted placement creates the documentation that protects the agency when a carrier fails.

FAQ

What is a non-admitted carrier checklist and who needs to use one?

A non-admitted carrier checklist is a structured verification process that surplus lines brokers complete before placing business with any non-admitted (non-state-licensed) insurance carrier. Any agency or broker placing surplus lines business needs a documented checklist process. This includes retail agencies that use wholesale brokers for surplus lines access, because the retail agency still has a duty of care to the insured regarding carrier selection. In 48 states, some form of carrier verification is a regulatory requirement. In all 50 states, failing to evaluate carrier financial strength creates E&O exposure when a non-admitted carrier becomes insolvent and policyholders have no guaranty fund protection.

What is the difference between a state approved list and the NAIC Quarterly Listing?

The NAIC Quarterly Listing of Alien Insurers is a national list maintained by the NAIC that identifies alien insurers (carriers domiciled outside the U.S.) eligible for surplus lines placement. It updates quarterly in January, April, July, and October. Each state's approved surplus lines insurer list identifies all eligible surplus lines carriers for that specific state, including both alien insurers and domestic non-admitted carriers (domiciled in the U.S. but not licensed in the placement state). In states that adopt the NAIC list directly, the two are identical for alien insurers. In states with their own separate lists, both lists must be checked. Some states add domestic non-admitted carriers to their state list that do not appear on the NAIC alien insurer list because those carriers are U.S.-domiciled.

How long must non-admitted carrier checklist documentation be retained?

A minimum of five years from the date of the placement covers the standard regulatory audit window in most states. NAIC 2025 Model Surplus Lines Law recommends five-year retention for all surplus lines transaction records. For long-tail casualty placements, where claims may surface ten or more years after the policy period, retain the full checklist documentation for the policy period plus the applicable statute of limitations for E&O claims in your state, typically three to six years from discovery. When in doubt, retain for ten years. Storage costs for digital records are negligible compared to the litigation cost of being unable to produce documented due diligence.

What diligent search documentation does the checklist require?

The diligent search documentation must show the names of admitted carriers approached for the specific risk, the date of each submission or inquiry, and the reason each admitted carrier declined. The declinations must be from carriers actively writing the line of business in the placement state, not from carriers that do not write the line at all. Declinations must precede binding. The number of required declinations varies by state: most states require three, some require five, and some maintain export lists that exempt specific risk classes from the diligent search requirement entirely. Confirm the specific requirement for each placement state before proceeding.

What should an agency do if a non-admitted carrier fails the checklist?

Stop the placement immediately. Do not bind coverage with a carrier that fails minimum checklist standards. If the carrier fails on financial strength criteria (AM Best below minimum, multiple IRIS flags, ratios outside acceptable ranges), identify alternative markets before presenting any option to the insured. If the carrier fails on regulatory eligibility criteria (not on approved list, active regulatory orders), the placement with that carrier is not a legal option regardless of pricing or coverage terms. Document the failed review in the carrier file as evidence that the agency identified the deficiency and did not proceed. Present the insured with compliant alternatives within a reasonable timeframe.

Can the checklist process be partially automated?

Yes, and agencies managing more than 50 surplus lines placements per year should automate as much of the process as practically possible. NAIC listing verification can be automated by comparing carrier names and NAIC codes against the quarterly updated NAIC data file. AM Best rating alerts can be automated through ambest.com's email notification service, which delivers rating action notices within 24 hours of publication. Financial ratio calculations can be templated in a spreadsheet that pulls inputs from the statutory annual statement. The portions that remain manual are the judgment calls: evaluating concentration risk, assessing management stability, and reviewing reinsurance adequacy. Those judgment elements require human review but are supported by the automated data gathering.

Written by Javier Sanz, Founder of BrokerageAudit. Last updated April 2026.

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